This paper shows that aggregation over heterogeneous firms, which are subject to temporary technology shocks, will lead to long memory and nonlinearities. We start from microfoundations, using standard RBC model of monopolistic competition. We then derive the fundamental intertemporal...

This paper shows that the behaviour of an otherwise conventional model of real business cycles (RBCs) in which heterogeneous individual firms are subject to temporary technology shocks will be characterised by long memory and nonlinearity. We start from microfoundations, using a standard RBC...

We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory (or persistence) of these series is depicted by their autocorrelation functions (ACFs), and they all fit very closely a parsimonious four-parameter functional form...

Starting from microeconomic foundations, we derive a general formula for the aggregation of outputs of heterogeneous firms (or sectors), and we solve explicitly for the fundamental intertemporal equilibrium path of the aggregate economy. The firms are subject to temporary technology shocks, but...

Suppose we have observations ranging over t = 0; 1;... T on real net investment, {In;t} , and on real gross investment, {Ig;t}. We derive a method of calculating the depreciation rate for each of the periods {delta t} , and estimating `the' implied net capital stock {Kt}. We then provide empirical...

We provide a methodology to disentangle the long-run relation between variables from their own dynamics. Macroeconomic and aggregate financial series have a high degree of inertia. If this persistence is not properly accounted for, spurious correlations will give rise to paradoxes. Our procedure...

Hypergeometric functions are a generalization of exponential functions. They are explicit, computable functions that can also be manipulated analytically. The functions and series we use in quantitative economics are all special cases of them. In this paper, a unified approach to hypergeometric...

We introduce firm heterogeneity into the standard monopolistically competitive real business cycle (RBC) model. The fundamental equilibrium path is derived and the time-series properties of aggregate GDP are studied analytically. Although firms' productivities are subject to temporary shocks,...