Analysis of Business Cycles Asymmetries: A Minnesota Prior Approach

In this paper it was studied the cyclical and structural convergence between Romanian and Euro Zone's economies in a Minnesota Priors framework. For this purpose we called the Bayesian econometrics to estimate a Structural Vector Autoregression model SVAR with Gibbs Sampling. The methodological framework called in this paper is proposed by experts from the Federal Reserve Bank of Minnesota and from here the name of Minnesota Prior where a priori were introduced the hypothesis that endogenous variables follow different forms of a Markov first order autoregressive model, namely a Random Walk or an AR model. Focusing here especially on consumption cycles and using the relations provided by the theory, I was intended in study the asymmetries between supply and demand shocks in the case of Romanian and Euro Area economies. A higher correlation of shocks between the two studied economies indicates a structural similarity. In addition, for this purpose I involved several methods to ensure robustness checks in regard with the correlation of the two types of structural shocks.