Real Business Cycles: A Reader

By James E. Hartley; Kevin D. Hoover et al. | Go to book overview

Chapter 1

The limits of business cycle research

“That wine is not made in a day has long been recognized by economists. ” With that declaration in Kydland and Prescott’s “Time to Build and Aggregate Fluctuations” (1982 [3]: 1345), * the real business cycle school was born. Like wine, a school of thought is not made in a day. Only after it has matured is it possible to judge whether it is good and to separate the palatable portions from the dregs. The literature on real business cycle models has now sufficiently aged, ready for the connoisseurs to pass judgment.

To facilitate those judgments, we have collected together in this volume thirty-one previously published articles relevant to real business cycle models. While there has been no shortage of commentaries on the real business cycle program, the commentaries have been widely scattered and have often focused on narrow aspects of the models or represented partisan positions. Until now, there has not been an easily accessible means for students of business cycles to assess the real business cycle program on the basis of the original sources from the perspectives of the critics as well as the proponents. To date, the most systematic accounts of the real business cycle program are found in the works of active proponents, particularly in Thomas Cooley’s (ed.) Frontiers of Business Cycle Research (1995b), and in the programmatic manifestoes of Kydland and Prescott (1991 [12], 1996 [13]). Yet the critical literature is burgeoning.

The present volume brings together the important articles which make the case for and against real business cycle models. The articles begin with the classics of the real business cycle school, starting with Kydland and Prescott’s (1982 [3]) seminal model. In addition, we include articles on the methodology of real business cycle models, particular aspects of the program (e.g., calibration, the measurement of technology shocks, methods of

* Throughout Chapters 1 and 2, the bold numbers in the square brackets within the text references refer to later chapters in this volume. However, all page numbers in these references are the page numbers from the original article.

-3-

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Real Business Cycles: A Reader
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Acknowledgements xi
  • Part I - Introduction 1
  • Chapter 1 - The Limits of Business Cycle Research 3
  • Notes 34
  • Chapter 2 - A User's Guide to Solving Real Business Cycle Models 43
  • Part II - The Foundations of Real Business Cycle Modeling 55
  • Chapter 3 57
  • Chapter 4 83
  • References 96
  • Chapter 5 97
  • Chapter 6 102
  • Chapter 7 108
  • Part III - Some Extensions 147
  • Chapter 8 149
  • Chapter 9 168
  • References 178
  • Chapter 10 - Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations 179
  • Chapter 11 - The Inflation Tax in a Real Business Cycle Model 200
  • Part IV - The Methodology of Equilibrium Business Cycle Models 217
  • Chapter 12 219
  • Chapter 13 237
  • Chapter 14 254
  • Chapter 15 272
  • Part V - The Critique of Calibration Methods 293
  • Chapter 16 295
  • Chapter 17 - Measures of Fit for Calibrated Models 302
  • Chapter 18 333
  • Chapter 19 355
  • Part VI - Testing the Real Business Cycle Model 381
  • Chapter 20 - Business Cycles: Real Facts and a Monetary Myth 383
  • References 398
  • Chapter 21 399
  • Chapter 22 - Evaluating a Real Business Cycle Model 431
  • Chapter 23 462
  • Chapter 24 496
  • Chapter 25 513
  • Chapter 26 - Did Technology Shocks Cause the 1990-1991 Recession? 533
  • Part VII - The Solow Residual 541
  • Chapter 27 - Technical Change and the Aggregate Production Function 543
  • Chapter 28 552
  • Chapter 29 564
  • Chapter 30 - Output Dynamics in Real-Business-Cycle Models 571
  • Part VIII - Filtering and Detrending 591
  • Chapter 31 - Postwar U. S. Business Cycles: an Empirical Investigation 593
  • Chapter 32 609
  • Chapter 33 626
  • Index 652
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