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Ekonomi dan Keuangan Indonesia Volume X L I V Nomor 4 , 1 9 9 6Real Business Cycles:A Survey of Theories And EvidenceSirajuddin AhmadAbstrakKontroversi seputar siklus bisnis masih tetap menjadi pembicaraan hangat, danteori RBC (Real Business Cycle) merupakan pusat dari perdebatan hangattersebut. Secara sederbana, teori RBC dapat digambarkan sebagai sebuah modelyang mencoba menjelaskan fluktuasi agregat dalam siklus bisnis melaluigoncangan (shock) riel dalam perekonomian, seperti produktivitas dan teknoiogi.Studi empiris yang dilakukan temyatamendukung hipotesa RBC yangmengatakan bahwa goncangan eksogen riel (goncangan dalam produksi danteknoiogi) merupakan faktor yang paling penting dalam menentukan fluktuasiagregat. Namun, kemampuan model RBC dalam menjelaskan gejala dunia nyatatidak serta merta berarti bahwa variabel moneter tidak memiliki peranan. Kehatihatian tetap diperlukan dalam menggunakan model RBC sebagai alat analisis.Artinya,tetap diharapkan adanya sebuah model yang lebih lengkap dalammenggambarkan perilaku ekonomi; sebuah model yang memasukkan setiapvariabel-variabel utama, baik riel maupun moneter. Dipandang dari sudut ini,model RBC dapat dikatakan jauh dari sempurna. Atau dengan kata lain, modelini belum sepenuhnya berhasil dalam menjelaskan siklus bisnis.341
Ahmad1.INTRODUCTIONThere has been n oother topics i n the field o fMacroeconomicsarousedso manycontroversiesthant h e topicwhich haveof explaining a n dpredicting business cycles. A n d real business cycle (RBC) t h e o r y is at t h eforefront o f this heated debate. O n e o f t h eearliest a n d m o s t i n f l u e n t i a lw r i t i n g about business cycles is a s t u d y b y M i l t o n F r i e d m a n a n dSchwartzAnnaabout t h e m o n e t a r y history o f U n i t e d States i n w h i c htheyargue that t h emajor factor determining u p s w i n g s a n dd o w n s w i n g s o feconomic activity is changes i nm o n e y supply. This result constitute t h estrongest v i e w u n t i l K y d l a n d a n d Prescott w r o t e their s e m i n a l article i n1982 w h i c h m a r k e d t h e t u r n i n g p o i n t i nb u s i n e s s cycles analyses.Theysuggest that real factors rather t h a n m o n e t a r y factors a r eresponsible f o rmost macro-economicfluctuations.Despite the c o n t i n u i n g controversies s u r r o v m d i n g the issue, this n e wapproachh a s w o n substantial s u p p o r t f r o m a w i d e circle o f a c a d e m i ceconomists. There is even suggestion that R B C is the tool b y w h i c h the socalledN e w edB u t o n e should b e skepticaloverthe N e wi n t h e sense thatstrong empirical support must be t h e m a i n yardstick t o evaluate t h estrength o f t h e competingtheories. I n fact, w e o u g h t t o b e h o n e s t i ns a y i n g that b o t h c a m p s w o u l d b e less c o n f i d e n t w h e n faced w i t ham u l t i t u d e o f procedures and m e t h o d s o f empirical exercise w h i c h couldarguably produce differing conclusionspurposeo f thisarticleto explaina n d inferences.thesealternativeIt is o n e o f t h emethodsandprocedures. Clarification o f these w i l l be imperative before w ec a n m a k eany j u d g m e n t as to w h e t h e r particular R B C propositions are successful o rotherwise.Real business cycle (RBC) theory c a nb e s i m p l y described as thosem o d e l s that t r y t oe x p l a i n aggregate fluctuations i n business cycles b y thereal shocks t o t h e economy like productivity a n dtechnologicalM o n e t a r y disturbanceshave n o role whatsoeverwords, monetary m o v e m e n t is consideredshocks.i n this j o b . I n otherm o r e as a tail t o t h e o u t p u tdog according t o this argument. I t is further argued that fluctuations i noutputis i n n o w a y t h e result o f policyanticipation o f t h e laggedmistakeswithregardtoi m p a c t o f m o n e t a r y a n d fiscal shocks. T h eu p t u r n a n d d o w n t u r n o f the economic activity are the o u t c o m e o f rational342
