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A Real Business Cycle Model

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By using the Office of National Statistics (ONS) and Bank of England (BoE) economic datasets I have adapted a standard DSEG model, the basic real business cycle (RBC)
model, to examine business cycles in the UK for the period 1995 - 2015.

Published in: Economy & Finance
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A Real Business Cycle Model

  1. 1. Estimating a Real Business Cycle DSGE Model by Maximum Likelihood in Python
  2. 2. • By using the Office of National Statistics (ONS) and Bank of England (BoE) economic datasets • I have adapted a standard DSEG model, the basic real business cycle (RBC) model • To examine business cycles in the UK for the period 1995 - 2015. • Further work is extend this model into the period 2015 - 2019 and hence to forecast cycles up to 2025. • This model acts as the input flow to the UK Retail market simulation via GDP, income distribution and real household disposable income.
  3. 3. Using data on hours worked, consumption and investment it's possible to identify business cycles in the UK. Recessionary periods are marked by the red bars.
  4. 4. The estimated model produced is shown below - the standard RBC model assumes that shocks to neutral productivity are the primary driver of business cycle fluctuations and this is indicated by the red bars
  5. 5. And the resulting one-step ago forecast build from the estimated model: As always there is plenty still to do, in particular, I would like to increase the forecast horizon to multi-step periods
  6. 6. [3] Fulton, C. (2015) Estimating a Real Business Cycle DSGE Model by Maximum Likelihood in Python accessed 01 may 2019 online at: http://www.chadfulton.com/topics/estimating_rbc.html

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