Real Business Cycles and the Lucas Paradigm

Richard T Froyen and Roger Waud

Economic Inquiry, 1988, vol. 26, issue 2, 183-201

Abstract: When the Lucas paradigm is generalized to include real effects, the effects of real factors and monetary factors on the business cycle are always interrelated. Furthermore, in such m odels, monetary factors can affect the long-run behavior of real outp ut, contrary to the commonly held view that they cannot. Real busines s cycle models and Lucas-type models are different paradigms, but not in the sense of real versus monetary. Rather, interrelationships bet ween real and monetary factors are intrinsic to the Lucas paradigm, w hereas the real business cycle literature implies a dichotomy between real and monetary factors. Copyright 1988 by Oxford University Press.

Date: 1988
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