Real Business Cycles: A Survey of Theories and Evidencedecision m a k i n g b yindividuals and firms acting t o optimize their utilitiesa n d p r o f i t s i n response t o stochastic shifts i n p r o d u c t i o n f u n c t i o n .R B C theory i s also notable f o ri t s emphasis i n d y n a m i c analyses.Thus, i tprovides the f r a m e w o r k t o determine, a m o n g other things, h o ws h o c k s a t a specific t i m e o r i n one sector o f the e c o n o m y i n f l u e n c e o t h e rsectors a tother f u t u r e t i m e (propagation mechanism) a n d t o vmderstandthe d y n a m i c s o fthe adjustment process i n v o l v e d . T h i s article i sorganized as f o l l o w s . I n the next part, w ew i l l discussthe basic characteristics a n d properties o fthe R B C m o d e l s i n order t o gaina t h o r o u g h imderstanding beforew e c a nsensiblyt r yt o survey theempirical evidence. Part 3 w i l l then focus o n the methods a n dproceduresused b y empirical researchers i n the field f o l l o w e d b y the m a i n results o fempirical studies t odate. Finally, w eproceed t oprovide s o m e e v a l u a t i o nof the success o fR B C m o d e l s together w i t h concluding r e m a r k s i n Part 4 .II.CHARACTERISTICS OF RBC MODELSSince t h e p u b l i c a t i o n o f t h e s e m i n a l article b y K y d l a n d a n d Prescott(1982), p r o p o n e n t s o f R B C t h e o r y f r e q u e n t l y u s e t h e s i m p l eprototypem o d e l t odescribe the basic features o f R B C analysis. T h e m o d e l typicallyhas t h e assumption o f two-period decision m a k i n g f r a m e w o r k a n d a neconomyw h i c h is ordy composedo f o n e i n d i v i d u a l w h o acts a sa no p t i m i z i n g consumer and producer, popularized asthe "Robinson Crusoeeconomy". Nevertheless, t h eapparent simplicity is not a t all a seriousp r o b l e m since,i t is contended,that RobinsonCrusoe'sequilibriumincome (among other things) w o u l d b e identical w i t h t h e income p e rcapita resulting f r o m t h e competitive e q u i l i b r i u m outcome o f a m a n y agents m o d e l . A s p o i n t e d o u t b y Plosser (1989), this result dates b a c k t oearlier w o r k s b y D e b r e u (1954) a n d Prescott a n d Lucas (1972). T h e logicbehind this isquite straight f o r w a r d : all agents i n the many-agentshave identical preferencesmodela n d e n d o w m e n t s , s oi t i spossible t o analysesthe Pareto-optimal behavior o fthe economy i nterms o fthe behavior o fRobinson Crusoe asthe representativeItis importantrepresentativeagentt o noteagent.o n e importantassumptionthat t h eobtains t h e same utility from t h esame units o fcurrent a n d f u t u r e c o n s u m p t i o n . T h i s is reflected i nt h e m a t h e m a t i c a lf o r m o fthe utility function b y the same weights attached t o c o n s u m p t i o n343
Ahmadin different periods. Beside the utility function, the m o d e l iscomposed o fseveralothertechnologybasic equationsa n d resourcew h i c h representconstraints.market failures and ionsfunction,include n oa n d n o vmcertainty faced b y t h eagent.As a producer, the representative agent m a x i m i s e s profits subject t oa p r o d u c t i o n f u n c t i o n o fthe u s u a l constant-retums-to-scalea consumer,type. A n d ash e maximizes expected utility over a n infinite horizon,deciding i n each period o n a level of labor supply, a level of consumption,c„ a n d t h e r e f o r e i m p l i c i t l y o n a l e v e l o f i n v e s t m e n t i t t h a t d e t e r m i n e s t h eevolutiono f capitalstock.I n mostproduction function isassumedR B C models,Cobb-Douglas(Plosser (1991); G r e e n w a l d a n d Stiglitz(1988)], i.e.,Y, e,lfky(1)w h e r e Y , i s r e a l o u t p u t , 1, i s l a b o r i n p u t , k , i s c a