Friday, March 28, 2014

Moar Monte Carlo

Here's the results of this post with 100 paths and an AR(6) model:


There doesn't seem to be a huge difference from the previous results (i.e. there's still a persistent difference from the mean path in the 1960s and the 1990s). An AR(6) model uses the past 6 observations, which in this case is the past 6 months. That should be sufficient to achieve persistent shocks like that experienced in the US in 2008. Therefore, something seems to be missing and the first best candidate is NGDP shocks correlated with changes in the monetary base.

1 comment:

  1. I think this may be due to neglecting the measure in switching from dt to d(log MB); update to come!

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