A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

Introduction

The real business cycle school, a predominantly US school of thought, evolved out of the new classical school in the 1980s. The research programme associated with this second phase of equilibrium theorizing was initiated by Kydland and Prescott’s (1982) seminal article and following Long and Plosser (1983) has come to be referred to as the real business cycle approach. In stark contrast to the earlier new classical models, proponents of real business theory reject the view that unanticipated monetary shocks generate fluctuations in output and employment. Instead the real business cycle school views business cycles as being predominantly caused by persistent real (or supply-side) shocks, rather than monetary (or demand-side) shocks to the economy (some models emphasize shocks to government expenditure: see Barro and Grilli 1994). These real shocks, the focus of which involve large random fluctuations in the rate of technological progress, cause the aggregate production function to shift. Rational economic agents are held to optimally respond to the resultant fluctuations in relative prices by altering their supply of labour and consumption. As such, fluctuations in output and employment are regarded as Pareto efficient responses to real technological shocks to the aggregate production function. Furthermore observed fluctuations in output are viewed as fluctuations in the natural (trend) rate of output, rather than deviations of output from a smooth deterministic trend, thereby resulting in the abandonment of the established convention of distinguishing between short-run cycles and long-run trend.

In his 1986 Federal Reserve Bank of Minneapolis Quarterly Review article (reprinted on pp. 366-88) on Theory Ahead of Business Cycle Measurement’, Edward Prescott, a leading exponent of the real business cycle approach, maintains that the large fluctuations in output and employment displayed in the US economy are in accord with the predictions of standard economic theory, given the persistent nature of technological shocks and significant intertemporal substitution in labour supply and employment decisions. Prescott uses a model based on the orthodox neoclassical growth model and argues that the artificial economy he constructs displays fluctuations in aggregate time series with statistical properties which are close to

-361-

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.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited page

Bookmark this page
A Macroeconomics Reader
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
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?

Help
Full screen
Items saved from this book
  • Bookmarks
  • Highlights & Notes
  • Citations
/ 676

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    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.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.