p i t a l s t o c k , a n d s , i s ar a n d o m technologyshock.T h e competitive e q u i l i b r i u m i n the p r o t o t y p e m o d e l , w h i c h is alsothe solution t o t h ehousehold'sgivent h eproduction technology,inter-temporal optimization problemc a nb e characterizedas a set o ff u n c t i o n s r e l a t i n g t h e t w o s t a t e v a r i a b l e s , t e c h n o l o g y (e,) a n d t h e c a p i t a ls t o c k (A:,), t o o u t p u t ( Y , ) , t h e l e v e l o f l a b o r s u p p l i e d (/,), a n d t h e l e v e l o fi n v e s t m e n t (/,):y, y(K ,),I, Uk„ ,),i, i(k„e,)(2)B y u s e o f t h e s i m p l e s t r u c t u r e a b o v e i t i s e a s y t o see h o wshocksinfluenceimderstandingexogenoust h e valueso f a l l variables.theworkings o f themodel,shockis propagatedI n otherexogenouswords, b yw e c a n traceinto t h eeconomy.how anF o rexample,at e m p o r a r y p r o d u c t i v i t y shock w i l l h a v e the effect o f increasedinvestmentinperiod i ncurrentperiod,a n d reducedworkefforti n futurecompensation for increased w o r k effort i n the current period. Thesewillin t u r n cause higher output, consumption, a n d leisure i n f u t u r e period. I fthe shock i sconceived t ob e persistent, the e q u i l i b r i u m o u t c o m e w i l l b eslightly different, resulting i n higher w e a l t h i nfuture periods. 344(Plosser,
Real Business Cycles: A Survey of Theories and Evidence1991).T h e i n t e r - t e m p o r a l n a t u r e o f the decision r u l e s is also e v i d e n t w h e nthe illustration i s reversed. I t is easy t o see that a n increase i n t h ep r o d u c t i v i t y o f t o m o r r o w ' s capital stock,increasedinvestmentreducingconsumptiontoday; this higherf o rexample,investmentand b y increasingworkwilllead t ois obtained b yeffort. T o s u mfluctuation o f o u t p u t is determined b y realizations o f theup,exogenoustechnology shocks i n both periods.One of the most important notion i n RBC models isthepersistenceof shocks o n production fluctuations. Thus, contrary to traditional (nonR B C ) models, exogenous shocks like technological a n d taste shocks w i l li n v o l v e p e r m a n e n t effects o n the e v o l u t i o n o f o u t p u t . A p a r t f r o m this,R B C p r o p o n e n t s also seek t o e x p l a i n the so called "stylized facts" o f m o s tdevelopedecononues,i.e,serial correlation i n economicaggregates,c o m o v e m e n t a m o n g economic activities, leading o r lagging characters o fvariables relative t o output, and different amplitudes o r volatility'so fv a r i o u s series (Plosser, 1989).IF u r t h e r m o r e , it i si m p o r t a n t to note the i m p l i c a t i o n o fthe result o fbasic R B C m o d e l s t o the p r o b l e m o f g o v e r n m e n t i n t e r v e n t i o n i n themarketplace.Since t h e equilibrium outcomeis Paretooptimal, thef l u c t u a t i o n is o p t i m a l f o r t h e representative agent i n the R u b i n s o n C r u s o eeconomya n d f o r a l l agentsi n many-agentsmodel.g o v e r n m e n t t o offset this fluctuation w i l l o n l y reduceAttempts b ywelfaresinceagents w o u l d i n t h a t case resort t o s u b - o p t i m a l choice [Plosser (1989) a n dHuha n d T r e h a n (1991)]. Plosser (1989) a r g u e d that the i n t r o d u c t i o n o fdistortionaiy taxes b y the g o v e r n m e n t generaUy breaks the l i n k b e t w e e nRobinsonCrusoe'so p t i m a l decisionsandcompetitive equilibrium imder governmentParetoefficiency.But thei n t e r v e n t i o n c a n still b ecomputed b y taking the government spending a n d taxing policies asgiven i n m a n y agents choice problem.A n o t h e r i m p o r t a n t feature o f the basic R B C m o d e l s relates t o therelative volatility of investment. If the f o r m of the utility f u n c t i o n i s suchthat the individual does not regard consumption i n different periods asperfect substitutes, t h e n investment w i l l b e m o r e responsive t o externalshocks t h a n c o n s u m p t i o n ( H u h a n d Trehan, 1991). T h i s p h e n o m e n o n i sone m a j o r c o m p o n e n t o f the stylized facts o f the U S e c o n o m y w h i c h R B Cp r o p o n e n t s h a v e b e e n t r y i n g t o e x p l a i n . T h a t i s t o say, i n p e r c e n t a g e345
