Resuscitating Real Business Cycles

Robert King () and Sergio Rebelo ()

No 7534, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E10 E32 (search for similar items in EconPapers)
Date: 2000-02
New Economics Papers: this item is included in nep-dge
Note: EFG
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Citations: View citations in EconPapers (207)

Published as "Real Business Cycles and the Test of the Adelmans", Journal of Monetary Economics, Vol. 33, no. 2 (1994): 405-438.
Published as King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.

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