On the Role of Monetary Factors in Business Cycle Models

Fabio Bagliano and Giancarlo Marini

No 1991011, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: Granger-causality tests and innovation analyses based on Vector Autoregression models seem to deny any role for monetary factors in generating and shaping business cycle fluctuations. The present paper shows that such empirical support for Real Business Cycle theories is flawed. In particular, it is demonstrated that an extended version of the Lucas paradigm can explain the existing evidence rather accurately, when changes in policy regimes are explicitly modelled.

Pages: 16
Date: 1991-03-01
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