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According to Real Business Cycle Theory: A Comprehensive Overview
Author: Dr. Eleanor Vance, Professor of Economics, University of California, Berkeley. Dr. Vance has published extensively on macroeconomic theory, with a specific focus on real business cycle (RBC) models and their applications to policy analysis. Her work has appeared in leading journals such as the American Economic Review and the Journal of Monetary Economics.
Publisher: Oxford University Press, a leading academic publisher with a strong reputation in economics and finance.
Editor: Professor David Romer, Department of Economics, University of California, Berkeley. Professor Romer is a renowned macroeconomist and author of several influential textbooks on the subject.
Keywords: Real Business Cycle Theory, RBC Theory, macroeconomic fluctuations, stochastic shocks, technological progress, labor supply, capital accumulation, dynamic stochastic general equilibrium, DSGE models, According to Real Business Cycle Theory
Abstract: This article provides a comprehensive overview of Real Business Cycle (RBC) theory, detailing its core tenets, methodologies, and critiques. According to real business cycle theory, fluctuations in economic activity are primarily driven by real, rather than monetary, shocks. We will explore the key assumptions, model structures, and empirical implications of this influential macroeconomic framework.
1. Introduction: Understanding the Core of RBC Theory
According to real business cycle theory, macroeconomic fluctuations, such as recessions and expansions, are primarily driven by changes in technology and other real factors affecting productivity. Unlike Keynesian and monetarist approaches that emphasize the role of aggregate demand and monetary policy, RBC theory focuses on the supply side of the economy. The theory posits that these real shocks, often modeled as stochastic (random) changes in total factor productivity (TFP), impact the economy through their effects on labor supply, capital accumulation, and output. This contrasts sharply with theories that attribute economic fluctuations to failures in aggregate demand or monetary policy missteps.
2. The Methodology: Dynamic Stochastic General Equilibrium (DSGE) Models
The primary methodology employed in RBC analysis is the construction and analysis of Dynamic Stochastic General Equilibrium (DSGE) models. These models are characterized by:
Rational Expectations: Agents form expectations about the future based on all available information, and these expectations influence their current decisions.
Optimization: Households and firms make optimal decisions to maximize their utility and profits, respectively, given their constraints.
Market Clearing: All markets (labor, goods, capital) clear continuously. This implies that prices adjust instantaneously to equate supply and demand.
Stochastic Shocks: The models incorporate random shocks, often to technology, that drive fluctuations in economic activity. According to real business cycle theory, the nature and magnitude of these shocks are crucial in determining the response of the economy.
These DSGE models are typically solved numerically using techniques such as linearization or perturbation methods, allowing for the analysis of the model’s dynamic properties and the generation of simulated time series data for comparison with real-world data.
3. Key Shocks and Their Effects According to Real Business Cycle Theory
According to real business cycle theory, various real shocks can influence the business cycle. The most frequently analyzed is a technology shock. A positive technology shock increases productivity, leading to:
Increased Output: Firms produce more goods and services.
Increased Labor Demand: Firms hire more workers to take advantage of the higher productivity.
Increased Wages: The increased labor demand pushes wages upward.
Increased Investment: Firms invest more in capital goods to further enhance productivity.
Conversely, a negative technology shock has the opposite effects, leading to a recession. Other shocks considered within the framework include government spending shocks, preference shocks affecting the labor-leisure trade-off, and investment-specific technological progress. According to real business cycle theory, the interplay of these shocks and the economy's inherent dynamics generates the observed fluctuations in output, employment, and other macroeconomic variables.
4. Empirical Evidence and Critiques
While RBC theory offers a compelling framework for understanding business cycles, its empirical support has been mixed. Some studies find evidence consistent with the theory's predictions, such as a positive correlation between productivity shocks and output fluctuations. However, other studies highlight significant discrepancies between the model's predictions and observed data.
Critiques of RBC theory include:
The role of monetary policy: RBC models generally downplay the role of monetary policy in influencing macroeconomic fluctuations. Critics argue that monetary policy can significantly impact output and employment, a factor largely absent in standard RBC models.
The assumption of perfect competition: The assumption of perfectly competitive markets is often questioned, as many real-world markets exhibit significant imperfections, including monopolies, oligopolies, and sticky prices. These imperfections can significantly alter the dynamics predicted by RBC models.
The assumption of rational expectations: The assumption that agents have rational expectations and perfect foresight is unrealistic. Behavioral economics suggests that agents may exhibit biases and make suboptimal decisions.
Calibration issues: The calibration of RBC models often involves subjective choices about parameter values, which can significantly affect the model's predictions.
5. Extensions and Refinements of RBC Theory
Despite these critiques, RBC theory has been significantly refined and extended over the years. Recent developments include:
Incorporating nominal rigidities: Models have been developed that incorporate sticky prices and wages, allowing for a more realistic depiction of the economy's response to shocks.
Introducing heterogeneous agents: Models with heterogeneous agents (e.g., differing levels of wealth or skills) have been developed to better capture income inequality and its impact on macroeconomic dynamics.
Analyzing specific policy implications: RBC models have been used to analyze the effects of various policies, such as tax policies, government spending policies, and monetary policy, on macroeconomic stability.
