On "Real" and "Sticky-Price" Theories of the Business Cycle

38 Pages Posted: 19 Jun 2004 Last revised: 28 Mar 2010

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: June 1986

Abstract

This paper begins 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.

Suggested Citation

McCallum, Bennett T., On "Real" and "Sticky-Price" Theories of the Business Cycle (June 1986). NBER Working Paper No. w1933, Available at SSRN: https://ssrn.com/abstract=344764

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