Jakub Gazda

Department of Microeconomics

Poznan University of Economics

j.gazda@ue.poznan.pl

Real Business Cycle Theory – Methodology and Tools

ABSTRACT. The Real Business Cycle (RBC) research program has grown spectacularly over the last two decades, as its concepts and methods have diffused into mainstream macroeconomics. In its primary version it bases on growth model with neoclassical production function which is subject to a stochastic supply shocks. Simultaneously employing in analysis rational agent which decides about labor input and deserved consumption allows to develop model following cyclical fluctuations observed in the economy. In order to do so multistage calibration-simulation procedure is used.

The main aim of the article is to present methodological innovations introduced by RBC proponents such as: Hodrick Prescott filter, and multistage calibration-simulation procedure.

Received: March, 2010

1st Revision: March, 2010

Accepted: April, 2010

JEL Classification: B21, B41

Keywords: modern business cycle theory, real business cycle, hodrick prescott filter, calibration-simulation procedure.