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Output dynamics in real business cycle models

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  • Timothy Cogley
  • James M. Nason

Abstract

The time series literature reports two stylized facts about output dynamics in the United States. GNP growth is positively autocorrelated over short horizons and negatively autocorrelated over longer horizons, and GNP has an important trend reverting component which has a hump-shaped moving average representation. We consider whether various real business cycle (RBC) models are consistent with these stylized facts. ; We find that many RBC models have weak internal propagation mechanisms and must rely on exogenous factors to replicate both stylized facts. In particular, intertemporal substitution, capital accumulation, and capital adjustment costs do not provide strong sources of propagation. Models which incorporate employment lags or labor adjustment costs are partially successful. They endogenously generate roughly the right pattern of autocorrelation in output growth, and they generate a small humpshaped trend reverting component in output. However, they must rely on implausibly large transitory shocks to match the large trend reverting component found in U.S. data. Our results suggest that RBC theorists ought to devote further attention to the problem of modeling propagation mechanisms.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 93-10.

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Date of creation: 1993
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Handle: RePEc:fip:fedfap:93-10

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Keywords: Business cycles ; Econometric models ; Gross national product;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Real Business Cycles with a Human Capital Investment Sector and Endogenous Growth: Persistence, Volatility and Labor Puzzles
    by Christian Zimmermann in NEP-DGE blog on 2011-04-14 19:22:54
  2. Sobre recesiones, recuperaciones…. y previsiones
    by David López-Salido in Nada Es Gratis on 2009-09-18 03:27:36
  3. Krugman was looking under a lamppost
    by pushmedia1 in The Ambrosini Critique on 2009-09-17 16:42:26

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  1. > Macroeconomics > Economic Fluctuations > Real Business Cycle Theory
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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