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Taking Trends Seriously in DSGE Models: An Application to the Dutch Economy
2012
Social Science Research Network
We construct a new-Keynesian DSGE model tailored to the Netherlands and interpret it as a multivariate unobserved components model. We identify three major stochastic trends in the data-trends in general-purpose technology, investment-specific technology, and labor supply-and model them formally in our theoretical set-up. Our trend-cycle decomposition captures the data's co-integrating properties without which long-run analysis-whether scenario analysis or forecasting-would likely be
doi:10.2139/ssrn.2104141
fatcat:qhjemjpcpfemfgbs53vc5hq33m