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Title: Evolution of Modern Business Cycle Models: Accounting for the Great Recession

Citation Type: Working Paper

Publication Year: 2018

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Abstract: Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real business cycle models can account, respectively, for the aggregate and the cross-regional fluctuations observed in the Great Recession in the United States.

Url: http://www.nber.org/papers/w24741

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Authors: Kehoe, Patrick, J; Midrigan, Virgiliu; Pastorino, Elena

Series Title: NBER Working Paper

Publication Number: 24741

Institution: National Bureau of Economic Research

Pages: 29

Publisher Location: Cambridge, MA

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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