The real business cycle model is often described as the core of modern business cycle research. What this means is that other business cycle models have the RBC model as a special case (i.e. strip away all of the frictions from your model and its an RBC model). The idea that the RBC model is the core of modern business cycle research is somewhat tautological since the RBC model is just a neoclassical model without any frictions. Thus, if we start with a model with frictions and take those frictions away, we have a frictionless model.
The purpose of the original RBC models was not necessarily to argue that these models represented an accurate portrayal of the business cycle, but rather to see how much of the business cycle could be explained without the appeal to frictions. The basic idea is that there could be shocks to tastes and/or technology…
View original post 952 more words
Utopia, you are standing in it! 
Recent Comments