Department of Economics and Business Economics

Stochastic Volatility and DSGE Models

Research output: Working paperResearch

Documents

  • Rp09 29

    Final published version, 176 KB, PDF document

  • Martin Møller Andreasen, Denmark
  • School of Economics and Management
This paper argues that a specification of stochastic volatility commonly used to analyze
the Great Moderation in DSGE models may not be appropriate, because the level of a
process with this specification does not have conditional or unconditional moments. This is
unfortunate because agents may as a result expect productivity and hence consumption to
be inifinite in all future periods. This observation is followed by three ways to overcome the
problem.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages8
Publication statusPublished - 2009

    Research areas

  • Great Moderation, Productivity shocks, and Time-varying coe¢ cients

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