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Fat-Tail Distributions and Business-Cycle Models

Author

Listed:
  • Guido Ascari
  • Giorgio Fagiolo
  • Andrea Roventini

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Guido Ascari & Giorgio Fagiolo & Andrea Roventini, 2012. "Fat-Tail Distributions and Business-Cycle Models," Working Papers hal-04141131, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141131
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141131
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    More about this item

    Keywords

    Growth-Rate Distributions; Normality; Fat Tails; Time Series; Exponential-Power Distributions; Laplace Distributions; DSGE Models; RBC Models;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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