Navigation – Plan du site
Revue des livres

Rebuilding “Time to Build”: A History of the Real Business Cycle Models

Francesco Sergi
p. 399-413
Référence(s) :

Warren Young, Real Business Cycle Models in Economics, London: Routledge, 2014, xv + 184 pages. ISBN 9780415475693

Texte intégral

Real Business Cycle Models in EconomicsAfficher l’image
Crédits : Routledge

1In his article “Present at the creation: Reflections on the 2004 Nobel Prize to Finn Kydland and Edward Prescott”, Robert Lucas wonders:

I look back on this paper [“Time to Build and Aggregate Fluctuations”] with amazement: “How did [Kydland and Prescott] even think to put all these pieces together in just this way?” (Lucas, 2005, 777)

2Warren Young’s book Real Business Cycle Models in Economics is an excellent attempt to answer this question from the perspective of the history of (macro)economic thought. After reading it, we could claim, like Lucas, to have been “present at the creation”.

  • 1 Although this precision is often useful and shows the rigorous method followed by the author, at ti (...)

3Real Business Cycle Models in Economics achieves an accurate reconstruction of the intellectual origins of real business cycle (hereafter RBC) models. Young skillfully exploits a large amount of heterogeneous archival material: variorum drafts, referees’ reports, correspondence, and interviews. Thanks to this precise philological work1, the book is undoubtedly successful in bringing the reader to the “secret laboratory of production” of the RBC models—especially Kydland and Prescott's (1982) seminal paper. Moreover, Real Business Cycle Models in Economics is the first historical investigation analyzing with such careful precision, this “turning point” in the history of macroeconomics.

4A secondary aim of Real Business Cycle Models in Economics is to “clean up minor anomalies in the [preexisting] narratives” (2). For Young, the "preexisting narrative" is the history of the RBC models as told by their protagonists (Kydland, Prescott, Plosser, Long) and their disciples. Young's interpretation is quite different from the usual narratives on the origins of RBC models which usually describe RBC as merely an intuitive “superposition” of preexisting works. Young argues that RBC models resulted from a well-established process of theoretical, empirical, and technical innovation, relying on a complex network of interactions between modelling practices and research programs.

5Young’s book essentially provides two original findings. First, it offers a detailed reconstruction of the intellectual development that brought Kydland and Prescott to—in Lucas's words—“put all these pieces together in just this way”. “Time to Build” was the result of cross-fertilization between two kinds of inputs: on the one hand different “building blocks”—including optimal stochastic growth models, the impulse/propagation approach, some (apparently) more technical developments, such as calibration, recursive competitive equilibrium solution and time series filtering—and on the other hand, Kydland and Prescott’s own research program during the 1970s on optimal control and time-consistency of economic policy. In taking us back to the preparatory phase of “Time to Build”, Young provides an original historical mapping of the individual components that made this work possible.

6The second contribution of this book is the reconstruction of the collective dimension of the RBC research program. In this perspective, Young highlights the influence of other macroeconomists who interacted with Kydland and Prescott. These discussions, both formal (referees) and informal (correspondence), had a deep impact on Kydland and Prescott’s conception of monetary shocks and empirical methods, and subsequently, on all the peculiar characteristics of RBC models. Fischer Black's crucial role in bringing “Time to Build” to life, and making it a cornerstone—together with Long and Plosser (1983)—of a new theoretical approach, is emphasized.

7These two interesting findings make Real Business Cycle Models in Economics a precious, useful, and enriching read for all those interested in the history of recent macroeconomics (even beyond the history of the RBC). However, the book disappoints on two major fronts. The first is related to the collective dimension of the spread and extension of the RBC modeling framework during the 1980s. Young’s reconstruction of this is less complete and less rich than his description of the origins of “Time to Build”. The second is related to the general method applied in the book: the reader may be frustrated by the lack of a deeper discussion about the historiographical implications of the materials collected by the book; the reading is, ultimately, disproportionately informative at the expense of an analytical development.

8These limitations are discussed in the third section of this essay; the first two sections provide a more detailed synthesis of the original findings in Real Business Cycle Models in Economics.

1. The origins of “Time to Build”: What was missing?

9Young’s purpose in the first three chapters—the most accomplished ones in the book—is to clarify and analyze how Kydland and Prescott put together all the pieces of the jigsaw .

  • 2 Young’s approach to these building blocks is quite similar to Boumans's (1999) “model ingredients”.

