Working Paper: NBER ID: w2882
Authors: N. Gregory Mankiw
Abstract: This paper is a critique of the latest new classical theory of economic fluctuations. According to this theory, the business cycle is the natural and efficient response of the economy to exogenous changes in the available production technology. This paper discusses several versions of this theory and argues that this line of research is unlikely to yield an empirically plausible explanation of observed economic fluctuations.
Keywords: Business Cycles; New Classical Theory; Keynesian Economics
JEL Codes: E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in government purchases (H59) | Increase in output (E23) |
| Increase in government purchases (H59) | Increase in employment (J23) |
| Increase in government purchases (H59) | Increase in real interest rate (E43) |
| Increase in real interest rate (E43) | Increase in labor supply (J20) |
| Increase in real interest rate (E43) | Increase in current labor supply due to intertemporal substitution of leisure (J29) |
| Decrease in real wage during recession (F66) | Demand for more leisure (J29) |