An Inquiry into Modern Business Cycle Theory

Authors

  • Dobrescu M. Monica

Abstract

This paper provides a synthetic insight into the main business cycle theories emerged during the twentieth century, following Keynes’ General Theory, namely the New Classical and the New Keynesian theories. Essentially, economists today are addressing the same issues that they did several decades ago: How can we account for the different growth rates and various fluctuations observed in national economies? Which are the economic policies most suitable to solve these issues? The New Classicals believe that business cycles can best be understood within the market-clearing model, whereby markets are perfectly competitive and prices adjust instantly. To explain fluctuations, these economists focus on monetary disturbances, technology shocks or the intertemporal substitution of leisure. Conversely, the New Keynesians believe business fluctuations reflect market failures of various sorts. The New Keynesians investigate the role of nominal and real imperfections and analyze the business cycle in terms of monopolistic competition, menu costs or efficiency wages.

Keywords: Monetary business cycles, Real business cycles, Monetary neutrality, Nominal and Real rigidities, Menu costs.

 

References

Samuelson P (1958) An Exact Consumption-Loan Model of Interest with or without the Contrivance of Money, Journal of Political Economy 66.

Mankiw, N. Gregory (1989) Real Business Cycles: A New Keynesian Perspective, Journal of Economic Perspectives, 3, 3.

Long JB, Jr Plosser, Ch L (1983) Real Business Cycles, Journal of Political Economy, 91.

Barro RJ (1976) Rational Expectations and the Role of Monetary Policy, Journal of Monetary Economics, 2.

Barro, RJ (1984) Rational Expectations and Macroeconomics in 1984, AEA Papers and Proceedings, 74 2.

Ball L (1985) Inter temporal Substitution and Constraints on Labor Supply: Evidence from Panel Data, manuscript, MIT Press.

Altonji JG (1986) Inter temporal Substitution in Labour Supply: Evidence from Micro Data, Journal of Political Economy, part 2, 94.

Mankiw NG (1991) The Reincarnation of Keynesian Economics, NBER Working Paper no 3885.

Summers LH (1988) Should Keynesian Economics Dispense with the Phillips Curve?,in Rod Cross – Unemployment, Hysteresis and the Natural Rate Hypothesis, Basil Blackwell.

Lilien DM (1982) Sectoral Shifts and Cyclical Unemployment, Journal of Political Economy, no.90.

Barro, RJ (1987) Macroeconomics, John Wesley&Sons, New York.

Ball L, Romer D (1987), Are Prices Too Sticky? Working Paper 2171, NBER.

Abraham K, Katz L (1986) Cyclical Unemployment: Sectoral Shifts or AggregateDisturbances?†Journal of Political Economy, 94 (3).

Murphy, K., Topel, R (1987) The Evolution of Unemployment in the United States 1968-1985, NBER Macroeconomics Annual, 2, 11-58.

Mankiw NG (1985) Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopolyâ€, Quarterly Journal of Economics, 100: 529-37.

Akerlof GA, Yellen JL (1985) A Near Rational Model of the Business Cycle, with Wage and Price Inertia, Quarterly Journal of Economics, Supplement, 100:5, 823-38.

Ball L, Romer D (1990) Real Rigidities and the Non-Neutrality of Money, Review of Economic Studies, April 1990, no.57: 183-203.

Carlton DW (1986) The Rigidity of Prices, American Economic Review 76.

Cecchetti SG (1986) The Frequency of Price Adjustment: A Study of the Newsstand Prices of Magazines, Journal of Econometrics, 31: 255-74.

McCallum B (1986) On “Real†and “Sticky-Price†Theories of the Business Cycle, Journal of Money, Credit and Banking, 18: 397-414.

Blanchard O, Kiyotaki N (1987) Monopolistic Competition and the Effects of Aggregate Demand, American Economic Review, 77: 647-666.

Blanchard OJ, Summers L (1986) Hysteresis and the European Unemployment Problem, in Fischer, Stanley - ed., NBER Macroeconomics Annual, MIT Press.

Ball L, Mankiw NG, Romer D (1988) – The New Keynesian Economics and the Output-Inflation Trade-off, Brookings Papers on Economic Activity, no. I: 16-17.

Beaud M, Dostaler, G (2000) Gândirea economică de după Keynes, Ed. Eurosong& Book, Bucuresti.

Bernanke B, Gertler M (1989) Agency Costs, Net Worth and Business Fluctuations, American Economic Review, 79: 14-31.

Blanchard, OJ (2000) What Do We Know About Macroeconomics that Fisher and Wicksell Did Not? NBER Working Paper no.7550, 2000.

Blanchard, Olivier J (1982) Price De synchronization and Price Level Inertia, NBER Working Paper no.900: 3-24.

Blanchard OJ (1983) Price a synchronization and Price Level Inertia, in Rudiger Dorn busch, Mario H. Simonsen – Inflation, Debt and Indexation, MIT Press.

Buiter WH (1981) The Superiority of Contingent Rules over Fixed Rules in Models with Rational Expectations, Economic Journal, 91: 647-670.

Diamond PA (1982) Aggregate Demand Management in Search Equilibrium, Journal of Political Economy, 90: 881-94.

Friedman, M. (1968). The Role of Monetary Policy, American Economic Review, no. 58.

Hall, Robert E (1989) A Framework for Studying Monetary Non-Neutrality, NBER Working Paper 31-45.

Lucas RE, Jr (1972) Expectations and the Neutrality of Money, Journal of Economic Theory, 4.

Lucas RE, Jr (1973) Some International Evidence on the Output-Inflation Trade-off, American Economic Review, 63(3): 326-334

Lucas RE, Jr (1976). Econometric Policy Evaluation: A Critique, J .Money. Econ., Suppl. Series, I,19-46, 62

Lucas RE, Jr Sargent, Thomas J (1978) After Keynesian Macroeconomics, in After the Phillips Curve: Persistence of High Inflation and High Unemployment, Federal Reserve Bank of Boston, Boston.

Lucas RE, Jr (1980) Rules, Discretion, and the Role of the Economic Advisor, in S. Fischer, Rational Expectations and Economic Policy, Chicago, NBER, 199-210.

Lucas RE, Jr (1980) The Death of Keynesian Economics, Issues and Ideas (winter), University of Chicago Press.

Lucas RE, Jr (1990) Nobel Lecture: Monetary Neutrality, Journal of Political Economy, 1996, 104, 4.

Mankiw NG (1988) Recent Developments in Macroeconomics: A Very Quick Refresher Course, Journal of Money, Credit and Banking 2.

Mankiw NG (1990) A Quick Refresher Course in Macroeconomics, Journal of Economic Literature, 28.

Phelps, E. S. (1968) Money-Wage Dynamics and Labour Market Equilibrium, Journal of Political Economy, 76.

Phelps ES (1970) The New Microeconomics in Employment and Inflation Theory, New York, Norton.

Phelps, ES (1988) Comment on Recent Developments in Macroeconomics: A Very Quick Refresher Course", Journal of Money, Credit and Banking, 20, (3): 456-58.

Phillips AW (1958) The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom 1861-1957, Econometrical.

Romer, D (1993) The New Keynesian Synthesis, Journal of Economic Perspectives, vol.7, Winter 5-22.

Published

2018-01-05

How to Cite

M. Monica, D. “An Inquiry into Modern Business Cycle Theory”. International Journal of Advances in Management and Economics, Jan. 2018, https://managementjournal.info/index.php/IJAME/article/view/29.