Next Article in Journal
Improved Average Estimation in Seemingly Unrelated Regressions
Next Article in Special Issue
Are Some Forecasters’ Probability Assessments of Macro Variables Better Than Those of Others?
Previous Article in Journal
Bayesian Model Averaging and Prior Sensitivity in Stochastic Frontier Analysis
Previous Article in Special Issue
HAR Testing for Spurious Regression in Trend
Open AccessArticle

Balanced Growth Approach to Tracking Recessions

Department of Economics, University of Pittsburgh, 230 South Bouquet Street, Wesley W. Posvar Hall, Pittsburgh, PA 15213, USA
Author to whom correspondence should be addressed.
Econometrics 2020, 8(2), 14;
Received: 3 October 2018 / Revised: 8 April 2020 / Accepted: 9 April 2020 / Published: 23 April 2020
(This article belongs to the Special Issue Celebrated Econometricians: David Hendry)
In this paper, we propose a hybrid version of Dynamic Stochastic General Equilibrium models with an emphasis on parameter invariance and tracking performance at times of rapid changes (recessions). We interpret hypothetical balanced growth ratios as moving targets for economic agents that rely upon an Error Correction Mechanism to adjust to changes in target ratios driven by an underlying state Vector AutoRegressive process. Our proposal is illustrated by an application to a pilot Real Business Cycle model for the US economy from 1948 to 2019. An extensive recursive validation exercise over the last 35 years, covering 3 recessions, is used to highlight its parameters invariance, tracking and 1- to 3-step ahead forecasting performance, outperforming those of an unconstrained benchmark Vector AutoRegressive model. View Full-Text
Keywords: hybrid model; VAR; DSGE; ECM; RBC hybrid model; VAR; DSGE; ECM; RBC
Show Figures

Figure 1

MDPI and ACS Style

Boczoń, M.; Richard, J.-F. Balanced Growth Approach to Tracking Recessions. Econometrics 2020, 8, 14.

Show more citation formats Show less citations formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

Search more from Scilit
Back to TopTop