10Chapter 1 deals with the actual “pieces” of the puzzle, with clarifying what are the theoretical and methodological inputs to “Time to Build”. Young analyzes what he calls the “building blocks” of the RBC models.2 The preexisting narrative identifies four “building blocks”, consisting basically of i) an understanding of “real-world facts”, ii) a general methodology for investigating those facts, iii) a benchmark model (and so, a modeling technique), and iv) an empirical methodology for testing the correspondence between models and facts. These four elements are summarized in table 1.

Table 1. The “Time to Build” jigsaw: the preexisting narrative

the “real world facts”

the “business cycle” (Lucas, 1977)

empirical methodology for observing the facts

Hodrick-Prescott (1980) filter

benchmark model


Frisch (1933)

optimal growth models

Solow (1956)

Swan (1956)

Brock-Mirman (1972)

testing methodology


Shoven and Whalley (1972)

Miller and Upton (1974)

11It is immediately clear to the reader what Young means by “cleaning anomalies” in the preexisting narrative. When the “building blocks” are put in a precise historical perspective, they have more controversial and non-trivial origins. Let us look briefly at two of Young’s examples related to the benchmark model and the testing methodology. Lucas claimed that the Brock-Mirman (1972) model was the “immediate ancestor of Kydland and Prescott (1982)” (Young, 2014, 14). Young shows that Brock and Mirman's influence on “Time to Build” is rather indirect. First, he clarifies the substantial discontinuity within the “optimal growth” model, showing that a distinction is needed between the Ramsey-Cass-Koopmans line of research (and then, Solow and Swan), and the Brock-Mirman (1972) approach. Second, Young illustrates how “Time to Build” follows Brock (1979) as the benchmark model, and also the collaboration between Prescott and Mehra (1980). Furthermore, there is the “hidden” influence of the joint work by Lucas and Prescott (1971) on recursive competitive equilibrium theory. The origins of the calibration method (or “computational experiment” as Prescott would later refer to it) are another example of non-trivial background of the “building blocks”. Hansen and Heckman (1996) attribute it retrospectively, to the Shoven and Whalley (1972) method of “reverse solution” to general equilibrium. Kydland in his Nobel Lecture, cited Miller and Upton (1974) as the pioneers of the idea of calibration. Which reference is correct? Young shows that Shoven and Whalley (1972) is actually a “false” reference: the original inspiration for calibration came from Upton and Miller’s textbook, and neither Prescott nor Kydland knew at the time about the existence of Shoven and Whalley’s work on the computation of general equilibrium. Note also that the word “calibration” was neither considered nor employed by Kydland and Prescott: it was first suggested by John Taylor, the referee of “Time to Build” for Econometrica.

12With the anomalies “cleaned up”, the building blocks of “Time to Build” begin to resemble the puzzle pieces in table 2:

Table 2. The “Time to Build” jigsaw: Young’s reconstruction

the “real world facts”

the “business cycle” (Lucas, 1977)

empirical methodology for observing the facts

Hodrick-Prescott (1980) filter

benchmark model


Frisch (1933)

recursive competitive equilibrium theory

Lucas and Prescott (1971)

Prescott and Mehra (1980)

optimal growth models

Solow (1956)

Swan (1956)

Brock-Mirman (1972)

Brock (1979)

Prescott and Mehra (1980)

testing methodology



Shoven and Whalley (1972)

Miller and Upton (1974)

13Young's accurate and factual reconstruction of the exact origins of the “Time to Build” puzzle is an interesting finding. However, as I explain in the third section of this essay, this might tempt the reader to regard the first chapters of Real Business Cycle Models in Economics as mere “fact checking”.

  • 3 Remarkably, Young’s book is the first historical analysis focusing on Kydland and Prescott's positi (...)

14Chapter 2 focuses on Kydland and Prescott’s works which preceded “Time to Build”, aimed at putting in perspective the 1982 paper and Kydland and Prescott's 1970s research program.3 In other words, the objective is to understand the motivations and the intellectual trajectory bringing Kydland and Prescott to “Time to Build”.

15The preexisting narrative considers this seminal paper as “just” a synthesis of the “building blocks”. Young suggests that Kydland and Prescott went beyond a simple synthesis of the building blocks. They fashioned those elements for the specific purpose of their own research program, bringing to life a completely new agenda:

[“Time to Build”] is not simply the synthetic combination of the work of Frisch, Solow, Lucas and others. It is a totally new approach, one that extends the work of these giants, in conjunction with a new economic Weltanschauung and empirical methodology that brought a sea-change in macroeconomic research and policy analysis. (36)

16Thus, Young argues that the merging of business cycle theory and growth theory in the same model is the main result of this longstanding, trial-and-error type process, oriented by Kydland and Prescott’s own perspective.

