Do Equilibrium Real Business Cycle Theories Explain Post-War U.S. Business Cycles?
NBER Working Paper No. 1932
This paper presents and interprets some rw evidence on the validity of
the Real Business Cycle approach to business cycle analysis. The analysis is
conducted in the context of a nnetary business cycle model which makes
explicit one potential link between monetary policy and real allocations.
This model is used to interpret Granger causal relations between nominal and
real aggregates. Perhaps the nost striking empirical finding is that money
growth does not Granger cause output growth in the context of several
multivariate VARs and for various sample periods during the post war period in
the U.S. Several possible reconciliations of this finding with both real and
monetary business cycles models are discussed. We find that it is difficult
to reconcile our npirical results with the view that exogenous monetary
shocks were an important independent source of variation in output growth.