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REAL BUSINESS CYCLES AND THE LUCAS PARADIGM
Author(s) -
Froyen Richard T.,
Waud Roger N.
Publication year - 1988
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1988.tb01488.x
Subject(s) - business cycle , economics , real economy , keynesian economics , monetary policy , lucas critique , monetary economics , econometrics
When the Lucas paradigm is generalized to include real effects, the effects of real factors and monetary factors on the business cycle are always interrelated. Furthermore, in such models monetary factors can affect the long‐run behavior of real output, contrary to the commonly held view that they cannot. Real business cycle models and Lucas‐type models are different paradigms, but not in the sense of real versus monetary. Rather, interrelationships between real and monetary factors are intrinsic to the Lucas paradigm, whereas the real business cycle literature implies a dichotomy between real and monetary factors.