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Real Business Cycle Theory-A Systematic Review

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  • Deng, Binbin
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    Abstract

    In the past few decades, real business cycle theory has developed rapidly after the initiation of Kydland and Prescott in 1982. It has grown substantially as an independent literature and served as a widely recognized framework for studies of the economy at business cycle frequencies. It has enjoyed great success for its ability to replicate most of the observed characteristics of U.S. aggregate economic activity after WWII. Over the years, different extensions to and modifications of the real business cycle model have been proposed by many researchers. In the mean time, various criticisms and challenges have been exposed to the theory from different perspectives. Recently, new developments have been undergoing a constructive process and emerging questions are being considered to improve the empirical performance of the theory. To celebrate the theory, several works have been devoted to a comprehensive survey of the literature, represented by King and Rebelo (1999). Efforts have been also made to discuss open questions in the literature in an attempt to suggest future studies, such as Rebelo (2005). However, a systematic review of the real business cycle theory involving different perspectives to compact the literature into a narrative representation seems currently unavailable. This paper tries to fill the gap.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17932.

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    Date of creation: 27 Jul 2009
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    Handle: RePEc:pra:mprapa:17932

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    Keywords: real business cycles; dynamic stochastic general equilibrium; aggregate shocks;

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    1. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers 4858, C.E.P.R. Discussion Papers.
    2. 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.
    3. Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993. "International Business Cycles," American Economic Review, American Economic Association, vol. 83(3), pages 335-59, June.
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