·Productivity shocks Procyclical bias may be due to: -Labor Hoarding-Labor input is overestimated in a recession.Workers are kept on payroll even though they are not working as hard.Just sitting around waiting for recession to end. Output Mismeasurement-In a recession,workers may produce things that are hard to measure.They might clean the factory,organize inventory,get some training
• Productivity shocks • Procyclical bias may be due to: – Labor Hoarding - Labor input is overestimated in a recession. Workers are kept on payroll even though they are not working as hard. Just sitting around waiting for recession to end. – Output Mismeasurement - In a recession, workers may produce things that are hard to measure. They might clean the factory, organize inventory, get some training
The neutrality of money RBC critics note that reductions in money growth and inflation are almost always associated with periods of high unemployment and low output. RBC proponents respond by claiming that the money supply is endogenous: - Suppose output is expected to fall.Central bank reduces money supply in response to an expected fall in money demand
• The neutrality of money • RBC critics note that reductions in money growth and inflation are almost always associated with periods of high unemployment and low output. • RBC proponents respond by claiming that the money supply is endogenous: – Suppose output is expected to fall. Central bank reduces money supply in response to an expected fall in money demand