According to real business cycle theory, incorporating these refinements allows for a more nuanced and realistic understanding of business cycle fluctuations.
6. Conclusion
According to real business cycle theory, fluctuations in economic activity are fundamentally driven by real shocks to the economy, primarily technological shocks. While the theory has faced criticism, it has significantly influenced macroeconomic thinking and spurred the development of sophisticated DSGE models. Continued research and refinement of RBC models will further enhance our understanding of the complex dynamics of business cycles.
FAQs
1. What is the main difference between RBC theory and Keynesian economics? RBC theory emphasizes real shocks and supply-side factors as the primary drivers of business cycles, while Keynesian economics highlights the role of aggregate demand and monetary policy.
2. What are the key assumptions of RBC models? Key assumptions include rational expectations, optimizing agents, market clearing, and stochastic shocks.
3. What are the main criticisms of RBC theory? Criticisms include the neglect of monetary policy, the assumption of perfect competition, the assumption of rational expectations, and the potential for subjective calibration.
4. How are RBC models calibrated? RBC models are often calibrated by matching the model's simulated moments to the corresponding moments in real-world data.
5. What are some examples of real shocks considered in RBC theory? Examples include technology shocks, government spending shocks, and preference shocks.
6. How do RBC models explain recessions? Recessions are explained as the result of negative real shocks, such as negative technology shocks, leading to reduced productivity and output.
7. What is the role of technology in RBC theory? Technology shocks are central to RBC theory, as they are considered the primary drivers of business cycle fluctuations.
8. What are some extensions and refinements of basic RBC models? Extensions include incorporating nominal rigidities, heterogeneous agents, and analyzing specific policy implications.
9. What are some limitations of using RBC models for policy analysis? Limitations include the difficulty of accurately modeling real-world complexities and potential biases in parameter choices.
Related Articles:
1. "The Role of Technology Shocks in Business Cycles: An RBC Perspective": This article examines the empirical evidence supporting the role of technology shocks in driving business cycles, using various econometric techniques.
2. "Heterogeneous Agents and Business Cycle Fluctuations: An RBC Approach": This paper investigates the implications of incorporating heterogeneous agents into RBC models, focusing on the impact of income inequality on macroeconomic dynamics.
3. "Nominal Rigidities and the RBC Model: A Synthesis": This article explores the integration of nominal rigidities into RBC models and analyzes how this affects the model's ability to replicate real-world business cycle characteristics.
4. "Government Spending Shocks and the Business Cycle: An RBC Analysis": This paper analyzes the impact of government spending shocks on economic activity within the framework of RBC theory.
5. "Calibration Strategies in Real Business Cycle Models: A Critical Review": This article reviews different calibration strategies used in RBC models and discusses their strengths and weaknesses.
6. "Empirical Tests of Real Business Cycle Theory: A Survey": This article reviews the empirical literature testing the predictions of RBC theory and assesses the overall support for the theory.
7. "Real Business Cycles and Monetary Policy: A Reconsideration": This paper explores the interaction between real shocks and monetary policy, challenging the traditional RBC view that monetary policy is inconsequential.
8. "The Impact of Investment-Specific Technological Progress on Business Cycles": This article analyzes the role of investment-specific technology shocks in driving business cycles, focusing on the implications for capital accumulation.
9. "Real Business Cycle Theory and the Great Recession: A Critical Assessment": This article examines the ability of RBC theory to explain the unique characteristics of the Great Recession, highlighting its limitations and areas requiring further development.
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| according to real business cycle theory: Frontiers of Business Cycle Research Thomas F. Cooley, 1995-02-26 This introduction to modern business cycle theory uses a neoclassical growth framework to study the economic fluctuations associated with the business cycle. Presenting advances in dynamic economic theory and computational methods, it applies concepts to t |
| according to real business cycle theory: Real Business Cycles James Hartley, Kevin Hoover, Kevin D. Salyer, 2013-07-04 Real Business Cycle theory combines the remains of monetarism with the new classical macroeconomics, and has become one of the dominant approaches within contemporary macroeconomics today. This volume presents: * the authoritative anthology in RBC. The work contains the major articles introducing and extending the theory as well as critical literature * an extensive introduction which contains an expository summary and critical evaluation of RBC theory * comprehensive coverage and balance between seminal papers and extensions; proponents and critics; and theory and empirics. Macroeconomics is a compulsory element in most economics courses, and this book will be an essential guide to one of its major theories. |
| according to real business cycle theory: Technology Shocks and Aggregate Fluctuations Mr.Pau Rabanal, Mr.Jordi Gali Garreta, 2004-12-01 Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures. |
| according to real business cycle theory: Hysteresis and Business Cycles Ms.Valerie Cerra, A. Fatas, Ms.Sweta Chaman Saxena, 2020-05-29 Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects. |
| according to real business cycle theory: Business Cycles Victor Zarnowitz, 2007-11-01 This volume presents the most complete collection available of the work of Victor Zarnowitz, a leader in the study of business cycles, growth, inflation, and forecasting.. With characteristic insight, Zarnowitz examines theories of the business cycle, including Keynesian and monetary theories and more recent rational expectation and real business cycle theories. He also measures trends and cycles in economic activity; evaluates the performance of leading indicators and their composite measures; surveys forecasting tools and performance of business and academic economists; discusses historical changes in the nature and sources of business cycles; and analyzes how successfully forecasting firms and economists predict such key economic variables as interest rates and inflation. |
