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Testing Real Business Cycle Models in Spanish Economy
Jakub Gazda

ABSTRACT. Economic modelling according to real business cycle theory (RBC) is dominant approach in the new classical macroeconomics (NCM). In its primary version it was based on the growth model with neoclassical production function which is subject to stochastic supply shocks. Simultaneously, employing rational agent in the analysis that decides about labour input and deserved consumption allows developing a model following cyclical fluctuations observed in the economy. In order to do so multistage calibration-simulation procedure is used. The paper presents above mentioned assumptions i.e. seminal RBC model and augmented model with indivisible labour supply. It was used for the analysis and description of the cyclical fluctuations for Spain. The analysis cover the period of I quarter 1998 – II quarter 2011. The main aim of the paper is to verify two of theoretical structures deriving from RBC: seminal model published by F.E. Kydland and E.C. Prescott in 1982 (Kydland, Prescott, 1982) and G. Hansen model (Hansen, 1985) which develops research conducted by F.E. Kydland and E.C. Prescott and J.B. Long and C.I. Plosser (Long, Plosser, 1983). The main upgrades of Hansen model in comparison to prior theories refer to labour market perception.

KEYWORDS: modern business cycle theory, real business cycle theory, indivisible/divisible labour market.

JEL classification: E13, E17, E32.