Discussion paper

DP8364 Business cycle measurement with some theory

A method to evaluate cyclical models which does not require knowledge of the DGP and the exact specification of the aggregate decision rules is proposed. 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 class of models 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.


Canova, F and M Paustian (2011), ‘DP8364 Business cycle measurement with some theory‘, CEPR Discussion Paper No. 8364. CEPR Press, Paris & London. https://cepr.org/publications/dp8364