Results in Lucas (1987) suggest that if public policy can affect the growth rate of the economy, the welfare implications of alternative policies will be large. In this paper, a stochastic, dynamic general equilibrium model with endogenous growth and money is examined. In this setting, inflation...

A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labor’s share of income, and the acyclical...

Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since the RBC theory suggests a measurement of the return of aggregate capital, not stock market returns. We construct a quarterly time series of the after-tax return to...

Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since real business cycle theory suggests that the return to capital should be measured by the return to aggregate market capital, not stock market returns. We construct a...

The paper documents how cyclical fluctuations in market work vary over the life cycle and then assesses the predictions of a life-cycle version of the growth model for those observations. The analysis yields a simple but striking finding. The main discrepancy between the model and that data lies...