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Business cycles: real facts and a monetary myth

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  • Finn E. Kydland
  • Edward C. Prescott

Abstract

This paper argues that the reporting of facts in light of theory fosters the development of theory. Dynamic neoclassical macro theory guided the selection of facts to report. The hope is that these facts will foster the further development of this theory. A finding is that the price level is countercyclical in the post-Korean War period. This finding debunks the myths that the price level is procyclical, with the postwar period being no exception.

Suggested Citation

  • Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  • Handle: RePEc:fip:fedmqr:y:1990:i:spr:p:3-18:n:v.14no.2
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    References listed on IDEAS

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    1. Hodrick, Robert J & Kocherlakota, Narayana R & Lucas, Deborah, 1991. "The Variability of Velocity in Cash-in-Advance Models," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 358-384, April.
    2. Sargent, Thomas J, 1981. "Interpreting Economic Time Series," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 213-248, April.
    3. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    4. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, pages 733-748.
    5. Mankiw, N Gregory, 1989. "Real Business Cycles: A New Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 79-90, Summer.
    6. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 7-29.
    7. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 49-99.
    8. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, pages 733-748.
    9. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 49-99.
    10. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, pages 363-380.
    11. Victor Zarnowitz, 1989. "Facts and Factors in the Recent Evolution of Business Cycles in the United States," NBER Working Papers 2865, National Bureau of Economic Research, Inc.
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    Keywords

    Business cycles;

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    1. Advanced Monetary Theory and Policy (ECON 447)

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