Maximum Likelihood in the Frequency Domain: A Time to Build Example

17 Pages Posted: 6 Apr 1999

See all articles by Lawrence J. Christiano

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Robert J. Vigfusson

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: March 1999

Abstract

A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. We exploit these observations to devise diagnostic methods that are useful for interpreting maximum likelihood parameter estimates and likelihood ratio tests. We apply the methods to the estimation and testing of two real business cycle models. The standard real business cycle model is rejected in favor of an alternative in which capital investment requires a planning period.

JEL Classification: E2, E22, E1, C52, C32, C12

Suggested Citation

Christiano, Lawrence J. and Vigfusson, Robert John, Maximum Likelihood in the Frequency Domain: A Time to Build Example (March 1999). FRB Chicago Working Paper No. 1999-04, Available at SSRN: https://ssrn.com/abstract=155858 or http://dx.doi.org/10.2139/ssrn.155858

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