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

This paper begirE 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.

^*Published: McCallum, Bennett T. "On "Real" and "Sticky-Price" Theories of the Business Cycle," Journal of Money, Credit, and Banking, Vol. 18, No. 4, November 19 86, pp. 397-414.

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