Building Blocks of Market Clearing Business Cycle Models
Kevin M. Murphy
University of Chicago; National Bureau of Economic Research (NBER)
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Robert W. Vishny
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
NBER Working Paper No. w3004
We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on co-movement of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.
Number of Pages in PDF File: 53
Date posted: December 29, 2006
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