NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Bennett T. McCallum

NBER Working Paper No. 1933 (Also Reprint No. r0819)
Issued in June 1986
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w1933

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 1986, pp. 397-414.

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