On "real" and "sticky-price" theories of the business cycle
Pengarang:
McCallum, Bennett T. -
Deskripsi
Examines the competing "real" (RBC) and "sticky-price" theories of business cycles, assessing their empirical validity and theoretical coherence. The RBC theory, which attributes economic fluctuations to real shocks like technology changes while denying significant monetary policy effects, is scrutinized through three key empirical claims: (1) Kydland and Prescott’s (1982) calibration approach, (2) VAR studies by Sims (1980, 1982) and Litterman-Weiss (1985), and (3) Nelson-Plosser’s (1982) trend-cycle decomposition. McCallum argues that none of these conclusively support RBC models, as they either lack tests for monetary neutrality or misattribute causality due to omitted variables.
McCallum proposes that the computational costs of indexation outweigh its benefits for most transactions, rationalizing nominal price stickiness. He also critiques Lucas’s (1985) claim that business cycle costs are trivial, noting its reliance on the natural-rate hypothesis and exclusion of potential welfare gains from stabilization policies.
McCallum proposes that the computational costs of indexation outweigh its benefits for most transactions, rationalizing nominal price stickiness. He also critiques Lucas’s (1985) claim that business cycle costs are trivial, noting its reliance on the natural-rate hypothesis and exclusion of potential welfare gains from stabilization policies.