RBC - Real Business Cycle Theory Real Graduate...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Real Business Cycle Theory Real Business Cycle Theory Graduate Macroeconomics I ECON 309 – Cunningham
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 From New Classicals to RBC From New Classicals to RBC The New Classical Economics (NCE) New Classical Economics (NCE) challenged Keynesian theory, and stimulated the development of New Keynesian (NK) and Real Business Cycle (RBC) Theory NK theory NK theory accepts the REH, but emphasizes the importance of imperfect competition, costly or impeded price adjustments, and externalities. It argues that nominal shocks are the predominant cause of business cycles. RBC theory RBC theory accepts the REH, but views cycles arising in frictionless, perfectly competitive economies with complete markets. It argues that cycles arise through the reactions of optimizing agents to real disturbances, such as random changes in technology or productivity.
Background image of page 2
3 Empirical Evidence? Empirical Evidence? Stadler, 1994 (JEL) writes: “...such models are capable of mimicking the most important empirical regularities displayed by business cycles.”
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Major Contributions Major Contributions RBC theory makes the contribution of demonstrating that fluctuations in economic activity are consonant with competitive general equilibrium environments in which all agents are rational optimizers. RBC Theory makes (exogenous) stochastic fluctuations in factor productivity the predominant cause of fluctuations in business activity. Coordination failures, price stickiness, waves of optimism or pessimism, or monetary or fiscal policy are not needed to explain business cycles.
Background image of page 4
5 Stylized Facts about Business Cycles Stylized Facts about Business Cycles 1. Cycles vary a lot in amplitude and duration. 2.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 17

RBC - Real Business Cycle Theory Real Graduate...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online