Stochastic Business Cycle Model Research Articles

On the global asymptotic stability and oscillation of solutions in a stochastic business cycle model

We discuss a second order nonlinear stochastic difference equation which is constructed of a business cycle model with organized labor considered. A global asymptotic mean square stability criterion is obtained by Lyapunov function method. We also prove a theorem on the almost sure oscillation of the solutions for the difference equation with state-independent stochastic perturbations.

BIFURCATIONS IN A STOCHASTIC BUSINESS CYCLE MODEL

We introduce a stochastic business cycle model and study the underlying stochastic Hopf bifurcations with respect to probability densities at different parameter values. Our analysis is based on the calculation of the largest Lyapunov exponent via multiplicative ergodic theorem and the theory of boundary analysis for quasi-nonintegrable Hamiltonian systems. Some numerical simulations of the model are performed.

EQUILIBRIUM BUSINESS CYCLES: THEORY AND EVIDENCE

ABSTRACT. This paper surveys equilibrium business cycles (EBC) theory, which has dominated the business cycle literature since the mid 1970s. It focuses primarily on the real business cycle (RBC) literature the origin of which is traced to the monetary equilibrium business cycle (MBC) model developed by Lucas (1975). RBC and MBC models are themselves related to a wider class of linear stochastic business cycle models which, following Frisch (1933), view the cycle as the result of the propagation, by the economic system, of a series of random shocks. The MBC approach highlighted the importance of monetary shocks but its failure to adequately explain observed fluctuations provided the impetus to the development of the RBC approach, which emphasises the importance of real shocks. This paper also appraises the empirical support for the RBC approach and finds it less than compelling. Given the failure of Keynesian, and equilibrium linear stochastic business cycle models to fully explain economic fluctuations, the Frischian approach to business cycle modelling is called into question. Developments to existing models, which may help to clarify our understanding of business cycle behaviour, are discussed with a view to setting out a research agenda for the 1990s and beyond.

Econometric issues in the analysis of equilibrium business cycle models

This paper discusses two econometric issues in business cycle modeling: (1) the nature and sources of secular, cyclical, and seasonal fluctuations and the econometric implications of prefiltering to remove some of these components from aggregate time series, and (2) methods for solving nonlinear, dynamic stochastic business cycle models and the use of these solutions to construct moment conditions for estimating the unknown parameters.