real business cycles

Ellen R. McGrattan
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Real business cycles are recurrent fluctuations in an economy's incomes, products, and factor inputs – especially labour – that are due to non-monetary sources. These sources include changes in technology, tax rates and government spending, tastes, government regulation, terms of trade and energy prices. Most real business cycle (RBC) models are variants or extensions of a neoclassical growth model. One such prototype is introduced. It is then shown how RBC theorists, applying the methodology of Kydland and Prescott (Econometrica 1982), use theory to make predictions about actual time series. Extensions of the prototype model, current issues and open questions are also discussed.
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See Also

I wish to thank Gary Hansen, Lee Ohanian and Ed Prescott for their comments on an earlier draft. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
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How to cite this article

McGrattan, Ellen R. "real business cycles." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 22 November 2017 <> doi:10.1057/9780230226203.1399

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