We make two comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two...

This paper develops a method for combining the power of a dynamic, stochastic, general-equilibrium model with the flexibility of a vector autoregressive time-series model to obtain a hybrid that can be taken directly to the data.

The Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. Exploiting these observations, the authors devise diagnostic methods that are useful for interpreting...

An increasingly popular approach to policy evaluation involves applying the parameters calibrated for a real business cycle model that does not include policy to a different model, where policy does affect private decisions. This technique, in effect, estimates a model that misspecifies how...

We show how to implement a competitive search equilibrium in a fully-specified DSGE environment. Competitive search, an equilibrium concept well-understood in labor market theory, offers an alternative to the commonly-used Nash bargaining in search-based macro models. Our simulation-based...

In the 1930s, Dunlop and Tarshis observed that the correlation between hours worked and the return to working is close to zero. This observation has become a litmus test by which macroeconomic models are judged. Existing real business cycle models fail this test dramatically. Based on this...

Recently, there has been considerable interest in modifying the standard real business cycle model to include home production. In this paper, we construct a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution (IES), and the...

This paper uses factor analytic methods to decompose industrial production (IP) into components arising from aggregate shocks and idiosyncratic sector-specific shocks. An approximate factor model finds that nearly all (90%) of the variability of quarterly growth rates in IP are associated with...