TY  - JOUR
AU  - Rotemberg,Julio J.
AU  - Woodford,Michael
TI  - Is the Business Cycles a Necessary Consequence of Stochastic Growth?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4650
PY  - 1994
Y2  - February 1994
UR  - http://www.nber.org/papers/w4650
L1  - http://www.nber.org/papers/w4650.pdf
N1  - Author contact info:
Julio J. Rotemberg
Graduate School of Business
Harvard University, Morgan Hall
Soldiers Field
Boston, MA  02163
Tel: 617/495-1015
Fax: 617/496-5994
E-Mail: jrotemberg@hbs.edu

Michael Woodford
Department of Economics
Columbia University
420 W. 118th Street
New York, NY 10027
Tel: 212/854-1094
Fax: 212-854-8059
E-Mail: mw2230@columbia.edu
AB  - We compute the forecastable changes in output, consumption, and hours implied by a VAR that includes the growth rate of private value added, the share of output that is consumed, and the detrended level of private hours.  We show that the size of the forecastable changes in output greatly exceeds that predicted by a standard stochastic growth model, of the kind studied by real business cycle theorists. Contrary to the model's implications, forecastable movements in labor productivity are small and only weakly related to forecasted changes in output.  Also, forecasted movements in investment and hours are positively correlated with forecasted movements in output.  Finally, and again in contrast to what the growth model implies, forecasted output movements are positively related to the current level of the consumption share and negatively related to the level of hours.  We also show that these contrasts between the model and the observations are robust to allowance for measurement error and a variety of other types of transitory disturbances.
ER  -