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On the Role of Monetary Factors in Business Cycle Models

Published online by Cambridge University Press:  17 August 2016

Fabio-Cesare Bagliano  and
Giancarlo Marini
Fabio-Cesare Bagliano
Affiliation:
London School of Economics
Giancarlo Marini
Affiliation:
University of Siena
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Summary

Granger-causality tests and innovation analyses based on Vector Autoregression models seem to deny any role for monetary factors in generating and shaping business cycle fluctuations. The present paper shows that such empirical support for Real Business Cycle theories is flawed. In particular, it is demonstrated that an extended version of the Lucas paradigm can explain the existing evidence rather accurately, when changes in policy regimes are explicitly modelled.

Résumé

Résumé

Les tests de causalité de Granger et les analyses d’innovation basées sur des modèles autoregressifs semblent nier tout rôle aux facteurs monétaires dans la genèse et la forme des variations cycliques. Notre article montre que ces méthodes empiriques ne confirment pas les théories de “Real Business Cycles”. En particulier, nous démontrons qu’une version large du paradigme de Lucas explique les faits de manière assez précise lorsque les changements de régimes sont explicite¬ment modélisés.

Keywords

023131311023131311
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 57 , Issue 1 , 1991 , pp. 3 - 19
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1991 

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Footnotes

*

We would like to thank, without implicating, Charlie Bean (LSE) and two anonymous referees for helpful comments and suggestions, and the C.N.R. (Consiglio Nazionale delle Ricerche) for financial support.

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