Working Paper: NBER ID: w3004
Authors: Kevin M. Murphy; Andrei Shleifer; Robert W. Vishny
Abstract: We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on co-movement of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.
Keywords: business cycle models; real business cycle; increasing returns; productivity shocks
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor Productivity (O49) | Real Wages (J31) |
| Labor Productivity (O49) | Labor Input (J29) |
| Labor Input (J29) | Output (Y10) |
| Productivity Shocks (O49) | Labor Productivity (O49) |
| High Capital Stock (E22) | Productivity Shocks (O49) |
| Immobility of Labor (J62) | Comovement of Labor Inputs and Outputs (J69) |
| Imperfect Capital Markets (D52) | Comovement of Labor Inputs and Outputs (J69) |
| Economic Booms (E32) | Labor Productivity (O49) |
| Increasing Returns Model (F12) | Predictions Similar to Technological Shock Model (O33) |