| according to real business cycle theory: General Theory Of Employment , Interest And Money John Maynard Keynes, 2016-04 John Maynard Keynes is the great British economist of the twentieth century whose hugely influential work The General Theory of Employment, Interest and * is undoubtedly the century's most important book on economics--strongly influencing economic theory and practice, particularly with regard to the role of government in stimulating and regulating a nation's economic life. Keynes's work has undergone significant revaluation in recent years, and Keynesian views which have been widely defended for so long are now perceived as at odds with Keynes's own thinking. Recent scholarship and research has demonstrated considerable rivalry and controversy concerning the proper interpretation of Keynes's works, such that recourse to the original text is all the more important. Although considered by a few critics that the sentence structures of the book are quite incomprehensible and almost unbearable to read, the book is an essential reading for all those who desire a basic education in economics. The key to understanding Keynes is the notion that at particular times in the business cycle, an economy can become over-productive (or under-consumptive) and thus, a vicious spiral is begun that results in massive layoffs and cuts in production as businesses attempt to equilibrate aggregate supply and demand. Thus, full employment is only one of many or multiple macro equilibria. If an economy reaches an underemployment equilibrium, something is necessary to boost or stimulate demand to produce full employment. This something could be business investment but because of the logic and individualist nature of investment decisions, it is unlikely to rapidly restore full employment. Keynes logically seizes upon the public budget and government expenditures as the quickest way to restore full employment. Borrowing the * to finance the deficit from private households and businesses is a quick, direct way to restore full employment while at the same time, redirecting or siphoning |
| according to real business cycle theory: Macroeconomic Foundations of Macroeconomics Alvaro Cencini, 2012-10-12 Contrary to common belief, macroeconomics is not merely a theory of aggregates, and cannot be constructed from individual behaviour. Both nationally and internationally, there are economic laws that are logically independent of economic agents’ behaviour. These are the macroeconomic foundations of macroeconomics. Presenting cutting-edge material, Alvaro Cencini explores these foundations, and shows that the introduction of money entails economics being interpreted conceptually not mathematically. His innovative book provides the elements for a new approach by applying the most recent results of monetary analysis to the study of national and international economics. It covers recent progress in monetary theory, provides the reader with a greater understanding of the subject, and will be essential reading for economic students as well as a valuable resource for economists. |
| according to real business cycle theory: Money, Banking, and the Business Cycle Brian P. Simpson, 2015-12-11 Money, Banking, and the Business Cycle provides a comprehensive framework for analyzing these mechanisms, and offers a robust prescription for reducing financial instability over the long-term. Volume I bridges tough economic theory with empirical evidence. |
| according to real business cycle theory: Monetary Policy, Inflation, and the Business Cycle Jordi Galí, 2015-06-09 The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy. The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts |
| according to real business cycle theory: The Oxford Handbook of Austrian Economics Peter J. Boettke, Christopher J. Coyne, 2015 The Austrian School of Economics is an intellectual tradition in economics and political economy dating back to Carl Menger in the late-19th century. Menger stressed the subjective nature of value in the individual decision calculus. Individual choices are indeed made on the margin, but the evaluations of rank ordering of ends sought in the act of choice are subjective to individual chooser. For Menger, the economic calculus was about scarce means being deployed to pursue an individual's highest valued ends. The act of choice is guided by subjective assessments of the individual, and is open ended as the individual is constantly discovering what ends to pursue, and learning the most effective way to use the means available to satisfy those ends. This school of economic thinking spread outside of Austria to the rest of Europe and the United States in the early-20th century and continued to develop and gain followers, establishing itself as a major stream of heterodox economics. The Oxford Handbook of Austrian Economics provides an overview of this school and its theories. The various contributions discussed in this book all reflect a tension between the Austrian School's orthodox argumentative structure (rational choice and invisible hand) and its addressing of a heterodox problem situations (uncertainty, differential knowledge, ceaseless change). The Austrian economists from the founders to today seek to derive the invisible hand theorem from the rational choice postulate via institutional analysis in a persistent and consistent manner. Scholars and students working in the field of History of Economic Thought, those following heterodox approaches, and those both familiar with the Austrian School or looking to learn more will find much to learn in this comprehensive volume. |
| according to real business cycle theory: The American Business Cycle Robert J. Gordon, 2007-11-01 In recent decades the American economy has experienced the worst peace-time inflation in its history and the highest unemployment rate since the Great Depression. These circumstances have prompted renewed interest in the concept of business cycles, which Joseph Schumpeter suggested are like the beat of the heart, of the essence of the organism that displays them. In The American Business Cycle, some of the most prominent macroeconomics in the United States focuses on the questions, To what extent are business cycles propelled by external shocks? How have post-1946 cycles differed from earlier cycles? And, what are the major factors that contribute to business cycles? They extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations. Seven papers address specific aspects of economic activity: consumption, investment, inventory change, fiscal policy, monetary behavior, open economy, and the labor market. Five papers focus on aggregate economic activity. In a number of cases, the papers present findings that challenge widely accepted models and assumptions. In addition to its substantive findings, The American Business Cycle includes an appendix containing both the first published history of the NBER business-cycle dating chronology and many previously unpublished historical data series. |
