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2 edition of Tests of the relation between money and output in the real business cycle model found in the catalog.

Tests of the relation between money and output in the real business cycle model

John F. Boschen

Tests of the relation between money and output in the real business cycle model

by John F. Boschen

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  • 5 Currently reading

Published by Federal Reserve Bank of Philadelphia in [Philadelphia] .
Written in English

    Subjects:
  • Business cycles -- United States -- Mathematical models

  • Edition Notes

    StatementJohn F. Boschen, Leonard O. Mills
    SeriesWorking paper / Federal Reserve Bank of Philadelphia -- no. 87- 14
    ContributionsMills, Leonard O
    The Physical Object
    Pagination51 p. ;
    Number of Pages51
    ID Numbers
    Open LibraryOL14424027M

    Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) other leading theories of the business cycle, [citation needed] RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic. In Section 2, the basic real business cycle environment is presented and its long-run properties worked out. The price shocks and the associated cyclical properties of the model are presented in Section 3. Findings for the model version in which there is a trade-off in household production between real money and leisure are described in Section

    The rest of the model is our standard real business cycle model, plus the additional constraints. I begin with the household problem. The household chooses consumption, labor, real bond holdings, and real money balances to satisfy: max ct;nt;bt;mt E 0 X1 t=0 t c1 ˙ t 1 1 ˙ + (1 n t) 1 ˘ 1 1 ˘! s.t. c t +b t +m t w tn t + t +(1+i t 1) b t 1. The basic idea is that when money and output are integrated, the historical data contain permanent shocks. [e.g. Lucas ()] imply a stable long-run relation between real balances (m - p), output (y) and nominal interest rates (r), important questions about the business cycle behavior of .

      In , Moore co-founded the Economic Cycle Research Institute (ECRI) which, based on the same approach used to determine the official U.S. business cycle chronology, determines business cycle. develop a business-cycle model in which fluctuations in demand and supply lead to fluctua-tions in slack but not in inflation. Our model extends the money-in-the-utility-function model by introducing matching frictions and including real wealth in the utility function. Matching.


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Tests of the relation between money and output in the real business cycle model by John F. Boschen Download PDF EPUB FB2

MILLS Federal Reserve e Bank of Philadelphia,( Received Augustfinal version received April r The paper contains tests of the relation between money and output implied by a real business cycle model.

a tests control for a variety of real variables that may affect economic growth and the growth rates of none magates. sgng Cited by: Boschen, J., and Mills, L. “Tests of the Relation Between Money and Output in the Real Business Cycle Model.” Journal of Monetary Economics – CrossRef Google ScholarCited by: 4.

Real Business Cycle Theory Real business cycle theory attributes aggregate output fluctuations to a large extent to the real shocks rather than nominal shocks to the economy.

The theory sees recessions and economic booms as efficient responses to exogenous changes in the real economic environment. The simplest way to append money to the model is to specify a money demand function and an exogenous money supply.

Money demand depends on the level of output and the price level. real variables, such as output and employment. Real business cycle theory thus pushes the Walrasian model farther than it hasFile Size: KB. Real Business Cycle Models Bennett T. McCallum. NBER Working Paper No.

(Also Reprint No. r) Issued in NBER Program(s):Monetary Economics, Economic Fluctuations and Growth This paper attempts to provide an evaluation of both strengths and weaknesses of the real business cycle (RBC) approach to the analysis of macroeconomic by: A User’s Guide to Solving Real Business Cycle Models The typical real business cycle model is based upon an economy populated by identical infinitely-lived households and firms, so that economic choices are reflected in the decisions made by a single representative agent.

It is assumed that both output and factor markets are. Real business cycles The most well known paper in the Real Business Cycles (RBC) literature is Kydland and Prescott (). That paper introduces both a specific theory of business cycles, and a methodology for testing competing theories of business cycles.

The RBC theory of business cycles has two principles: 1. Money is of little. Lecture Real Business Cycles: Most economists explain business cycles in terms of the sticky price model we have been discussing. That is, there is a short run aggregate supply curve so that when aggregate demand fluctuates, there is a fluctuation in total output.

