Venezuela has an oil-dependent economy subject to large exogenous shocks and a rigid labor market. These features go straight to the heart of two weaknesses of real business cycle (RBC) theory widely reported in the literature: neither shocks are volatile enough nor real salaries sufficiently flexible as required by the RBC framework to replicate the behavior of the economy. We calibrate a basic RBC model and compare a set of relevant statistics from RBC-simulated time series with actual data for Venezuela and the benchmark case of the United States (1950-2008). Despite Venezuela being a heavily regulated economy, RBC-simulated series provide a good fit, in particular with regard to labor markets.
Pontificia Universidad Católica de Chile. Instituto de Economía.
Latin american journal of economics v.53 n.1 2016
THE RIGHT FIT FOR THE WRONG REASONS: REAL BUSINESS CYCLE IN AN OIL-DEPENDENT ECONOMY