Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach
Article first published online: 24 MAR 2005
Copyright © 2005 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Special Issue: Recent Developments in Business Cycle Analysis
Volume 20, Issue 2, pages 161–183, 2005
How to Cite
Smets, F. and Wouters, R. (2005), Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach. J. Appl. Econ., 20: 161–183. doi: 10.1002/jae.834
- Issue published online: 24 MAR 2005
- Article first published online: 24 MAR 2005
- Manuscript Accepted: 25 JUN 2004
- Manuscript Received: 15 MAY 2003
This paper estimates a DSGE model with many types of shocks and frictions for both the US and the euro area economy over a common sample period (1974–2002). The structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies, differences in the propagation mechanism of those shocks, or differences in the way the central bank responds to those economic developments. Our main conclusion is that each of these characteristics is remarkably similar across both currency areas. Copyright © 2005 John Wiley & Sons, Ltd.