Statistical nonlinearities in the business cycle: A challenge for the canonical RBC model

The cyclical components of U.S. macroeconomic time series exhibit significant nonlinearities. Standard equilibrium models of business cycles cannot replicate nonlinear features of the data. Applying the efficient method of moments (Gallant, A.R., Tauchen, G., 1996. Which moments to match? Econometric Theory 12(4), 657-681) to build an algorithm that searches over the model's parameter space establishes the parameterization that best allows replication of all statistical properties of the data. The results show that under this parameterization, the model captures nonlinearities in investment but fails to account for observed properties of consumption.