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Business cycle accounting is an accounting procedure used in macroeconomics to decompose business cycle fluctuations into contributing factors. The procedure was introduced by V. V. Chari, Patrick Kehoe, and Ellen McGrattan but is similar to techniques introduced earlier. The underlying premise of the procedure is that the economy has a long ...
Another set of models tries to derive the business cycle from political decisions. The political business cycle theory is strongly linked to the name of Michał Kalecki who discussed "the reluctance of the 'captains of industry' to accept government intervention in the matter of employment". [57]
Procyclical and countercyclical variables are variables that fluctuate in a way that is positively or negatively correlated with business cycle fluctuations in gross domestic product (GDP). The scope of the concept may differ between the context of macroeconomic theory and that of economic policy –making.
Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks. [1] RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment.
Thus, the four-sector model includes (1) households, (2) firms, (3) government, and (4) the rest of the world. It excludes the financial sector. The foreign sector comprises (a) foreign trade (imports and exports of goods and services) and (b) inflow and outflow of capital (foreign exchange). [ 18 ]
Hayek created the Austrian business cycle theory, which synthesizes Menger's capital theory and Mises's theory of money and credit. [226] The theory proposes a model of inter-temporal investment in which production plans precede the manufacture of the finished product.
The Austrian business cycle theory (ABCT) is an economic theory developed by the Austrian School of economics seeking to explain how business cycles occur. The theory views business cycles as the consequence of excessive growth in bank credit due to artificially low interest rates set by a central bank or fractional reserve banks. [ 1 ]
Early real business-cycle models postulated an economy populated by a representative consumer who operates in perfectly competitive markets. The only sources of uncertainty in these models are "shocks" in technology. [2] RBC theory builds on the neoclassical growth model, under the assumption of flexible prices, to study how real shocks to the ...