TY  - JOUR
AU  - King,Robert G.
AU  - Rebelo,Sergio T.
TI  - Resuscitating Real Business Cycles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7534
PY  - 2000
Y2  - February 2000
UR  - http://www.nber.org/papers/w7534
L1  - http://www.nber.org/papers/w7534.pdf
N1  - Author contact info:
Robert King
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-5941
E-Mail: rking@bu.edu

Sergio Rebelo
Northwestern University
Kellogg School of Management
Department of Finance
Leverone Hall
Evanston, IL  60208-2001
Tel: 847/467-2329
Fax: 847/491-5719
E-Mail: s-rebelo@northwestern.edu
AB  - The Real Business Cycle (RBC) research program has grown spectacularly over the last decade, as its concepts and methods have diffused into mainstream macroeconomics.  Yet, there is increasing skepticism that technology shocks are a major source of business fluctuations.  This chapter exposits the basic RBC model and shows that it requires large technology shocks to produce realistic business cycles.  While Solow residuals are sufficiently volatile, these imply frequent technological regress.  Productivity studies permitting unobserved factor variation find much smaller technology shocks, suggesting the imminent demise of real business cycles.  However, we show that greater factor variation also dramatically amplifies shocks: a RBC model with varying capital utilization yields realistic business cycles from small, nonnegative changes in technology.
ER  -