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Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption

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  • Rotemberg, Julio J
  • Woodford, Michael

Abstract

The authors study the movements in output, consumption, and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real-business-cycle models. They show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model. The authors also find that forecastable changes in the three series are strongly positively correlated with each other. On the other hand, for parameters whose implications are plausible in other respects, the model implies that output, consumption, and hours should not all be expected to move in the same direction. Copyright 1996 by American Economic Association.

Suggested Citation

  • Rotemberg, Julio J & Woodford, Michael, 1996. "Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 86(1), pages 71-89, March.
  • Handle: RePEc:aea:aecrev:v:86:y:1996:i:1:p:71-89
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    References listed on IDEAS

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    7. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, pages 54-70.
    8. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-1152, December.
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    15. Moomaw, Ronald L., 1985. "Firm location and city size: Reduced productivity advantages as a factor in the decline of manufacturing in urban areas," Journal of Urban Economics, Elsevier, vol. 17(1), pages 73-89, January.
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