The model doesn’t work perfectly, and economists would like an alternative. This note describes the canonical real business cycle model. A couple of classic references here are Kydland and Prescott (), King, Plosser, and Rebelo (), and King and Rebelo (). 2 The Decentralized Model I will set the problem up as a decentralized model, studying rst the behavior of households and then the behavior of rms.

A business cycle and inflation can be influenced somewhat by policymakers who seek to keep regional production growing while also preventing prices from becoming a threat to consumers.

An example of a type of inflation would be the increase in price of postage stamps, which in the U.S. went up to 25 cents in and nearly doubled in price. Benhabib et al. () show that the real business cycle model with home production performs better than the standard real business cycle model along a number of dimensions.

Specifically, in a calibrated version of their model, one of the main findings is that home production increases the volatility of labor and consumption relative to output.

The Structure of a Real Business Cycle Model In the typical real business cycle model, aggregate output of a single good, which can be used for both consumption or investment purposes, is produced according to a constant returns to scale neoclassical production function shown by equation (): Yt = AtF(Kt, Lt) ().

In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle. Topics include the four phases of the business cycle and the relationship between key macroeconomic indicators at different phases of the business cycle.

Real Business Cycle Model 1. Some Empirical Regularities Output 0 2 4 6 8 10 0 1 Consumption 0 2 4 6 8 10 −5 0 5 10 Investment 0 2 4 6 8 10 0 1 Hours 0 2 4 6 8 10 −1 − 0 1 Trade Balance / GDP 0 2 4 6 8 10 −1 − 0 1 Current Account / GDP ´ Schmitt-Groh Source) (JIE, e Urib and e.

Charles I. Plosser, "Money and business cycles: a real business cycle interpretation," Proceedings, Federal Reserve Bank of St. Louis. citation courtesy of "Money and Business Cycles: A Real Business Interpretation." From Monetary Policy on the 75th Anniversary of the Federal Reserve System, edited by Michael T.

Belongia, pp. Problem set 8: Real Business Cycles - Solution Problem I { A Simplified Real-Business-Cycle Model with Additive Technology Shocks Consider an economy consisting of a constant population of in nitely-lived individuals.

The representative in-dividual maximizes the expected value of P 1 t=0 u(C t)=(1 + ˆ)t, ˆ>0. The instantaneous utility. Macroeconomics Real Business Cycle Theory Failure of Scientific Method To make a good case for real business cycle theory, one must identify changes in the fundamental economic factors—consumer preferences, technology, and resource endowments—and then show that these changes can explain the observed changes in the economy.

rates. Real wages, real interest rates, and real money stock are only weakly correlated with output. Inflation appears to be uncorrelated with recessions.

Some of the variables in Table of Romer are lagging (unemployment), coincident (employment), or leading (money supply) economic indicators of the business cycle.1 Modelling implications. Real Business Cycle Theory 1 Data: measuring the business cycle (Table 1) 2 The model economy: a rigorous description 3 The solution of DSGE models: the Blanchard-Khan method 4 Table 2: matching moments 5 Evaluation of the RBC approach University of Pavia Real Business Cycle Theory 2 / real business cycle theories and aggregate labor market fluctuations,” American Economic Review 82(3), June– 11 Thomas and Gary“The inflation tax in a real business cycle model,” American Economic Review 79(4), Septemberpp.

– Part IV The methodology of equilibrium business cycle. tion. Therefore, the real business cycle theory does not blindly abstract from firm and household heterogeneity.

By assuming that markets are functioning “well,” we reduce an otherwise general model to one of the representative agent with an aggregate production function and analyze the business cycle phenomenon in this simplified economy.Downloadable!

Two mechanisms are considered through which money can play a role in a real business cycle model. One is in the form of aggregate price surprises when there is heterogeneity across individuals or groups of individuals (islands).

These shocks affect the accuracy of information about real compensation that can be extracted from observed wage rates.2. real business cycle theory relies too heavily the role of money in the economy to make its predictions 3.

intertemporal substitution is too weak a force to account for large fluctuations in labor supply and employment with small real wage rate changes.