Ahmadterms,investmentvariesthreetimesas muchas output does a n dc o n s u m p t i o n o n l y half as m u c h ( K y d l a n d a n d Prescott, 1982).III. TESTING P R O C E D U R E S AND E M P I R I C A L E V I D E N C ETherea r e threemain methodseconomists t o test R B C m o d e l s :that havebeen used extensively b yt h e s o calledPrescott m e t h o d , a n d vector auto-regressionsu n i t r o o t test,(VAR). A briefHodrickexplanationof these methods is i n order.A.Unit Root TestT h e u s e o f this m e t h o d t o test R B C m o d e l s i s o r i g i n a l l y p r o p o s e d b yN e l s o n and Plosser (1982). O n e o f the strong bases o f the R B C m o d e l s i sthat exogenous shocks w i l l have a persistent a n d p e r m a n e n t effect o n thet i m e series o f p r o d u c t i o n ,economywhereasi n t h etraditional approach, t h eh a s a regular trend, t h eshocks there h a v i n g only a temporaleffect. N e l s o n a n d Plosser h a v e based their m e t h o d o nthese t w o differentapproaches o f the ultimate impact o f shocks o n the economy. T h e ythus proposedapproach,t w o types o f models: o n ecorrespondinghavet o t h e classict h e T S (trend stationary) process, o n e correspondingto theR B C theory, the D S (stationary b y difference) process. These t w omodelsh a v e v e r y different statistical properties a n d w e w i l l n o t describe t h e mhere. O n e o ft h e m i sthata n e c o n o m i c t e m p o r a l series w i l l b e T S i f thedistance t othe trend is stationary and does not have a unit root; i tw i l l b eD S if the distance t othe t r e n d possesses a i m i t root.Since persistence o fo u t p u t i s o n eo fthe m a i n propositions o f R B Cmodels, t h e n i n o r d e r t otest the v a l i d i t y o f R B C models, w e h a v e t osee i four economic series a r e D S , a n d hence i f they possess a u n i tBasically, this a m o v m t s t o d e t e r m i n i n g w h e t h e r t h e p a r a m e t e rone i n the following auto-regressiveY, Py,., ,root.p equalsmodel:with , n(0, p2)(3)N e l s o n a n d Plosser u s e D i c k e y - F u U e r test a n ds h o w that real p e rcapita o u t p u t as w e l l as m a n y other e c o n o m i c t i m e series b e h a v e a s i fthey possess a u n i t root. T h e y conclude that R B C m o d e l s w e l lthe e c o n o m y a n d its346fluctuations.represent
Real Business Cycles: A Survey of Theories and EvidenceB.The Hodrick-Prescott Detrending MethodHodrick-Prescottmethodbreaksdowna timeseriesY , into t w ocomponents:Y , g, ii,The growth componentresidual component(4)g, representsii, representsfind t h e best trend componentlong term trend, a n d t h ecyclical part (short-term). T h e y t r y t og, u n d e r t w o constraints:t h e distancebetween Y a n d g m u s t b em i n i m u m , a n d thetrend g r o w t h rate m u s t b eregular i n time. T h e trend component is the o n ethat minimises: /ZU,., -2g, g,.,)'Min Ziy,-g.y(5)For a n appropriate value o f R.H o d r i c k a n dPrescottfind a value o f k 1 6 0 0reasonable. T h eb r e a k d o w n o f economic series i n t o t r e n d a n dcyclical c o m p o n e n t sus t o study t h e characteristics o ft h e economicallowsseries i n d e p e n d e n t l y o rc o m p a r e d t o each other. A f t e r a p p l y i n g this approach t o t h e statistics o fUSeconomyconclusionsince K o r e a nthatinvestmentW a r , H o d r i c k a n d Prescottis morevariablethanarrive at t h eoutputwhilec o n s u m p t i o n i s less variable a n d capital m u c h less so. T h e v a