Methods for assessing the impact of financial effects on business cycles in macroeconometric models
Adrian Pagan, Tim Robinson
Journal of Macroeconomics | ELSEVIER | Published : 2014
Many macroeconometric models are built to understand business cycles. However, the methods applied to assess them are rarely of the form that one learns whether they provide a good explanation of cycle characteristics. In this paper we review and apply techniques that do this for models with financial/real interactions. Using these methods we demonstrate that in models with two common types of financial/real interactions - the financial accelerator and collateral effects - the business cycle is not affected to the extent that the empirical literature suggests is needed. © 2014.