Granger Causality and Equilibrium Business Cycle Theory

FRB of St. Louis Working Paper No. 2005-038B

17 Pages Posted: 13 Dec 2006

See all articles by Yi Wen

Yi Wen

Federal Reserve Bank of St. Louis - Research Department; Tsinghua University

Date Written: December 2006

Abstract

Post-war US data show that consumption growth Granger causes output and investment growth. This is puzzling if technology is the driving force of the business cycle. I ask whether general equilibrium models with information frictions and non-technology shocks can rationalize the observed causal relations. My conclusion is they cannot.

Keywords: Granger Causality, Real Business Cycle, Aggregate Demand, Inventories

JEL Classification: E13, E32

Suggested Citation

Wen, Yi, Granger Causality and Equilibrium Business Cycle Theory (December 2006). FRB of St. Louis Working Paper No. 2005-038B, Available at SSRN: https://ssrn.com/abstract=950976 or http://dx.doi.org/10.2139/ssrn.950976

Yi Wen (Contact Author)

Federal Reserve Bank of St. Louis - Research Department ( email )

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Tsinghua University ( email )

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