Business Cycle Dynamics of a New Keynesian Overlapping Generations Model with Progressive Income Taxation

Figure 7

Monetary Shock in the Representative Agent Economy

Thetahut

Output

Consumption

Real Interest Rate

O 2 Л в β 10 U U le 18   20

Ouorlar

stock remains above its non-stochastic level for many quarters.

We conclude this section by a comparison of the time series properties of the OLG and
the Ramsey model. For this purpose we compute 100 simulations of 150 periods length
each¹⁷ and filter each simulated time series using the HP-filter with weight 1,600. The
time series moments reported in Table 2 are averages over the 100 simulations. The
technology shock and the growth shock are generated by the processes (14) and (18),
respectively. We use the same sequence of shocks for the OLG and the Ramsey model.
The first column in Table 2 presents the aggregate variable. In the second and fifth
column, the standard deviation of the respective variables are displayed. Columns 3 and
6 display the correlation with output, while columns 4 and 7 present the autocorrelation
of the variables in the two models, respectively.

¹⁷See, e.g., Cooley and Hansen (1995), p. 189.

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