Question
Macroeconomics: Real Business Cycle Consider the following quote from Paul Romer's The Trouble With Macroeconomics. The real business cycle model explains recessions as exogenous
Macroeconomics: Real Business Cycle
Consider the following quote from Paul Romer's The Trouble With Macroeconomics. " The real business cycle model explains recessions as exogenous decreases in Total Factor Productivity (TFP). Proponents of the Real Business Cycle (RBC) model cite its microeconomic foundation as one of its main advantages. This posed a problem because there is no microeconomic evidence for the negative TFP shocks that the model invokes nor any sensible theoretical interpretation of what a negative TFP shock would mean." Is this a valid criticism of the RBC theory? What are some valid criticisms of this theory?
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