Abstract
We develop an empirical version of the aggregate two market fixprice model due to Barro and Grossman. Maximum likelihood estimation of the model appears to be difficult as a large number of local maxima occurs. The number of local maxima is considerably reduced by the introduction of prior information on some of the standard deviations of the disturbance terms in the model. Satisfactory estimation results are obtained this way. The model closely reproduces the post war Dutch trade cycle, although some problems remain, especially with the seventies.
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