Real business-cycle theory

Part of a series on
Macroeconomics
Basic concepts Aggregate demand Aggregate supply Business cycle CAGR Deflation Demand shock Disinflation Effective demand Expectations Adaptive Rational Financial crisis Growth Inflation Demand-pull Cost-push Interest rate Investment Liquidity trap Measures of national income and output GDP GNI NNI Microfoundations Money Endogenous Money creation Demand for money Liquidity preference Money supply National accounts SNA Nominal rigidity Price level Recession Shrinkflation Stagflation Supply shock Saving Unemployment
Policies Fiscal Monetary Commercial Central bank Universal basic income
Models IS–LM AD–AS Keynesian cross Multiplier Accelerator Phillips curve Arrow–Debreu Harrod–Domar Solow–Swan Ramsey–Cass–Koopmans Overlapping generations General equilibrium DSGE Endogenous growth Matching theory Mundell–Fleming Overshooting NAIRU
Related fields Econometrics Economic statistics Monetary economics Development economics International economics
Schools Mainstream Keynesian Neo- New Monetarism New classical Real business-cycle theory Stockholm New neoclassical synthesis Saltwater and freshwater Heterodox Austrian Chartalism Modern monetary theory Ecological Post-Keynesian Circuitism Disequilibrium Marxian Market monetarism Supply-side
People François Quesnay Adam Smith Thomas Robert Malthus Karl Marx Léon Walras Knut Wicksell Irving Fisher Wesley Clair Mitchell John Maynard Keynes Alvin Hansen Michał Kalecki Gunnar Myrdal Simon Kuznets Joan Robinson Friedrich Hayek John Hicks Richard Stone Hyman Minsky Milton Friedman Paul Samuelson Lawrence Klein Edmund Phelps Robert Lucas Jr. Edward C. Prescott Peter Diamond William Nordhaus Joseph Stiglitz Thomas J. Sargent Paul Krugman N. Gregory Mankiw
See also Macroeconomic model Publications in macroeconomics Economics Applied Microeconomics Political economy Mathematical economics
Money portal Business portal
v t e

Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks.^[1] RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility.

In RBC models, business cycles are described as "real" because they reflect optimal adjustments by economic agents rather than failures of markets to clear. As a result, RBC theory suggests that governments should concentrate on long-term structural change rather than intervention through discretionary fiscal or monetary policy. These ideas are strongly associated with freshwater economics within the neoclassical economics tradition, particularly the Chicago School of Economics.