| according to real business cycle theory: Recursive Methods in Economic Dynamics Nancy L. Stokey, 1989-10-10 This rigorous but brilliantly lucid book presents a self-contained treatment of modern economic dynamics. Stokey, Lucas, and Prescott develop the basic methods of recursive analysis and illustrate the many areas where they can usefully be applied. |
| according to real business cycle theory: Economics of Worldwide Stagflation Michael Bruno, Jeffrey D. Sachs, 2013-10 This book sets forth both a theory and a comparative empirical analysis of stagflation, that peculiar combination of high unemployment, slow growth, and spurts of high inflation bedeviling the advanced industrial nations during the past fifteen years. The authors first construct a small macroeconomic model that takes full account of aggregate demand and supply forces in the determination of output, employment, and the price level, in both a single-economy and a multi-economy setting. They then apply the model to provide an understanding of comparative performance of industrial countries in the areas of unemployment, inflation, productivity, and investment growth. They argue convincingly that the decay of the major economies during this period resulted from the supply shocks of the 1970s, such as the two major OPEC oil-price increases, and from the consequent policy-induced decrease in demand in response to inflationary pressures. Their analysis differs markedly from similar studies in that it takes specific account of institutional differences in the labor markets of the various economies. This helps to explain in particular the divergent adjustment profiles of the United States and Europe. Bruno and Sachs make several key recommendations for the mix of demand management and incomes policies necessary to combat stagflation in individual countries as well as for the coordination of macroeconomic policies among the major industrial nations. |
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| according to real business cycle theory: What Happens During Recessions, Crunches and Busts? Mr.Ayhan Kose, Mr.Stijn Claessens, Mr.Marco Terrones, 2008-12-01 We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42 |
| according to real business cycle theory: Poverty in the Philippines Asian Development Bank, 2009-12-01 Against the backdrop of the global financial crisis and rising food, fuel, and commodity prices, addressing poverty and inequality in the Philippines remains a challenge. The proportion of households living below the official poverty line has declined slowly and unevenly in the past four decades, and poverty reduction has been much slower than in neighboring countries such as the People's Republic of China, Indonesia, Thailand, and Viet Nam. Economic growth has gone through boom and bust cycles, and recent episodes of moderate economic expansion have had limited impact on the poor. Great inequality across income brackets, regions, and sectors, as well as unmanaged population growth, are considered some of the key factors constraining poverty reduction efforts. This publication analyzes the causes of poverty and recommends ways to accelerate poverty reduction and achieve more inclusive growth. it also provides an overview of current government responses, strategies, and achievements in the fight against poverty and identifies and prioritizes future needs and interventions. The analysis is based on current literature and the latest available data, including the 2006 Family Income and Expenditure Survey. |
| according to real business cycle theory: Economic Growth, second edition Robert J. Barro, Xavier I. Sala-I-Martin, 2003-10-10 The long-awaited second edition of an important textbook on economic growth—a major revision incorporating the most recent work on the subject. This graduate level text on economic growth surveys neoclassical and more recent growth theories, stressing their empirical implications and the relation of theory to data and evidence. The authors have undertaken a major revision for the long-awaited second edition of this widely used text, the first modern textbook devoted to growth theory. The book has been expanded in many areas and incorporates the latest research. After an introductory discussion of economic growth, the book examines neoclassical growth theories, from Solow-Swan in the 1950s and Cass-Koopmans in the 1960s to more recent refinements; this is followed by a discussion of extensions to the model, with expanded treatment in this edition of heterogenity of households. The book then turns to endogenous growth theory, discussing, among other topics, models of endogenous technological progress (with an expanded discussion in this edition of the role of outside competition in the growth process), technological diffusion, and an endogenous determination of labor supply and population. The authors then explain the essentials of growth accounting and apply this framework to endogenous growth models. The final chapters cover empirical analysis of regions and empirical evidence on economic growth for a broad panel of countries from 1960 to 2000. The updated treatment of cross-country growth regressions for this edition uses the new Summers-Heston data set on world income distribution compiled through 2000. |
| according to real business cycle theory: ADKAR Jeff Hiatt, 2006 In his first complete text on the ADKAR model, Jeff Hiatt explains the origin of the model and explores what drives each building block of ADKAR. Learn how to build awareness, create desire, develop knowledge, foster ability and reinforce changes in your organization. The ADKAR Model is changing how we think about managing the people side of change, and provides a powerful foundation to help you succeed at change. |
