Real Business Cycle Theory

V. V. Chari · Patrick J. Kehoe · Ellen R. McGrattan

Chari, Kehoe, and McGrattan subject the popular structural-VAR (SVAR) procedure -- used by Gali (1999), Francis and Ramey (2005), and others to argue that technology shocks make hours fall, and …

Susanto Basu · John Fernald · Miles Kimball

This 2006 *American Economic Review* paper (circulated as NBER Working Paper 10592, June 2004) asks a question its own abstract answers in one word -- "Yes" -- are technology improvements …

Finn E. Kydland · Edward C. Prescott

This 1990 Federal Reserve Bank of Minneapolis Quarterly Review paper argues that reporting business cycle facts without first assuming the data are generated by some probability model is a legitimate …

Morten O. Ravn · Stephanie Schmitt-Grohé · Martín Uribe

If households form habits over individual goods rather than over a consumption aggregate, the demand a firm faces depends on its own past sales, its pricing problem becomes dynamic, and mark-ups turn …

Craig Burnside · Martin Eichenbaum

This 1994 NBER working paper (published in the *American Economic Review*, December 1996, 86(5): 1154-1174) asks whether letting firms vary how intensively they use their existing capital stock -- a …

Aubhik Khan · Julia K. Thomas

This 2008 *Econometrica* paper (circulated as NBER Working Paper 12845, January 2007) revisits whether "lumpy" plant-level investment -- infrequent, large capital adjustments driven by nonconvex …

Per Krusell · Anthony A. Smith, Jr.

In a calibrated stochastic growth model where a continuum of households face partially uninsurable employment risk and can self-insure only by holding aggregate capital, the macroeconomic aggregates …

David K. Backus · Patrick J. Kehoe · Finn E. Kydland

Backus, Kehoe, and Kydland build a two-country extension of Kydland and Prescott's (1982) closed-economy real-business-cycle model -- with complete international asset markets, country-specific …

François Gourio · Anil K. Kashyap

Plant-level data from Chile and the U.S. show that swings in aggregate investment come almost entirely from changes in how many establishments are having an investment spike, not how big those spikes …

Jeremy Greenwood · Zvi Hercowitz · Gregory W. Huffman

Keynes's idea that shocks to the marginal efficiency of investment drive fluctuations is placed inside a neoclassical model in which firms choose how hard to run their capital; a shock that raises the …

Neville Francis · Valerie A. Ramey

This 2005 *Journal of Monetary Economics* paper (circulated as NBER Working Paper 8726, January 2002) subjects a startling empirical result -- that identified "technology shocks" appear to *reduce* …

Robert E. Lucas

This 1980 paper by Robert Lucas argues that economic theories should be understood as explicit instructions for building fully articulated, artificial "analogue" economies, and traces business cycle …

Timothy Cogley · James M. Nason

This 1995 American Economic Review paper by Timothy Cogley and James Nason tests whether standard real-business-cycle (RBC) models can reproduce two well-documented stylized facts about U.S. GNP …

Robert G. King · Charles I. Plosser · Sergio T. Rebelo

This 1988 Journal of Monetary Economics paper by Robert King, Charles Plosser, and Sergio Rebelo presents the neoclassical one-sector model of capital accumulation, augmented with a labor-leisure …

N. Gregory Mankiw

This 1989 Journal of Economic Perspectives essay by N. Gregory Mankiw is an explicitly partisan new Keynesian critique of real business cycle (RBC) theory, the then-ascendant view that business cycles …

Julio J. Rotemberg · Michael Woodford

This 1996 American Economic Review paper by Julio Rotemberg and Michael Woodford tests standard real-business-cycle (RBC) models against the forecastable -- rather than total -- movements in U.S. …

Edward C. Prescott

This 1986 Federal Reserve Bank of Minneapolis Quarterly Review piece is Edward Prescott's direct reply, in the same issue, to Lawrence Summers's "Some Skeptical Observations on Real Business Cycle …

Lawrence H. Summers

This 1986 Federal Reserve Bank of Minneapolis Quarterly Review piece, responding directly to Edward Prescott's companion article "Theory Ahead of Business Cycle Measurement" in the same issue, argues …

Jordi Galí

Gali decomposes measured labor productivity and employment into a technology component and a non-technology ("demand") component, using a bivariate structural VAR identified by a single long-run …

Thomas F. Cooley · Gary D. Hansen

Cooley and Hansen introduce money into a real-business-cycle model -- Hansen's (1985) indivisible-labor economy with employment lotteries -- via a cash-in-advance constraint that applies only to …

Robert B. Barsky · Jeffrey A. Miron

This 1989 Journal of Political Economy paper by Robert Barsky and Jeffrey Miron argues that the seasonal fluctuations ordinarily filtered out of macroeconomic data before business-cycle analysis …

Finn E. Kydland · Edward C. Prescott

This 1982 Econometrica paper by Finn Kydland and Edward Prescott builds an equilibrium growth model, fitted to post-war U.S. quarterly data, in which business-cycle fluctuations arise from technology …

Lawrence J. Christiano · Richard M. Todd

Investment projects begin with a long planning phase that consumes very little in the way of resources, and building that phase into an otherwise standard real business cycle model delays the response …

Charles I. Plosser

This 1989 Journal of Economic Perspectives essay by Charles Plosser is a sympathetic introduction to real business cycle (RBC) theory, written as a counterpart to Mankiw's companion critique in the …