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Granger Causality and Equilibrium Business Cycle Theory


Yi Wen


Federal Reserve Bank of St. Louis - Research Department; Tsinghua University
December 2006

FRB of St. Louis Working Paper No. 2005-038B

Abstract:     
Post-war US data show that consumption growth Granger causes output and investment growth. This is puzzling if technology is the driving force of the business cycle. I ask whether general equilibrium models with information frictions and non-technology shocks can rationalize the observed causal relations. My conclusion is they cannot.

Number of Pages in PDF File: 17

Keywords: Granger Causality, Real Business Cycle, Aggregate Demand, Inventories

JEL Classification: E13, E32

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Date posted: December 13, 2006  

Suggested Citation

Wen, Yi, Granger Causality and Equilibrium Business Cycle Theory (December 2006). FRB of St. Louis Working Paper No. 2005-038B. Available at SSRN: http://ssrn.com/abstract=950976 or http://dx.doi.org/10.2139/ssrn.950976

Contact Information

Yi Wen (Contact Author)
Federal Reserve Bank of St. Louis - Research Department ( email )
411 Locust St
Saint Louis, MO 63011
United States
314-444-8559 (Phone)
314-444-8731 (Fax)
Tsinghua University
Beijing, 100084
China
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