Building Blocks of Market Clearing Business Cycle Models

Kevin M. Murphy, Andrei Shleifer, Robert W. Vishny

NBER Working Paper No. 3004^*
Issued in June 1989
NBER Program(s):   EFG

---- Abstract -----

We compare "real business cycle" and increasing returns models of

economic fluctuations. In these models, business cycles are driven by

productivity changes resulting either from technology shocks or from crucial

building blocks that give both types of models hope of fitting the data.

These building blocks include durability of goods, specialized labor,

imperfect credit and elastic labor supply. We also present new evidence on

comovernent of both outputs sand labor inputs across sectors and on the

increasing returns model is easier to reconcile with the data than the real

business cycle model.

^*Published: "Building Blocks of Market Clearing Business Cycle Models" NBER Macroeconomic Annual 1989. Cambridge, MA: MIT Press, 1989.

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