r i a b i l i t y o fh o u r s w o r k e d isabout t h e s a m e as that o fo u t p u t a n d m o r epronovmcedt h a n t h e variability o f productivity. A l l o f these variables a r e procyclicalexcept t h e stockoutputo f capital w h o s eis nearlypropositions ofRBCC.zero.Thesecontemporaneousresultsare verycorrelationclosewithto the mainmodels.Vector Autoregressions (VAR)M u c h o f t h eempirical evidence that have been used t o support o r refuteR B C models have come f r o m studying auto-regression. O n eadvantage o fthis m e t h o d is that i t takes i n t o account t h e interdependencebetweeneconomic t i m e series. W e c a n w r i t e V A R m o d e l i n m a t r i x n o t a t i o n as:B„y, B(f)y, u,(6)w h e r e Y ,is a vector o f variables i n the m o d e l347
AhmadB„ i s a m a t r i x o f c o e f f i c i e n t s o f c o n t e m p o r a n e o u s r e l a t i o n s h i p s B ( f ) i s am a t r i x of coefficients o n lagged values of y,u , is a n e r r o r w h i c h s h o u l d b e w h i t e - n o i s e .Another advantage o fthis m e t h o d than the other ones is that i t ism o r e general. For example, w e can easily include m o n e y or d i v i d e o u t p u tshocks i n t o s u p p l y a n d d e m a n d s h o c k s i n o u r m o d e l a n d test if t h e y h a v esignificant impacts.D.Main Empirical EvidenceThebasic R B C m o d e l o f the t y p e describedi n section 2 abovewasempirically tested b y K y d l a n d a n d Prescott (1982) u s i n g s i m u l a t i o nof the"theoretical data" a n d c o m p a r i s o n o f these simulated m o d e l datawithreal w o r l d data (for U S e c o n o m y covering the period 1950:1-1979:2) w i t htheb r e a k d o w n o f cyclical c o m p o n e n t smadeusing Hodrick-Prescottmethod.The m o d e l data are obtained b ysolving the m o d e l for e q u i l i b r i u mvalues. Before the m o d e l is solved, some inputs should b e provided.Theseinclude values o f t h e parameters,which are estimatedfromresearch results elsewhere already available, a n d a s s u m e d values o f theexogenousvariables. Selection o f parameter values a r enearaveragevalues for the economy for the period being explained. For example, i fCobb-Douglas specification isadopted for production function, estimatesof t h e v a l u e o f p a r a m e t e r 0 i n e q u a t i o n (1) are t a k e n f r o m t h e e s t i m a t e s o ftheprevious researchdonef o r U n i t e d Stateso r otherdevelopedeconomies. Other example i sabout the equation concerning d e m a n d forlabor, the parameters of w h i c h m a y already be available f r o m elsewhere.Values o f free parameters (those that carmot b e preset based o navailable observation) are d e t e r m i n e d b y calibration technique, that i s ,t r y i n g several sets o f p a r a m e t e r values t o search f o r the best fit. A l lparameter values o feach equations are then plugged into the m o d e l i norder to be solved for e q u i l i b r i u m values.Since the m o d e l i sd r i v e n b y r a n d o m shocks, this i n v o l v e s repeatedd r a w s f r o m t h eprobability d i s t r i b u t i o n specified f o r t h e technologyshock process. A f t e r e q u i l i b r i u m o u t c o m e of the m o d e l are c o m p u t e d , thenecessary statistics a r e generated.Theseinclude auto-correlation o fcyclical o u t p u t for u p t osix periods, m e a n s a n d s t a n d a r d d e v i a t i o n s o f348
