Davidson, James Meenagh, David Minford, Patrick Wickens, Michael
Year of Publication:
Cardiff Economics Working Papers E2010/13
A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data; we find the model can explain the behaviour of main variables (GDP, real exchange rate, real interest rate) but not that of detailed GDP components. We use the model to explain how `crisis' and `euphoria' are endemic in capitalist behaviour due to nonstationarity; and we draw some policy lessons.
Nonstationarity Productivity Real Business Cycle Bootstrap Indirect Inference Banking Crisis Banking Regulation