Choose a large developed European economy (e.g. Germany, UK, France etc.). Use the OECD. Stat website to gather a quarterly economic time series of macroeconomic indicators (see the list of variables used in Table 16.1). Take the natural logarithm of each series and then pass it through a H-P filter (an Excel add-in can be downloaded from: http://www.web reg.de/hp_addin.html). The difference between the actual and detrended log series is equivalent to the cyclical component of each series. Create graphs comparing the cyclical component of each variable to the cyclical component of GDP (as per Figs. 16.1 and 16.2). Use the STDEV.P and the CORREL functions in excel to compute the volatility and co-movements with GDP of each of your series (as per Table 16.1). Answer the following questions:

(a) How far does the business cycle data of your chosen country match the predictions of the original RBC model (as shown in Kydland and Prescott (1982))?

(b) What do your findings suggest about the success of the original RBC model at mimicking business cycles outside of the United States?