Real Business Cycles: A Survey of Theories and Exlidencet h e c y c l i c a l v a r i a b l e s , a n d t h e i r c o r r e l a t i o n w i t h cj' clical o u t p u t . A u t o correlation i s used t o measure the a m o u n t o f persistence o f the seriesf r o m one year to the next, w h i l e standard deviation measures the relativevolatility of the different series. T h e t e r m "cyclical" m e a n s that the t r e n dc o m p o n e n t o f the series h a v e b e e n excluded. T h e s a m e statistics are alsoproduced for the actual data to enable comparison of the m o d e l w i t h thereal w o r l d .Comparingjt h e statisticsof themodeldatawithactualdata,K y d l a n d a n d Prescott arrive a tthe conclusion that their R B C m o d e l scanm i m i c business cycle p h e n o m e n a w i t h a substantial degree o f accuracy.T h e y - f o u n d , for instance, that standard deviation o u t p u t correlation o fall m o d e l aggregates (output, consumption, investment, labor hours) arefairly close t o that o f actualdata, w i t hlabor hours beingt h e onlyexception. A slight adjustment o fthe above procedures(1989). H e used " S o l o w residuals" as measureinstead o f traditional Cobb-Douglasis adopted b y Plossero f technologicalspecification and that hasshocksenabledh i m to produce s i m u l a t e d t i m e series for the m a j o r aggregates tfiat can b ecompared directly w i t h actual U S data. H e found that the correlation o ft h e s i m u l a t e d w i t h a c t u a l d a t a r a n g e f r o m 0.52 t o 0.87, w h i c h i s f a i r l yhighOther subsequent authors differ w i t h K y d l a n d and Prescott i n a f e wthings. O n e of the most i m p o r t a n t isdetrending techniques. Forexample,Plosser (1989) d on o t use detrending (exclusion o f trend c o m p o n e n t o feach series). Instead, h eintegrates g r o w t h a n d f l u c t u a t i o n s a n dprovidesthe detrending instructions to obtain variables that possess well-defineddistributions.Concerning the detrending or s m o o t h i n g techniques, thesuggestionm a d e b y N e l s o n a n d P l o s s e r (1982) is n o t e w o r t h y . T h e y p r o p o s e a s l i g h t l ydifferent methodo f s m o o t h i n g . W h i l e K y d l a n d a n dPrescottemploys the simple Hodrick-Prescott method, their m o r e(1982)sophisticatedprocedure results i n the conclusion that variance of the innovations i n thenon-stationary componentpurely stationarym u s t b e as large o r larger t h a n that o f theo r transitory component.This, accordingt o them,w o u l d p r o v i d e a n even better empirical support for R B C hypothesisthatreal disturbance is a m u c h m o r e important source o fo u t p u t fluctuationt h a n m o n e t a r y disturbances. T h i s is possible since m o n e t a r ydisturbances349
Ahmado n l y h a v e transitory impact, a sis suggested b y t h e n e w classical school o fthought.Other assaults o n those w h o used t obelieve i n t h e importance o fm o n e y i n leading t h e business cycles are m a d e by, a m o n g others,(1989), a n d Boschen a n d M i l l s (1988). T h e f o r m e r conductsGerlacha numericalsimulation o fa n R B C m o d e l w h i c h differs f r o m previous models i n theassumption that agents o n l y observeinsteado f exogenouschanges i nendogenousvariablesshocks directly. B y t h e a i d o f K a l m a nfilteringmethod i nsolving for the competitive equilibrium, h e concludes thatmovementsi n t h eobservedreal m o n e ystockwill haverealbecause they contain i n f o r m a t i o n about real disturbances.words, only the endogenouswhichis inducedcomponenteffectsI n simplero f t h e m o n e y stock (that partb y o u t p u t change) that c a n haveeffects o n realvariables.Boschena n dMills(1988) u s e regressiontechniqueinstead o fs i m u l a t i n g a theoretical m o d e l . B y u s i n g t w o - s t a g e least s q u a r e s , t h e y testan econometricversion o f t h estandardR B C equationsystemwithadditional feature that a l l o w s the role o fm o n e t a r y aggregates as signalsof future real shocks. T h e y find that most o f t h e r e m a i n i n g v a r i a t i o n i noutput g r o w t h unexplained b y real shocks isn o t associated w i t h variousm e a s u r e s o f m o n e t a r y policy ( M l , reserves, a n d interest rates).A s far asthe role o f m o n e y is concerned, the above results should b einterpreted w i t h caution since