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Do Equilibrium Real Business Cycle Theories Explain Postwar U.S. Business Cycles?

In: NBER Macroeconomics Annual 1986, Volume 1

  • Martin Eichenbaum
  • Kenneth I. Singleton

This paper presents and interprets some new evidence on the validity of the Real Business Cycle approach to business cycle analysis. The analysis is conducted in the context of a monetary business cycle model which makes explicit one potential link between monetary policy and real allocations. This model is used to interpret Granger causal relations between nominal and real aggregates. Perhaps the most striking empirical finding is that money growth does not Granger cause output growth in the context of several multivariate VARs and for various sample periods during the post war period in the U.S. Several possible reconciliations of this finding with both real and monetary business cycles models are discussed. We find that it is difficult to reconcile our empirical results with the view that exogenous monetary shocks were an important independent source of variation in output growth.

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This chapter was published in:
  • Stanley Fischer, 1986. "NBER Macroeconomics Annual 1986, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number fisc86-1, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 4246.
    Handle: RePEc:nbr:nberch:4246
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Ben S. Bernanke & Mark L. Gertler, 1985. "Banking in General Equilibrium," NBER Working Papers 1647, National Bureau of Economic Research, Inc.
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    14. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
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    28. repec:nbr:nberre:0126 is not listed on IDEAS
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    32. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February.
    33. Martin S. Eichenbaum & Lars Peter Hansen & Kenneth J. Singleton, 1986. "A Time Series Analysis of Representative Agent Models of Consumption andLeisure Choice Under Uncertainty," NBER Working Papers 1981, National Bureau of Economic Research, Inc.
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