A procedure to evaluate cyclical fluctuations under superior information
Abstract:This article presents and assesses a procedure to evaluate conventional moments characterizing fluctuations at the business cycle frequency, when the economic agents' information set is superior to the econometrician's one. First, we derive the theoretical conditions under which the econometrician obtains valid statistics for the moments from laws of motion for forcing variables that fully recover the agents' superior information. Second, we use a new-Keynesian monetary model to document the numerical properties of the statistics when the laws of motion are possibly misspecified and to assess the ability of certain information criteria to detect the presence of superior information.
Document Type: Research Article
Affiliations: 1: Department of Management Sciences, HEC Montreal, 3000 Chemin de la Cote-Ste-Catherine, Montreal, QC, Canada, H3T 2A7 2: Department of Economics and CIRPEE, HEC Montreal, 3000 Chemin de la Cote-Ste-Catherine, Montreal, QC, Canada, H3T 2A7
Publication date: 2011-01-01