Real Business Cycles: A Reader

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

NOTES
1
As will become clear below, our focus is on real business cycles narrowly construed as perfectly competitive representative agent models driven by real shocks. A number of recent developments have extended models with roots in Kydland and Prescott (1982 [3]) to include monetary factors, limited heterogeneity among agents, non-Walrasian features, and imperfect competition. These models are ably surveyed in chapters 7-9 of Cooley (1995b). One way to view this literature is as a constructive response to some of the difficulties with the narrow real business cycle model that we evaluate.
2
Lucas (1978:242).
3
Friedman’s monetarist model is distinguished from Lucas’s new classical monetary model in that Friedman imagines that people can be systematically mistaken about the true state of real wages for relatively long periods, while Lucas argues that people have rational expectations (i.e., they make only unsystematic mistakes) and, therefore, correct their judgments about the real wage quickly.
4
Lucas (in Snowden, Vane and Wynarczyk, 1994:222) accepts that his previous characterization of the Austrians as precursors to new classical business cycle theory was incorrect.
5
Equation (1.1) is a snapshot of the economy at a particular time. In fact, variables in the model are growing. We could indicate this with subscripts indexing the relevant time, but this would simply clutter the notation unnecessarily.
6
There is a large literature on endogenous growth models (see, e.g., the symposium in the Journal of Economic Perspectives, 1994).
7
Cooley and Prescott (1995, sec. 4) discusses the issues related to establishing an appropriate correspondence between the real business cycle model and the national accounts to permit the calibration of the model.
8
It is actually a debated question whether microeconomic studies do in fact provide the necessary parameters. Prescott (1986a [4]: 14) cites Lucas’s (1980:712) argument that we have “a wealth of inexpensively available data” of this sort. However, Hansen and Heckman (1996 [14]: 93-94) argue that in this regard Prescott is wrong. As evidence they point to Shoven and Whalley (1992:105), who rather candidly admit that “it is surprising how sparse (and sometimes contradictory) the literature is on some key elasticity values. And although this procedure might sound straightforward, it is often exceedingly difficult because each study is different from every other. (Cf. the debate between Summers (1986 [5]) and Prescott (1986b [6]) about whether the parameters used in Prescott (1986a [4]) are the appropriate ones.)
9
Details on how to solve these sorts of models are provided in Chapter 2. 10 Despite this argument, Lucas’s view of real business cycle models is rather favorable. See, e.g., the discussion in Manuelli and Sargent (1988).
11
Although we refer to z as “the technology shock, this terminology is not universal. Generally, z will be a persistent process; for example, zt=ρztt, with ρ>0 and εt an independent, identically distributed random variable. Some economists identify εt as “the technology shock. Similarly, some economists identify zt rather than Zt as the “Solow residual.
12
These reasons are elaborated in Hartley (1997).
13
The classic reference is Gorman (1953); the literature is summarized in Stoker (1993).
14
Coleman (1990) calls this the micro-to-macro transition and provides an

-34-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited page

Bookmark this page
Real Business Cycles: A Reader
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen
/ 672

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?