Katana VentraIP

Real business-cycle theory

Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real (in contrast to nominal) shocks.[1] Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

According to RBC theory, business cycles are therefore "real" in that they do not represent a failure of markets to clear but rather reflect the most efficient possible operation of the economy, given the structure of the economy.


RBC theory is associated with freshwater economics (the Chicago School of Economics in the neoclassical tradition).

Cooley, Thomas F. (1995). . Princeton: Princeton University Press. ISBN 978-0-691-04323-4.

Frontiers of Business Cycle Research

Gomes, Joao; Greenwood, Jeremy; Rebelo, Sergio (2001). "Equilibrium Unemployment". Journal of Monetary Economics. 48 (1): 109–152. :10.1016/S0304-3932(01)00071-X. S2CID 2503384.

doi

Hansen, Gary D. (1985). "Indivisible labor and the business cycle". Journal of Monetary Economics. 16 (3): 309–327.  10.1.1.335.3000. doi:10.1016/0304-3932(85)90039-X.

CiteSeerX

Heijdra, Ben J. (2009). "Real Business Cycles". Foundations of Modern Macroeconomics (2nd ed.). Oxford: Oxford University Press. pp. 495–552.  978-0-19-921069-5.

ISBN

Kydland, Finn E.; Prescott, Edward C. (1982). "Time to Build and Aggregate Fluctuations". Econometrica. 50 (6): 1345–1370. :10.2307/1913386. JSTOR 1913386.

doi

Long, John B. Jr.; Plosser, Charles (1983). "Real Business Cycles". Journal of Political Economy. 91 (1): 39–69. :10.1086/261128. S2CID 62882227.

doi

Lucas, Robert E. Jr. (1977). "Understanding Business Cycles". Carnegie-Rochester Conference Series on Public Policy. 5: 7–29. :10.1016/0167-2231(77)90002-1.

doi

Plosser, Charles I. (1989). . Journal of Economic Perspectives. 3 (3): 51–77. doi:10.1257/jep.3.3.51. JSTOR 1942760.

"Understanding real business cycles"

(2011). "Real-Business-Cycle Theory". Advanced Macroeconomics (Fourth ed.). New York: McGraw-Hill. pp. 189–237. ISBN 978-0-07-351137-5.

Romer, David