Handbook of Research Methods and Applications in Empirical Macroeconomics
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Handbook of Research Methods and Applications in Empirical Macroeconomics

  • Handbooks of Research Methods and Applications series

Edited by Nigar Hashimzade and Michael A. Thornton

This comprehensive Handbook presents the current state of art in the theory and methodology of macroeconomic data analysis. It is intended as a reference for graduate students and researchers interested in exploring new methodologies, but can also be employed as a graduate text. The Handbook concentrates on the most important issues, models and techniques for research in macroeconomics, and highlights the core methodologies and their empirical application in an accessible manner. Each chapter is largely self-contained, whilst the comprehensive introduction provides an overview of the key statistical concepts and methods. All of the chapters include the essential references for each topic and provide a sound guide for further reading.
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Chapter 9: Testing structural stability in macroeconometric models

Otilia Boldea and Alastair R. Hall

Extract

Since the earliest days of macroeconometric analysis, researchers have been concerned about the appropriateness of the assumption that model parameters remain constant over long periods of time; for example see Tinbergen (1939). This concern is also central to the so-called Lucas (1976) critique which has played a central role in shaping macroeconometric analysis in the last thirty years. Lucas (1976) emphasizes the fact that the decision models of economic agents are hard to describe in terms of stable parameterizations, simply because changes in policy may change these decision models and their respective parameterization. These arguments underscore the importance of using structural stability tests as diagnostic checks for macroeconometric models. A large body of empirical macroeconomic studies provides evidence for parameter instability in a variety of macroeconomic models. For example, considerable evidence exists that the New Keynesian Phillips curve has become flat and/or less persistent in recent years; see for example Alogoskoufis and Smith (1991), Cogley and Sargent (2001), Zhang et al. (2008), Kang et al. (2009). Similarly, there is evidence that the interest rate reaction function is asymmetric over the business cycle; see for example Boivin and Giannoni (2006), Surico (2007), Benati and Surico (2008), Liu et al. (2009).

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