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Building Blocks of Market Clearing Business Cycle Models

53 Pages Posted: 29 Dec 2006  

Kevin M. Murphy

University of Chicago; National Bureau of Economic Research (NBER)

Andrei Shleifer

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)

Date Written: June 1989

Abstract

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

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

Kevin M. Murphy (Contact Author)

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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Cambridge, MA 02138
United States
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617-496-1708 (Fax)

HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Robert W. Vishny

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-702-2522 (Phone)
312-702-0118 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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