ch10notes - Business Cycles: Theory and Evidence Stylized...

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Business Cycles: Theory and Evidence Stylized Facts Employment (P) Productivity (P) Real Wage Rate (P) Consumption (P) Investment (Extremely P) Real Interest Rate (P or A) Prices/Inflation (?) Business Cycle Theories Classical Model and Keynesian Model. Can Either Explain Business Cycles? Is There a Consistent Story which 'Fits' the Stylized Facts? Keynesians: Involuntary Unemployment: N N < Labor and/or Product Market Failures Classical Economists Real Business Cycles
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Overview of Keynesian vs. Classical BC Explanations Explanation Inconsistencies Additional Explanation Classical Model: A ’ Shocks Need Large Shocks Over-predicts: Actual N Y / Other Shocks: G , M , Demand Shocks (?) Cannot Explain Procyclical Money Reverse Causation Unperceived Money Keynesian Model: N N < Predicts Countercyclical N Y / Measured N Y / Actual N Y / Cannot Easily Explain rigid w , P Discussed Later
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Real Business Cycles Persistent Shock to 'A': Increases also MPK Shock Demand Labor f In Response to 'A' Shocks: ND Y , N , w , Y/N? N Real Wage ND NS w N
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Employment Increases Due to A Output Increases due to A and N N Y 1 Y 1 N 1 ) N , K ( AF = Y 1 1 N / Y 2 Y 2 N Productivity Increases
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Goods Market: f MPK , ) Temporary ( Y Real Interest Rate r d S d I I , S I S = 0 r C I
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Supply Shocks can also explain Countercyclical Prices M, M P M P × L(Y, r + π e ) P
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RBC Plausibility
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This note was uploaded on 07/17/2008 for the course ECON 502.01 taught by Professor Mccafferty during the Spring '08 term at Ohio State.

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ch10notes - Business Cycles: Theory and Evidence Stylized...

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