Correlated Disturbances and U.S. Business Cycles - FEDERAL RESERVE BANK of NEW YORK

Museum & Visits Regional Economy Data & Statistics Careers Blog Press Center

About the New York Fed
- About the New York Fed
- What We Do
- Who We Are
  - Bank Leadership
  - Diversity and Inclusion
- Communities We Serve
- Governance
- More About Us
- At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve.
  
  Introducing the New York Innovation Center: Delivering a central bank innovation execution
  
  Do you have a request for information and records? Learn how to submit it.
  
  Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
Markets & Policy Implementation

Economic Research
- Economic Research
- U.S. Economy
  - Consumer Expectations & Behavior
  - Growth & Inflation
  - Labor Market
  - Financial Stability
  - Banking
- REGIONAL ECONOMY
- RESEARCHERS
  - PUBLICATIONS
  - RESEARCH CENTERS
  - CALENDAR

Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act Exams
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
  
  The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
  
  The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
  
  The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
Community Development
& Education

Staff Reports

Correlated Disturbances and U.S. Business Cycles

February 2010 Number 434

JEL classification: E30, E10

Authors: Vasco Cúrdia and Ricardo Reis

The dynamic stochastic general equilibrium (DSGE) models used to study business cycles typically assume that exogenous disturbances are independent first-order autoregressions. This paper relaxes this tight and arbitrary restriction by allowing for disturbances that have a rich contemporaneous and dynamic correlation structure. Our first contribution is a new Bayesian econometric method that uses conjugate conditionals to allow for feasible and quick estimation of DSGE models with correlated disturbances. Our second contribution is a reexamination of U.S. business cycles. We find that allowing for correlated disturbances resolves some conflicts between estimates from DSGE models and those from vector autoregressions and that a key missing ingredient in the models is countercyclical fiscal policy. According to our estimates, government spending and technology disturbances play a larger role in the business cycle than previously ascribed, while changes in markups are less important.

Available only in PDF PDF

47 pages / 563 kb

tools

By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.