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Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations

Lawrence J. Christiano and Martin Eichenbaum
The American Economic Review
Vol. 82, No. 3 (Jun., 1992), pp. 430-450
Stable URL: http://www.jstor.org/stable/2117314
Page Count: 21
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Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations
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Abstract

Hours worked and the return to working are weakly correlated. Traditionally, the ability to account for this fact has been a litmus test for macroeconomic models. Existing real-business-cycle models fail this test dramatically. We modify prototypical real-business-cycle models by allowing government consumption shocks to influence labor-market dynamics. This modification can, in principle, bring the models into closer conformity with the data. Our empirical results indicate that it does.

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