53 Pages Posted: 29 Dec 2006
Date Written: June 1989
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.
Suggested Citation: Suggested Citation
Murphy, Kevin M. and Shleifer, Andrei and Vishny, Robert W., Building Blocks of Market Clearing Business Cycle Models (June 1989). NBER Working Paper No. w3004. Available at SSRN: https://ssrn.com/abstract=463453