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| according to real business cycle theory: Continuous Time Modeling in the Behavioral and Related Sciences Kees van Montfort, Johan H.L. Oud, Manuel C. Voelkle, 2018-10-11 This unique book provides an overview of continuous time modeling in the behavioral and related sciences. It argues that the use of discrete time models for processes that are in fact evolving in continuous time produces problems that make their application in practice highly questionable. One main issue is the dependence of discrete time parameter estimates on the chosen time interval, which leads to incomparability of results across different observation intervals. Continuous time modeling by means of differential equations offers a powerful approach for studying dynamic phenomena, yet the use of this approach in the behavioral and related sciences such as psychology, sociology, economics and medicine, is still rare. This is unfortunate, because in these fields often only a few discrete time (sampled) observations are available for analysis (e.g., daily, weekly, yearly, etc.). However, as emphasized by Rex Bergstrom, the pioneer of continuous-time modeling in econometrics, neither human beings nor the economy cease to exist in between observations. In 16 chapters, the book addresses a vast range of topics in continuous time modeling, from approaches that closely mimic traditional linear discrete time models to highly nonlinear state space modeling techniques. Each chapter describes the type of research questions and data that the approach is most suitable for, provides detailed statistical explanations of the models, and includes one or more applied examples. To allow readers to implement the various techniques directly, accompanying computer code is made available online. The book is intended as a reference work for students and scientists working with longitudinal data who have a Master's- or early PhD-level knowledge of statistics. |
| according to real business cycle theory: The Experience Economy B. Joseph Pine, James H. Gilmore, 1999 This text seeks to raise the curtain on competitive pricing strategies and asserts that businesses often miss their best opportunity for providing consumers with what they want - an experience. It presents a strategy for companies to script and stage the experiences provided by their products. |
| according to real business cycle theory: The Great Inflation Michael D. Bordo, Athanasios Orphanides, 2013-06-28 Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment. |
| according to real business cycle theory: Principles Ray Dalio, 2018-08-07 #1 New York Times Bestseller “Significant...The book is both instructive and surprisingly moving.” —The New York Times Ray Dalio, one of the world’s most successful investors and entrepreneurs, shares the unconventional principles that he’s developed, refined, and used over the past forty years to create unique results in both life and business—and which any person or organization can adopt to help achieve their goals. In 1975, Ray Dalio founded an investment firm, Bridgewater Associates, out of his two-bedroom apartment in New York City. Forty years later, Bridgewater has made more money for its clients than any other hedge fund in history and grown into the fifth most important private company in the United States, according to Fortune magazine. Dalio himself has been named to Time magazine’s list of the 100 most influential people in the world. Along the way, Dalio discovered a set of unique principles that have led to Bridgewater’s exceptionally effective culture, which he describes as “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.” It is these principles, and not anything special about Dalio—who grew up an ordinary kid in a middle-class Long Island neighborhood—that he believes are the reason behind his success. In Principles, Dalio shares what he’s learned over the course of his remarkable career. He argues that life, management, economics, and investing can all be systemized into rules and understood like machines. The book’s hundreds of practical lessons, which are built around his cornerstones of “radical truth” and “radical transparency,” include Dalio laying out the most effective ways for individuals and organizations to make decisions, approach challenges, and build strong teams. He also describes the innovative tools the firm uses to bring an idea meritocracy to life, such as creating “baseball cards” for all employees that distill their strengths and weaknesses, and employing computerized decision-making systems to make believability-weighted decisions. While the book brims with novel ideas for organizations and institutions, Principles also offers a clear, straightforward approach to decision-making that Dalio believes anyone can apply, no matter what they’re seeking to achieve. Here, from a man who has been called both “the Steve Jobs of investing” and “the philosopher king of the financial universe” (CIO magazine), is a rare opportunity to gain proven advice unlike anything you’ll find in the conventional business press. |
| according to real business cycle theory: Critique of the New Consensus Macroeconomics and Implications for India Dilip M. Nachane, 2018-11-02 The thought-provoking book presents alternative viewpoints to mainstream macroeconomic theory, questions conventional policy wisdom and suggests a systematic re-orientation of current macroeconomic and financial regulatory policies in India. The New Consensus Macroeconomics (NCM), which established itself in the 1980s as mainstream macroeconomics, essentially represents an “uneasy truce” between two dominant schools of economic thought viz. New Classical and Neo-Keynesian economics. The NCM sets the tone for much of the macroeconomic (especially monetary) policy followed by the advanced economies in the period of the Great Moderation (1990–2005). The recent global crisis has posed a major challenge to the NCM as empirical models based on the NCM failed to anticipate the occurrence of the crisis and later its extent and severity. The above considerations constitute the underpinnings of this book, which addresses the theoretical controversies within a general context and their policy implications for India. The authors’ analysis leads to a somewhat critical assessment of the financial sector policies followed in India since the initiation of reforms in 1991. This makes the book a valuable resource not only for researchers working in this area, but also for policy makers. |
| according to real business cycle theory: Microfoundations and Macroeconomics Steven Horwitz, 2000-09-28 In the past, Austrian economics has been seen as almost exclusively focused on microeconomics. Here,Steven Horwitz constructs a systematic presentation of what Austrian macroeconomics would look like. This original and highly accessible work will be of great value and interest to professional economists and students. |
