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Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations

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  • Christiano, Lawrence J
  • Eichenbaum, Martin

Abstract

Hours worked and the return to working are weakly correlated. Traditionally, the ability to account for this fact has been a litmus test for macroeconomic models. Existing real-business-cycle models fail this test dramatically. The authors modify prototypical real-business-cycle models by allowing government consumption shocks to influence labor-market dynamics. This modification can, in principle, bring the models into closer conformity with the data. Their empirical results indicate that it does. Copyright 1992 by American Economic Association.

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  • Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
    • Handle: RePEc:aea:aecrev:v:82:y:1992:i:3:p:430-50
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