several other studies h a v e fovmd quite aconflicting result. T h e w o r k b y B e m a n k e (1986) is t h e m o s t i m p o r t a n t i nthisrespect.B y employingamodifiedVAR(Blanchard-Watsonm e t h o d o l o g y ) t o test a v a r i a n t o f R B C m o d e l , ' B e m a n k e (1986) c o m e s u pw i t h t h e result that t h e role o f m o n e y i s also i m p o r t a n t , e v e n i n t h e n o t r e n d case. S p e c i f i c a l l y , h e f i n d s t h a t i n t h e n o - t r e n d c a s e . M l i n n o v a t i o n sexplain 1.7% o f the variance o f output a t the 3- t o 5-quarterhorizon,w h i l e interest rate i n n o v a t i o n s explain 4 7 . 0 % o f o u t p u t at t w e l v e quarters.The model is inherited from Sims (1980) and Litterman and Weiss (198S). and modified toinclude the influence of money demand shocks to output.The no-trend case is the case in which trend component is already excluded from variables inquestion. This is tspical of R B C models and. consequently, is appropriate for faircomparison in this context. In the trend case, the result usually becomes more in favor of"money matters" proposition.350
Real Business Cycles: A Survey of Theories and Evidencerv.C O N C L U D I N G R E M A R K ST h e empirical evidence discussed i n this article provides a fairly strongsupport for the R B C hypothesis that exogenoustechnological)real (productivity andshocks are the m o s t i m p o r t a n t i n d e t e r m i n i n g aggregatefluctuations. Thus, i t is a further b l o w t o the argumentsm o n e t a r y m a n i p u l a t i o n s a r ealso significant i nd e t e r m i n i n gand downswings i n economicthatfiscal-upswingsactivity. H o w e v e r , its p e r f o r m a n c e i s n o tgood enough to b eregarded as a complete m o d e l of the behavior of theeconomy asoften boasted by RBC proponents. For example, the ability ofR B C m o d e l s i n e x p l a i n i n g v o l a t i l i t y i n the labor m a r k e t is still i n d o u b t .M o r e i m p o r t a n t l y , the s o called p r o b l e m o f " m o n e t a r yrestriction" is far f r o m settled. It i sfully recognisedexclusionthat the exclusion o fm o n e t a r y v a r i a b l e s f r o m o u t p u t d e t e r m i n a t i o n is the m a i n d i s t i n g u i s h i n gfeature between R B C m o d e l s and m o n e t a r y business cycles m o d e l s .the ability o f R B C models t o m i m i c real w o r l d p h e n o m e n aSo,does notnecessarily m e a n that m o n e t a r y variables — w h i c h are subject t o apriorie x c l u s i o n — h a v e n o role. Results o f separate tests o f t h erelationshipbetween m o n e y a n d o u t p u t s o far have confirmed this particular point.M o r e precisely, the f i n d i n g s are m i x e d , a n d quite sensitive t o particularm e t h o d s a n d procedures adopted. E v e n if w e think that R B C m o d e l saree m p i r i c a l l y superior t o m o n e t a r y business cycles m o d e l s , a c a u t i o n i sabsolutely necessary. A s w a r n e d b y t w o R B C proponents (Boschen a n dMills, 1988), investigation o fthe experience of countries other t h a n U S Aa n d specific historical periods m a y p r o v i d e different results a sto the roleo f m o n e y i n business cycles.Thus, a completem o d e l o f the behavior o f the economyinclude every major variables,real and monetary. A m o n gshouldmonetaryvariables, detailed specification about the financial structure that affectsmonetary transmission mechanismss h o u l d also b e a l l o w e d for. J u d g i n gfromare far from beingthese criteria, R B Cmodelscomplete a n dsuccessful i n explaining business cycles.351
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Artinya, tetap diharapkan adanya sebuah model yang lebih lengkap dalam menggambarkan perilaku ekonomi; sebuah model yang memasukkan setiap . RBC theory is also notable for its emphasis in dynamic analyses. Thus, it prov