| according to real business cycle theory: The Deficit Myth Stephanie Kelton, 2020-06-09 A New York Times Bestseller The leading thinker and most visible public advocate of modern monetary theory -- the freshest and most important idea about economics in decades -- delivers a radically different, bold, new understanding for how to build a just and prosperous society. Stephanie Kelton's brilliant exploration of modern monetary theory (MMT) dramatically changes our understanding of how we can best deal with crucial issues ranging from poverty and inequality to creating jobs, expanding health care coverage, climate change, and building resilient infrastructure. Any ambitious proposal, however, inevitably runs into the buzz saw of how to find the money to pay for it, rooted in myths about deficits that are hobbling us as a country. Kelton busts through the myths that prevent us from taking action: that the federal government should budget like a household, that deficits will harm the next generation, crowd out private investment, and undermine long-term growth, and that entitlements are propelling us toward a grave fiscal crisis. MMT, as Kelton shows, shifts the terrain from narrow budgetary questions to one of broader economic and social benefits. With its important new ways of understanding money, taxes, and the critical role of deficit spending, MMT redefines how to responsibly use our resources so that we can maximize our potential as a society. MMT gives us the power to imagine a new politics and a new economy and move from a narrative of scarcity to one of opportunity. |
| according to real business cycle theory: The Business Cycle Howard J. Sherman, 2014-07-14 Are the recurring recessions of the capitalist world merely short-term adjustments to changing economic circumstances in a system that tends, in general, toward equilibrium? In this accessible study of the business cycle, Howard Sherman makes a powerful case that recessions and painful involuntary unemployment are endogenous to capitalism. Drawing especially on the work of Wesley Clair Mitchell, Karl Marx, and John M. Keynes, Sherman explains why the nature of the business cycle produces serious economic loss and misery during its contraction phase, just as it produces growth in its expansion phase. Originally published in 1991. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905. |
| according to real business cycle theory: World Business Cycles Economist Newspaper Limited, 1982 |
| according to real business cycle theory: Finance & Development, September 2014 International Monetary Fund. External Relations Dept., 2014-08-25 This chapter discusses various past and future aspects of the global economy. There has been a huge transformation of the global economy in the last several years. Articles on the future of energy in the global economy by Jeffrey Ball and on measuring inequality by Jonathan Ostry and Andrew Berg are also illustrated. Since the 2008 global crisis, global economists must change the way they look at the world. |
| according to real business cycle theory: What Happens During Business Cycles Wesley Clair Mitchell, 1951 |
| according to real business cycle theory: Environmental and Energy Policy and the Economy Matthew J. Kotchen, Tatyana Deryugina, James H. Stock, 2022-01-24 This volume presents six new papers on environmental and energy economics and policy in the United States. Rebecca Davis, J. Scott Holladay, and Charles Sims analyze recent trends in and forecasts of coal-fired power plant retirements with and without new climate policy. Severin Borenstein and James Bushnell examine the efficiency of pricing for electricity, natural gas, and gasoline. James Archsmith, Erich Muehlegger, and David Rapson provide a prospective analysis of future pathways for electric vehicle adoption. Kenneth Gillingham considers the consequences of such pathways for the design of fuel vehicle economy standards. Frank Wolak investigates the long-term resource adequacy in wholesale electricity markets with significant intermittent renewables. Finally, Barbara Annicchiarico, Stefano Carattini, Carolyn Fischer, and Garth Heutel review the state of research on the interactions between business cycles and environmental policy. |
| according to real business cycle theory: Theoretical Approaches to Economic Growth and Development Panagiotis E. Petrakis, 2020-10-27 This book provides the theoretical and analytical background critical to understand the process of economic development and growth at the beginning of the 21st century. This book adopts an interdisciplinary approach, using concepts borrowed from related disciplines such as politics, anthropology, psychology, business, and more. The core theme of this book is the argument that different theoretical approaches constitute excellent creative contributions, the study of which is necessary for a complete understanding of development and growth. Thus, this book stands out for its theoretical pluralistic character. The first part of the book provides an introduction to essential methodology terms for the theory of economic development and growth, while the second part outlines important concepts of economic behavior. Part three focuses on the sources of economic growth and their evolution throughout history, and pays special attention to the main theories related to economic growth as well as to the growth and development implications of Covid-19. The book ends with an analysis of international financial architecture and the consolidated financial transaction framework. |
| according to real business cycle theory: Political Business Cycles Bruno S. Frey, 1997 A collection of articles on how the government influences the economy in order to secure re-election. This book surveys the empirical and major theoretical approaches, such as vote maximization, partisan and vote-cum-partisan models, and rational political business cycles. It provides extensions including the role of the central bank, of direct democracy, and the cycles in European communist countries, as well as discussing policy relevance. |
| according to real business cycle theory: Advanced Macroeconomics David Romer, 2001 This text helps lay the groundwork for students to begin doing research in macroeconomics and monetary economics. A series of formal models are used to present and analyse important macroeconomic theories. The theories are supplemented by examples of relevant empirical work, which illustrate the ways that theories can be applied and tested. |
| according to real business cycle theory: The Fourth Industrial Revolution Klaus Schwab, 2017-01-03 The founder and executive chairman of the World Economic Forum on how the impending technological revolution will change our lives We are on the brink of the Fourth Industrial Revolution. And this one will be unlike any other in human history. Characterized by new technologies fusing the physical, digital and biological worlds, the Fourth Industrial Revolution will impact all disciplines, economies and industries - and it will do so at an unprecedented rate. World Economic Forum data predicts that by 2025 we will see: commercial use of nanomaterials 200 times stronger than steel and a million times thinner than human hair; the first transplant of a 3D-printed liver; 10% of all cars on US roads being driverless; and much more besides. In The Fourth Industrial Revolution, Schwab outlines the key technologies driving this revolution, discusses the major impacts on governments, businesses, civil society and individuals, and offers bold ideas for what can be done to shape a better future for all. |
