A Macroeconomics Reader

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

significant real effects because of the nominal price and wage rigidities which characterize actual economies (see Part V). Furthermore many economists reject the view that stabilization policy has no role to play. Nevertheless real business cycle theorists have made two important and lasting contributions to macroeconomics. First, real business cycle theory has challenged the pre-1980 consensus that growth and fluctuations are distinct phenomena to be studied separately, requiring different analytical tools. By integrating the theory of growth and fluctuations, the direction of modern business cycle research has been irreversibly changed. Second, rather than attempting to provide models capable of conventional econometric testing, real business cycle theorists, inspired by the work of Kydland and Prescott (1982) have developed the calibration method. While calibration does not, to date, provide a method that allows one to judge between the performance of real and other business cycle models, it has provided an important new contribution to the methodology of macroeconomics research (see Hoover 1995; Wickens 1995). This new research methodology for macroeconomics, with its emphasis on the stylized facts of the business cycle (see Ryan and Mullineux 1997) to be explained and the construction of general equilibrium dynamic models which can replicate such stylized facts, has focused attention on, and stimulated renewed interest into, empirical knowledge of business cycle phenomena., In short the major contribution of the real business cycle approach has been to raise fundamental questions relating to the meaning, significance and characteristics of economic fluctuations.


REFERENCES

* Titles marked with an asterisk are particularly recommended for additional reading.

*Abel, A. B. and B. S. Bernanke (1995) Macroeconomics, 2nd edn, Chapters 9 and 11, New York: Addison Wesley.
*Barro, R. J. and V. Grilli (1994) European Macroeconomics, Chapter 12, London: Macmillan.
Danthine, J. P. and J. B. Donaldson (1993) ‘Methodological and Empirical Issues in Real Business Cycle Theory’, European Economic Review 37, January, pp. 1-35.
*Froyen, R. T. (1996) Macroeconomics: Theories and Policies, 5th edn, Chapter 12, London: Prentice-Hall.
*Gordon, R. J. (1993) Macroeconomics, 6th edn, Chapter 7, New York: HarperCollins.
*Hall, R. E. and J. B. Taylor (1993) Macroeconomics, 4th edn, Chapters 4 and 15, New York: W. W. Norton.
Hoover, K. D. (1995) ‘Facts and Artifacts: Calibration and the Empirical Assessment of Real Business-Cycle Models’, Oxford Economic Papers 47, pp. 24-44.
*Jansen, D. W., C. D. Delorme and R. B. Ekelund, Jr (1994) Intermediate Macroeconomics, Chapter 11, New York: West.
Kydland, F. E. and E. C. Prescott (1982) ‘Time to Build and Aggregate Fluctuations’, Econometrica 50, November, pp. 1345-70.
*Kydland, F. E. and E. C. Prescott (1990) ‘Business Cycles: Real Facts and a Monetary Myth’, Federal Reserve Bank of Minneapolis Quarterly Review 14, Spring, pp. 3-18.

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