Please use this identifier to cite or link to this item:
Bangs, Joann
Landon-Lane, John
Year of Publication: 
Series/Report no.: 
Working Papers, Department of Economics, Rutgers, The State University of New Jersey 2002,12
One of the more common methods used to model international real business cycles is through the use of a dynamic stochastic general equilibrium (DSGE) model. Guo and Sturzenegger (1998) argue that an increasing returns to scale production technology can improve the performance of such a model. They also argue that if increasing returns are strong enough, then sunspot equilibria are possible.In this paper, we formally test the increasing returns to scale assumption and find that a model with a constant returns to scale technology has a superior out-of-sample prediction performance over a model with an increasing returns to scale production technology. Moreover, this result is robust to the degree of returns to scale and to the persistence and variance of the shocks in the model.
Increasing Returns to Scale
International Real Business Cycles
Model Comparison
Document Type: 
Working Paper

Files in This Item:
192.44 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.