Real Business Cycle Theory

Definition: Real business cycle theory is a class of theories explored first by John Muth (1961), and associated most with Robert Lucas. The idea is to study business cycles with the assumption that they were driven entirely by technology shocks rather than by monetary shocks or changes in expectations.

Shocks in government purchases are another kind of shock that can appear in a pure real business cycle (RBC Theory) model.

Terms related to Real Business Cycle Theory:

• Business Cycle Frequency
• New Economy
• Unemployment

About.Com Resources on Real Business Cycle Theory:

• What is the Business Cycle?
• A Beginner's Guide to Economic Indicators
• Recession? Depression? What's the difference?

Writing a Term Paper? Here are a few starting points for research on Real Business Cycle Theory:

Journal Articles on Real Business Cycle Theory:

• Some skeptical observations on real business cycle theory
• Household production in real business cycle theory
• Methodological and empirical issues in real business cycle theory