Creator: McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 370 Abstract:
Real business cycles are recurrent fluctuations in an economy’s incomes, products, and factor inputs—especially labor—that are due to nonmonetary sources. These sources include changes in technology, tax rates and government spending, tastes, government regulation, terms of trade, and energy prices. Most real business cycle (RBC) models are variants or extensions of a neoclassical growth model. One such prototype is introduced. It is then shown how RBC theorists, applying the methodology of Kydland and Prescott (Econometrica 1982), use theory to make predictions about actual time series. Extensions of the prototype model, current issues, and open questions are also discussed.
Keyword: Productivity shocks, Real business cycles, International business cycles, Home production, Household budget constraint, Competitive equilibrium, Labour-market search, Technology shocks, Stochastic growth models, Total factor productivity, Labour supply, Real exchange rates, Markov processes, Stabilization policies, and Research and development Subject (JEL): D10 - Household Behavior: General and D40 - Market Structure, Pricing, and Design: General