  • 4 For a global appraisal of New Classical macroeconomics, see Hoover (1988).

17Kydland and Prescott’s research previous to “Time to Build” are presented by Young as a three-phase history. The first phase corresponds basically to their respective PhD works, and can be characterized as “pre-general-equilibrium” research. Later, under the influence of Lucas, and especially of early drafts (1973) of “Econometric Policy Evaluation”, Kydland and Prescott switched to a general equilibrium approach. This line of research constitutes the common ground between Kydland, Prescott, Lucas, and Sargent, or what now is generally labeled New Classical macroeconomics. The efforts of those authors during the 1970s consisted of attempting to formulate (and later to estimate) the optimal dynamic decision rules of economic agents with rational expectations (such as in Lucas and Prescott, 1971). This would establish the basis for a complete business cycle model, “microfounded” and “robust” to the Lucas Critique and in contrast to the previous “Keynesians” macroeconometric models.4 A central proposition of New Classical macroeconomics, as is well-known, is the short and long run neutrality of money if changes in policies are correctly anticipated by economic agents (Lucas, 1972): under such a specific condition, monetary policy is ineffective and there is no tradeoff between inflation and output. Kydland and Prescott’s research in the context of this debate over policy ineffectiveness during the 1970s, resulted in the major achievement of this second phase—the celebrated “Rules rather than Discretion” article (Kydland and Prescott, 1977).

18The third phase in Kydland and Prescott’s research program starts from the New Classical framework and incorporates some major changes. This serves as a “preliminary phase” toward the publication in 1982 of “Time to Build”. From a formal point of view, the starting point for Kydland and Prescott in this phase consisted of working out one of the examples presented in “Rules rather than Discretion”, which by and large anticipated the model presented in “Time to Build”. However, more substantially, the main characteristic of this “preliminary phase” is Kydland and Prescott's stance toward the role of money in the business cycle. Young addresses here the central question for anyone reconstructing the history of the RBC models: When did Kydland and Prescott have the idea of making the business cycle “real”, i.e. driven exclusively by real shocks? How did the monetary impulsion of the cycle (which was still a major feature of the New Classical macroeconomics) disappear?

19Young provides a well-informed reconstruction of the ways that referees and discussants influenced Kydland and Prescott’s work. Referees’ reports, discussants at various conferences, and informal discussions had a deep influence on the development of Kydland and Prescott's agenda between publication of “Rules rather than Discretion”, and “Time to Build”. Fischer Black emerges in this context as the main inspiration for Kydland and Prescott’s work. Through formal and informal discussions, Black oriented the theoretical and empirical priority in the “Time to Build” preliminary phase: this includes, mainly, the nature of monetary shocks and the method of time-series analysis of business cycle. For instance, Fischer Black’s remarks (presented in Chs. 2 and 3) appear as crucial to reflection on the impact of monetary shocks on the business cycle. In his written comments on the first draft of “Time to Build”,

[Fischer Black] went on to question the nature of the supporting evidence relating the importance of the effects of monetary shocks on real aggregate and asked “Does such evidence exist?” (66)

20Young reports Prescott's retrospective acknowledgement of the influence of the question raised by Black:

I was certain that monetary shocks were the factor giving rise to business cycle fluctuations and the problem was to find the propagation mechanism for these shocks. … At the time … Black and … Plosser [were] the only people I know who would argue that real shocks are all important. (Prescott in Young, 2014, 68)

21The role of Fischer Black is one of the most important and original findings in Young’s book. It is important because it clarifies and enriches the historical reconstruction of the idea of cycles driven exclusively by real shocks; it is original because Fischer Black’s contribution to the birth of the RBC model receives little attention in the preexisting narrative, and in the history of economic thought generally.

22In similar vein, Chapter 3 studies the maturation phase of “Time to Build". Based on systematic analysis of the variations between early drafts and the published version, Young highlights the interaction between Kydland and Prescott and other macroeconomists who crossed their path. Lucas, Long, Plosser and Black are all important characters in this respect, along with discussants and referees (Taylor, Modigliani, Azariadis, Barro) who commented formally and informally on the various drafts of “Time to Build”.

