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.
- Ai and Bhandari: Asset Pricing with Endogenously Uninsurable Tail Risk
- Cai and Heathcote: College Tuition and Income Inequality
- Benjamin and Wright: Deconstructing Delays in Sovereign Debt Restructuring
- Chari, Nicolini, Teles: Optimal Capital Taxation Revisited
- Bhandari, Birinci, McGrattan, See: What Do Survey Data Tell Us about U.S. Businesses?
Subscribe to receive email alerts when economists from the Federal Reserve Bank of Minneapolis publish new Staff Reports, Working Papers or Economic Policy Papers. Occasionally other important news will be shared.