Chapter 10. Classical Business Cycle Analysis: Market-Clearing Macroeconomics. I. Business Cycles in the Classical Model (Sec. 10.1 ). 1. Two key questions about business cycles 2. Any business cycle theory has two components. A) The real business cycle theory.
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Classical Business Cycle Analysis: Market-Clearing Macroeconomics
b.The Solow residual is strongly procyclical in U.S. datac.But should the Solow residual be interpreted as a measure of technology?d.Measured productivity can vary even if the actual technology doesn’t change(i)Utilization is procyclical, (ii)Burnside-Eichenbaum-Rebelo evidence on procyclical utilization of capital(iii)Fay-Medoff and Braun-Evans evidence on procyclical utilization of labore.Conclusion: Changes in the measured Solow residual don’t necessarily reflect changes in technology
7. Technology shocks may not lead to procyclical productivity8.Also, the critics suggest that shocks other than productivity shocks, such as wars and military buildups, have caused business cycles
4. Davis and Haltiwanger show that there is a tremendous amount of churning of jobs both within and across industries5. But this worker match theory can’t explain all unemployment6. So can the government use fiscal policy to reduce unemployment?a. Doing so doesn’t improve the mismatch problemb. A better approach is to eliminate barriers to labor-market adjustment
The misperceptions theory is that the aggregate quantity of output supplied rises above the full-employment level when the aggregate price level P is higher than expected