Real Business Cycles

Chapter 9The Labor Market in Real Business Cycle Theory^*

Federal Reserve Bank of Minneapolis Quarterly Review, Spring 1992, pp. 2-12.

Gary D. Hansen Professor of Economics University of Colombia, Los Angels

Randall Wright Senior Economist Research Department Federal Reserve Bank of Minneapolis and Professor of Economics University of Pennsylvania

The basic objective of the real business cycle research program is to use the neoclassical growth model to interpret observed patterns of fluctuations in overall economic activity. If we take a simple version of the model, calibrate it to be consistent with long-run growth facts, and subject it to random technology shocks calibrated to observed Solow residuals, the model displays short-run cyclical behavior ...