Real Business Cycles

Chapter 25Real business-cycle theory^*

Wisdom or whimsy?

Journal of Economic Dynamics and Control

Martin Eichenbaum Northwestern University, NBER and The Federal Reserve Bank of Chicago

Received January 1990

This paper assesses the empirical plausibility of the view that aggregate productivity shocks account for most of the variability in post-World War II US output. We argue that the type of evidence forwarded by proponents of this proposition is too fragile to be believable. The answer could be 70% as Kydland and Prescott (1989) claim, but the data contain almost no evidence against either the view that the answer is really 5% or that the answer is really 200%. Moreover point estimates of the importance of technology shocks are extremely sensitive ...