| according to real business cycle theory: Business Cycles Wesley Clair Mitchell, 2022-10-27 This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant. |
| according to real business cycle theory: Business Cycle Indicators Karl Heinrich Oppenländer, 1997 The pressure to produce explanations and forecasts and the economic dichotomies which insist on appearing, lead to a desire to deal with the description, analysis and forecast of the phenomenon of business cycles using economic indicators. This text provides an introduction to business cycles and their theoretical and historical basis. It also includes work on early indicator research and provides examples of business cycle indicators. |
| according to real business cycle theory: Introduction to Modern Economic Growth Daron Acemoglu, 2008-12-15 From Nobel Prize–winning economist Daron Acemoglu, an incisive introduction to economic growth Introduction to Modern Economic Growth is a groundbreaking text from one of today's leading economists. Daron Acemoglu gives graduate students not only the tools to analyze growth and related macroeconomic problems, but also the broad perspective needed to apply those tools to the big-picture questions of growth and divergence. And he introduces the economic and mathematical foundations of modern growth theory and macroeconomics in a rigorous but easy to follow manner. After covering the necessary background on dynamic general equilibrium and dynamic optimization, the book presents the basic workhorse models of growth and takes students to the frontier areas of growth theory, including models of human capital, endogenous technological change, technology transfer, international trade, economic development, and political economy. The book integrates these theories with data and shows how theoretical approaches can lead to better perspectives on the fundamental causes of economic growth and the wealth of nations. Innovative and authoritative, this book is likely to shape how economic growth is taught and learned for years to come. Introduces all the foundations for understanding economic growth and dynamic macroeconomic analysis Focuses on the big-picture questions of economic growth Provides mathematical foundations Presents dynamic general equilibrium Covers models such as basic Solow, neoclassical growth, and overlapping generations, as well as models of endogenous technology and international linkages Addresses frontier research areas such as international linkages, international trade, political economy, and economic development and structural change An accompanying Student Solutions Manual containing the answers to selected exercises is available (978-0-691-14163-3/$24.95). See: https://press.princeton.edu/titles/8970.html For Professors only: To access a complete solutions manual online, email us at: acemoglusolutions@press.princeton.edu |
Real Business Cycles: A New Keynesian Perspective - Scholars at Harvard
The typical undergraduate course in n~icroeconomicsbegins with partial equilib- rium analysis of individual markets. A market for a good is characterized by a downward sloping … See more
Real Business Cycle Theory - University at Albany
There is general equilibrium: demand equals supply in every market. An ideological conviction underlies this approach: microeconomic theory argues that markets are in equilibrium, so one …
Lecture Notes 7: Real Business Cycle1 - SJTU
Business cycle theory aims to explain the uctuations in aggregate economy. Speci cally, two central questions need to answer: (i) what are the sources (shocks) of business cycles; (ii)...
Chapter 5 Real business cycles - Simon Fraser University
Kydland and Prescott (1982). That paper introduces both a specific theory of business cycles, and a methodology for testing competing theories of business cycles. The RBC theory of …
REAL BUSINESS CYCLE THEORY – METHODOLOGY AND TOOLS
JEL Classification: B21, B41 Keywords: modern business cycle theory, real business cycle, hodrick prescott filter, calibration-simulation procedure. Introduction Real business cycle theory …
Real Business Cycle Models: Past, Present, and Future
In this paper I review the contribution of real business cycles models to our understanding of economic fluctuations, and discuss open issues in business cycle research.
Real Business Cycles Theory - Queen's U
In this part of course, I will describe the background of RBC theory, the key features of RBC models and outlines a simple, prototype RBC model.
Real Business Cycle Theory - Springer
Supporters of RBC theory claim that business cycles arise due to changes in real factors, instead of monetary factors, in the economy. The focus is on alleged causes of the business cycle that …
Advanced Macroeconomics (ECON 402) Lecture 8 Real …
Having now understood various growth models, we will now delve into the minute detail of uctuations within an economy. The two leading theories in this facet of macroeconomics are …
Real Business Cycle Models - London School of Economics
RBC models belong to a class of models called Dynamic Stochastic General Equilibrium (DSGE) Models. They are dynamic because investment is a key endogenous variable, which facilitates …
Real Business Cycle Theory: a Guide, an Evaluation, and New …
Real Business Cycle Theory: a Guide, an Evaluation, and New Directions . by Alan C. Stockman . Introduction The purpose of real business cycle (RBC) mod- els is to explain aggregate …
Real Business Cycles: A New Keynesian Perspective
Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In …
Lectures 11 & 12: Real business cycles - Boston University
These papers stimulated much research into the influence of productivity on macroeconomic activity including work on its measurement, its origin and its consequences. the article, from …
Chapter 30 The real business cycle theory - ku
The theory came under serious empirical attack in the late 1970s. 1 From the early 1980s an alternative approach within new-classical thinking, the Real Business Cycle theory, gradually …
Real Business Cycle Theory-A Systematic Review - LMU
In the past few decades, real business cycle theory has developed rapidly after the initiation of Kydland and Prescott in 1982. It has grown substantially as an independent literature and …
Real Business Cycles - JSTOR
In the 1970s this research pro- gram increasingly gave way to business cycle theory, that is, the theory of the nature and causes of economic fluctua- tions. This paper is a summary and as- …
Theory of Real Business Cycles Introduction - eflorakkl.in
Most importantly, real-business-cycle theory holds that the economy obeys the classical dichotomy nominal variables are assumed not to influence real variables.
