Granger Causality and Equilibrium Business Cycle Theory
Federal Reserve Bank of St. Louis - Research Department; Tsinghua University
FRB of St. Louis Working Paper No. 2005-038B
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, E32working papers series
Date posted: December 13, 2006
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