Real Business Cycles

Chapter 5Some Skeptical Observations on Real Business Cycle Theory^*

Federal Reserve Bank of Minneapolis Quarterly Review 10(4), Fall 1986, pp. 23-27.

Lawrence H. Summers Professor of Economics Harvard University and Research Associate National Bureau of Economie Research

The increasing ascendancy of real business cycle theories of various stripes, with their common view that the economy is best modeled as a floating Walrasian equilibrium, buffeted by productivity shocks, is indicative of the depths of the divisions separating academic macroeconomists. These theories deny propositions thought self-evident by many academic macroeconomists and all of those involved in forecasting and controlling the economy on a day-to-day basis. They assert that ...