The limits of business cycle research: assessing the real business cycle model

Abstract

The real business cycle model dominates business cycle research in the new classical tradition. Typically, real business cycle modellers both offer the bold conjecture that business cycles are equilibrium phenomena driven by technology shocks and also novel strategies for assessing the success of the model. This article critically examines the real business model and the assessment strategy, surveys the literature supporting and opposing the model, and evaluates the evidence on the empirical success of the model. It argues that, on the preponderance of the evidence, the real business cycle model is refuted.