Production, growth and business cycles. I. The basic neoclassical model

Robert G. King*, Charles I. Plosser, Sergio T. Rebelo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

942 Scopus citations

Abstract

This paper presents the neoclassical model of capital accumulation augmented by choice of labor supply as the basic framework of modern real business cycle analysis. Preferences and production possibilities are restricted so that the economy displays steady state growth. Then we explore the implications of the basic model for perfect foresight capital accumulation and for economic fluctuations initiated by impulses to technology. We argue that the neoclassical approach holds considerable promise for enhancing our understanding of fluctuations. Nevertheless, the basic model does have some important shortcomings. In particular, substantial persistence in technology shocks is required if the model economy is to exhibit periods of economic activity that persistently deviate from a deterministic trend.

Original languageEnglish (US)
Pages (from-to)195-232
Number of pages38
JournalJournal of Monetary Economics
Volume21
Issue number2-3
DOIs
StatePublished - Jan 1 1988

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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