Birkbeck, University of London Department of Economics, Mathematics and Statistics
Fabio Canova (Pompeu Fabra)
27 January 2011, 12:30 - 2:00pm
Room 745, Malet Street

"Measurement with some theory: a new approach to test business cycle models"

We propose a method to evaluate cyclical models which does not require knowledge of the DGP and the exact specification of the aggregate decision rules. We derive robust restrictions in a class of models; use some to identify structural shocks in the data and others to evaluate the class or contrast sub-models. The approach has good properties, even in small samples and when the likelihood is misspecified. We show how to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers) in a standard class of models.

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Date printed: 31/07/2014