23Analysis of the variorum of Kydland and Prescott (1982) and previous drafts, allows Young to clarify his statement (Ch. 2) about the methodological and theoretical influence of New Classical macroeconomics. Furthermore, the editorial history of “Time to Build” provides new evidence about the active role of New Classical macroeconomists in giving life to this paper. For instance, Lucas, as a referee for Econometrica, played an important role in its publication, enthusiastically supporting Kydland and Prescott’s submission.

  • 5 A year earlier, Fischer Black contribution had been published.

24Once again, one of the most interesting points in this third chapter is the influence of Fischer Black. Young describes him as playing the role of a “clearinghouse”: he appears to have been the crucial intermediary between the authors of “Time to Build” and John Long and Charles Plosser. Long and Plosser were independently working on a similar model—but with a multi-sectoral economy—which was published in the year after publication of “Time to Build”, under the title “Real Business Cycle” (Long and Plosser, 1983).5 By extensively quoting the intense correspondence between Kydland, Prescott, Long, Plosser and Black, Young emphasizes the “cross-fertilization” in the years 1979 to 1983, which became crucial for transforming “Time to Build” into a cornerstone of the RBC research program.

2. From “Time to Build” to the RBC models: extensions, spread, reception and legacy

25The last two chapters in the book analyze how “Time to Build” laid the foundations for a complete and fruitful macroeconomic research program (RBC models) and how this program spread through macroeconomics despite some harsh criticism. The concluding chapter raises the question of the “legacy” of the RBC for contemporary “New Neoclassical Synthesis”.

26How did “Time to Build” become a research program, endorsing a wide range of “RBC models”? How did this approach spread across macroeconomics? Following Young’s exposition, these questions can be reduced to: How did the 1982 model generate a full “class of models”?

27Much of Young’s answer emphasize once more the interaction between Kydland-Prescott and Long-Plosser. The collaborations of those authors in their respective seminal contributions were the catalyst for a wide research group that included Robert King, Sergio Rebelo, Gary Hansen, and Thomas Cooley, among others. Those macroeconomists, all devoted to business cycle analysis, employed a common framework: the modelling practices presented in “Time to Build”. Young also analyzes the process of “meta-synthesis” between different contributions, which led to the “blocks of papers” and culminated in the publication edited by Cooley (1995).

28Chapter 4 offers a lively and well-balanced summary of the main theoretical debates among RBC modellers, i.e. the amendments, extensions, and corrections applied to the initial modelling framework. Heterogeneity of agents, shapes of preferences, and the definition of the elasticity of substitution (intertemporal substitution between goods, between labor and leisure, between capital and labor) were among the main issues up for debate. Unsurprisingly, the most challenging topic was money and its role in the business cycle. As already mentioned, RBC modelers—Kydland and Prescott are no exception—were concerned from the beginning with integrating monetary aspects in their models, although ultimately, they came to the conclusion that money has no impact on the cycle (Ch. 2). The challenge for RBC models consisted of formalizing money explicitly (monetary policy, nominal prices, cash as an asset, etc.), while simultaneously respecting the constraint imposed by preserving the “real” characteristics of the business cycle.

  • 6 It is to be regretted that the empirical and econometric issues in the development of the RBC are n (...)

29Another challenge for the RBC approach is empirical assessment of the models. The calibration method needs more sound methodological justification as well as greater accuracy in reproducing “stylized facts”, and clearer rules about choices related to parameter values. In short, the calibration method required some active support to withstand rejections and attacks, on both methodological (such as in Hansen and Heckman, 1996) and empirical grounds (such as the estimated version of the RBC model in Altug, 1989).6

30This chapter serves merely as a literature review, revealing few new details about the debates ongoing in the late 1980s and in the 1990s: it has to be said that those familiar with the RBC approach will not discover anything they do not know already.

31The final chapter provides a synthesis of the essential criticisms raised against the RBC model. Those debates introduce the issue of the non-linearity in the field's development. Although nowadays RBC models are identified by macroeconomists as a supplementary step in a “steady accumulation of knowledge”, they should be seen as an important discontinuity. The RBC model represents what De Vroey (2009) would call a “Kuhnian paradigm shift”: a shift in the object, methods, and results of macroeconomics which gave birth to deep chasm (an “incommensurability” of paradigms) between the “old” and the “new” way of doing macroeconomics. While Young in his book does not endorse the “paradigm shift” interpretation explicitly, it emerges as underlying his presentation of the harsh criticism leveled against the RBC.

