On "Real" and "Sticky-Price" Theories of the Business Cycle
Bennett T. McCallum
This paper begirE by identifying the distinguishing characteristic of the
"real business cycle" (RBC) class of macroeconomic models. It then
scruitinizes existing evidence, presented in support of the RBC approach, of
three types: calibrated general equilibrium models with no monetary sector,
vector-autoregression variance decomposition results, and univariate
measurements of trend and cyclical components. It is argued that, in fact,
these types of evidence have so far provided little support for the RBC
hypothesis. Finally, with regard to an important alternative hypothesis
concerning macroeconomic fluctuations, the paper proposes a partial
rationalization for the stickiness of nominal product prices.
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