Year: 2000
Type: report
Abstract: The Real Business Cycle (RBC) research program has grown spectacularly over the last decade, as its concepts and methods have diffused into mainstream macroeconomics.Yet, there is increasing skepticism that technology shocks are a major source of business fluctuations.This chapter exposits the basic RBC model and shows that it requires large technology shocks to produce realistic business cycles.While Solow residuals are sufficiently volatile, these imply frequent technological regress.Productivity studies permitting unobserved factor variation find much smaller technology shocks, suggesting the imminent demise of real business cycles.However, we show that greater factor variation also dramatically amplifies shocks: a RBC model with varying capital utilization yields realistic business cycles from small, nonnegative changes in technology.
DOI: 10.3386/w7534
Authors: Robert King, Sergio Rebelo
Language: English
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W2156155512