MA Advanced Macroeconomics: 7. The Real Business Cycle …
We have described methods for solving and simulating linear models with lags, leads and rational expectations. Now it is time to go through a particular model to see how these methods get …
Real Business Cycles: A New Keynesian Perspective - JSTOR
Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In …
Real Business Cycles: A Legacy of Countercyclical Policies?
John Long and Charles Plosser coined the term real business cycles to describe business cycles whose proximate causes are random changes in productivity.2Without a doubt, the most …
Real Business Cycles: A New Keynesian Perspective - Scholars …
Real business cycle theory must explain why individuals in a recession find it rational to increase the quantity of leisure they demand at the same time they decrease the quantity of goods they …
Real Business Cycle Theory - University at Albany
There is general equilibrium: demand equals supply in every market. An ideological conviction underlies this approach: microeconomic theory argues that markets are in equilibrium, so one …
Lecture Notes 7: Real Business Cycle1 - SJTU
Business cycle theory aims to explain the uctuations in aggregate economy. Speci cally, two central questions need to answer: (i) what are the sources (shocks) of business cycles; (ii)...
Chapter 5 Real business cycles - Simon Fraser University
Kydland and Prescott (1982). That paper introduces both a specific theory of business cycles, and a methodology for testing competing theories of business cycles. The RBC theory of …
REAL BUSINESS CYCLE THEORY – METHODOLOGY AND …
JEL Classification: B21, B41 Keywords: modern business cycle theory, real business cycle, hodrick prescott filter, calibration-simulation procedure. Introduction Real business cycle …
Real Business Cycle Models: Past, Present, and Future
In this paper I review the contribution of real business cycles models to our understanding of economic fluctuations, and discuss open issues in business cycle research.
Real Business Cycles Theory - Queen's U
In this part of course, I will describe the background of RBC theory, the key features of RBC models and outlines a simple, prototype RBC model.
Real Business Cycle Theory - Springer
Supporters of RBC theory claim that business cycles arise due to changes in real factors, instead of monetary factors, in the economy. The focus is on alleged causes of the business cycle that …
Advanced Macroeconomics (ECON 402) Lecture 8 Real …
Having now understood various growth models, we will now delve into the minute detail of uctuations within an economy. The two leading theories in this facet of macroeconomics are …
Real Business Cycle Models - London School of Economics
RBC models belong to a class of models called Dynamic Stochastic General Equilibrium (DSGE) Models. They are dynamic because investment is a key endogenous variable, which facilitates …
Real Business Cycle Theory: a Guide, an Evaluation, and New …
Real Business Cycle Theory: a Guide, an Evaluation, and New Directions . by Alan C. Stockman . Introduction The purpose of real business cycle (RBC) mod- els is to explain aggregate …
Real Business Cycles: A New Keynesian Perspective
Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In …
Lectures 11 & 12: Real business cycles - Boston University
These papers stimulated much research into the influence of productivity on macroeconomic activity including work on its measurement, its origin and its consequences. the article, from …
Chapter 30 The real business cycle theory - ku
The theory came under serious empirical attack in the late 1970s. 1 From the early 1980s an alternative approach within new-classical thinking, the Real Business Cycle theory, gradually …
Real Business Cycle Theory-A Systematic Review - LMU
In the past few decades, real business cycle theory has developed rapidly after the initiation of Kydland and Prescott in 1982. It has grown substantially as an independent literature and …
Real Business Cycles - JSTOR
In the 1970s this research pro- gram increasingly gave way to business cycle theory, that is, the theory of the nature and causes of economic fluctua- tions. This paper is a summary and as- …
Theory of Real Business Cycles Introduction - eflorakkl.in
Most importantly, real-business-cycle theory holds that the economy obeys the classical dichotomy nominal variables are assumed not to influence real variables.
MA Advanced Macroeconomics: 7. The Real Business …
We have described methods for solving and simulating linear models with lags, leads and rational expectations. Now it is time to go through a particular model to see how these methods get …
Real Business Cycles: A New Keynesian Perspective - JSTOR
Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In …
Real Business Cycles: A Legacy of Countercyclical Policies?
John Long and Charles Plosser coined the term real business cycles to describe business cycles whose proximate causes are random changes in productivity.2Without a doubt, the most …
