A Literature Study on Business Cycle Theory
DOI:
https://doi.org/10.54691/bcpbm.v40i.4395Keywords:
Keynesian economics; Monetarism; New classical economics; Real business cycle.Abstract
Business cycle theory is always a research focus during the last couple of decades as a tool to explain the fluctuation in economic growth. In chronological order, this review sorts out the theories trying to explain the business cycle into five main influential schools of economics based on previous studies: Keynesian economics, Monetarism, New classical economics, Real business cycle theory, and New Keynesian economics. This review summarizes these theories respectively, introducing their origins, main mechanism, related models and empirical evidence, drawbacks, and challenges they face from other economists. Meanwhile, this review also compares the differences and similarities between each theory from three aspects: the determinant of aggregate production, the driving force of the business cycle dynamics, and the effectiveness of fiscal and monetary policies. The motivation is to gain a general view of modern business cycle theory to provoke thinking in long-term growth and short-term fluctuations in economic activities to support further research.
Downloads
References
Arnold, L G. Business Cycle Theory[R]. OUP Catalogue, 2002
Samuelson, PA. Interactions between the multiplier analysis and the principle of acceleration [J]. The Review of Economics and statistics, 1939 May 1;21(2):75-8.
Dunlop, JT. The movement of real and money wage rates [J]. The Economic Journal. 1938 Sep 1;48(191):413-34.
Tarshis, L. Changes in real and money wages. The Economic Journal[J]. 1939 Mar 1;49(193):150-4.
Laidler, D. An elementary monetarist model of simultaneous fluctuations in prices and output[J]. Inflation in small countries 1976 (pp. 75-89). Springer, Berlin, Heidelberg.
Barro, RJ, Gordon, DB. Rules, discretion and reputation in a model of monetary policy[J]. Journal of monetary economics. 1983 Jan 1;12(1):101-21.
Barro RJ, Gordon DB. A positive theory of monetary policy in a natural rate model[J]. Journal of political economy. 1983 Aug 1;91(4):589-610.
Kydland, FE, Prescott, EC. Time to build and aggregate fluctuations[J]. Econometrica: Journal of the Econometric Society. 1982 Nov 1:1345-70.
Kydland, FE, Prescott, EC. The econometrics of the general equilibrium approach to business cycles[J]. The Scandinavian Journal of Economics. 1991 Jun 1:161-78.
Greenwald, B, Stiglitz, JE. New and old Keynesians[J]. Journal of Economic Perspectives. 1993 Mar;7(1):23-44.
Mankiw, NG. Small menu costs and large business cycles: A macroeconomic model of monopoly[J]. The Quarterly Journal of Economics. 1985 May 1;100(2):529-37.
Mankiw, NG. Romer, D. New Keynesian Economics: Coordination failures and real rigidities. Cambridge University Press, Cambridge, 1991.
Jevons, W.S. Investigations in Currency and Finance. Macmillan, London, 1884.
Downloads
Published
Issue
Section
