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FAT-TAIL DISTRIBUTIONS AND BUSINESS-CYCLE MODELS

  • Guido Ascari (a1), Giorgio Fagiolo (a2) and Andrea Roventini (a3)
Abstract

Recent empirical findings suggest that macroeconomic variables are seldom normally distributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) densities with Laplace fat tails. In this work, we assess whether real business cycle (RBC) and standard medium-scale New Keynesian (NK) models are able to replicate this statistical regularity. We simulate both models, drawing Gaussian- vs Laplace-distributed shocks, and we explore the statistical properties of simulated time series. Our results cast doubts on whether RBC and NK models are able to provide a satisfactory representation of the transmission mechanisms linking exogenous shocks to macroeconomic dynamics.

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Corresponding author
Address correspondence to: Giorgio Fagiolo, Sant'Anna School of Advanced Studies, Pisa, Italy; e-mail: giorgio.fagiolo@sssup.it.
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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