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Output Dynamics in Real-Business-Cycle Models

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  • Cogley, Timothy
  • Nason, James M

Abstract

The time-series literature reports two stylized facts about output dynamics in the United States: GNP growth is positively autocorrelated and GNP appears to have an important trend-reverting component. This paper investigates whether current real-business-cycle models are consistent with these stylized facts. Many real-business-cycle models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts. Models that incorporate labor adjustment costs are partially successful. They endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend-reverting component in output. Copyright 1995 by American Economic Association.

Suggested Citation

  • Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
  • Handle: RePEc:aea:aecrev:v:85:y:1995:i:3:p:492-511
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