Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century
Temin, Peter. 2008. "Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century."
Journal of Economic Literature,
This book collects essays, most of which were published earlier, into an advertisement
for real business cycle (RBC) analysis. Half of the essays discuss the Great Depression;
half discuss events of the 1980s and 1990s. They all use the general equilibrium model
of economic growth to analyze short-run fluctuations in the rate of economic growth
of various countries. I find that the use of closed economy models without frictions
is not useful for the analysis of short-run variations in the rate of economic growth.
Almost all of these essays end by claiming that variations in the rate of GDP growth
were due to changes in the rate of total factor productivity (TFP) growth. They do not
provide any explanation for fluctuations in the rate of TFP growth, leaving the reader
no closer to understanding these periods of depression and slow growth. I discuss in
turn the essays on the Great Depression, the essays on more recent fluctuations, and
the definition of "great depressions" used in this volume.
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Temin, Peter (MIT)
E32: Business Fluctuations; Cycles
N10: Economic History: Macroeconomics and Monetary Economics; Growth and Fluctuations: General, International, or Comparative
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E13: General Aggregative Models: Neoclassical