Department of Economics and Business Economics

Olaf Posch

Structural estimation of jump-diffusion processes in macroeconomics

Research output: Working paperResearch

  • School of Economics and Management
Understanding the process of economic growth involves comparing competing theoretical models and evaluating their empirical relevance. Our approach is to take the neoclassical stochastic growth model directly to the data and make inferences about the model parameters of interest. In this paper, output follows a jump-diffusion process. By imposing parameter restrictions we derive two solutions in explicit form. Based on them, we obtain transition densities in closed form and employ maximum likelihood techniques to estimate the model parameters. In extensive Monte Carlo simulations we demonstrate that population parameters of the underlying data generating process can be recovered. We find empirical evidence for jumps in monthly and quarterly data on industrial production for the UK, the US, Germany, and the euro area (Euro12).
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages61
Publication statusPublished - 2007

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