32The rejections of the RBC are simultaneously methodological, theoretical, and empirical. The best known critics are Summers, McCallum, Mankiw, and Rogoff. Mankiw’s (1989) critique is particularly interesting in being opposed explicitly to the RBC from a “new Keynesian perspective”, and using empirical refutation of the RBC model as the main argument. Lars Hansen and James Heckman attacked the methodological legitimacy of the “calibration” method, opposing this approach to traditional—and in their view, more reliable—econometrics (Hansen and Heckman, 1996).

33Young summarizes the main disagreements on the RBC, and shows how new developments in the RBC approach tried to respond directly to the criticisms—for instance, by working out an open-economy version of the RBC model. Young argues that the flexibility and the adaptability of the general RBC framework made it possible to absorb or eschew larger and larger numbers of criticisms. The subsequent extensions and variations generated a more general “class of models”. The final contribution of this chapter is that updates to the RBC model in response to its critics contributed to translating the original “Time to Build” model into a generic methodology for studying business cycles.

34Young applies this notion in his conclusion to Real Business Cycle Models in Economics. In a few pages, he tries to establish what should be considered the legacy of the RBC model. This raises again the idea of the influence and spread of the RBC, this time in a dynamic perspective—i.e., the influence of the RBC on the current status of macroeconomics. Important here is the convergence between the RBC approach and its New Keynesian critics, in both academia and policy-making expertise (especially in central banks). The RBC modellers openly advocate that this theoretical convergence (so-called “New Neoclassical Synthesis”) is the main legacy of the RBC. For instance, Plosser claims that the dynamic stochastic general equilibrium (DSGE) models are an “update” of the RBC models (Plosser, 2012, 2). According to Young, the legitimacy of this “convergence hypothesis” should be seen rather as a matter of convergence toward a common modelling methodology or “class of models”:

The term “DSGE” has come to mean the utilization of RBC modelling methodology …. This reflects both the plasticity and the metamorphosis of the Kydland-Prescott and Long-Plosser approaches, which evolved into a general methodological and modelling framework, utilized by academic researchers and central banks alike. (159)

35It is regrettable that, in light of the crucial positioning of the idea in his concluding remarks that the last two chapters of the book do not provide an explicit discussion of the idea of the RBC as a “class of models” or as a “modeling methodology”. We might surmise—but the conclusion is quite elusive—that the substantial content of the “class of models” expression is about the “pieces of the puzzle” described in the first two chapters: then, the RBC as a class of models is characterized by those elements, perhaps in different proportions. More important, the concept of a modeling methodology lacks a clear definition, which can be provided (in some aspects, very easily) within the abundant literature initiated by Morgan and Morrison (1999). Indeed, the concluding considerations are (too) vague and unsupported: by ignoring this literature, Young fails to provide even intuitions on the actual historical process.

3. Historicizing RBC: What is still missing?

36Despite the undeniable value, from many perspectives, of Real Business Cycle Models in Economics, Young’s book is defective in many others. In this section, I emphasize two points: the lack of a critical perspective on the preexisting narrative, and the unconvincing reconstruction of the diffusion of the RBC.

  • 7 We developed this issue, for the history of DSGE models, in Sergi (2015b).

37The book will leave the reader feeling “So what?”. Take, for instance, the “anomalies” in the preexisting narrative about the pieces of the “Time to Build” puzzle. Young instructs us that the calibration method was inspired by Miller and Upton (1974) and not by Shoven and Whalley (1972), and that the term “calibration” was actually suggested by Taylor. So what? The author does not suggest a perspective on the implications of this (interesting) finding for the history of the RBC. As in this example, most of the textual evidence presented in the book lacks solid critical development, and is, at best, very implicit. By critical, I mean “cleaning up the anomalies” related not only to the actual facts (Young is very effective here) but also in the general perspective of the preexisting narrative. Young does not take the “anomalies” he analyzes seriously enough, depicting them as the results of a lazy or inexact historical reconstruction by macroeconomists (“Memory is treacherous”, Young, 2014, 2). Conversely, I would suggest that the historiographic amateurishness of their narrators is not an explanation of the anomalies in the preexisting RBC narrative (and the recent development of macroeconomics in general).7

38The general perspective of this preexisting narrative must be found in the current state of the discipline. In the late 1990s, the rise of the “New Neoclassical Synthesis” in macroeconomics gave birth to a new interpretation of the discipline's history which still holds today. According to this interpretation, macroeconomics has progressed along a “steady accumulation of knowledge” (Blanchard, 2000, 1375). The “pioneering” works of Lucas, Sargent, Kydland and Prescott are depicted as the “crucial turn” in this scientific evolution through “better” theory, “better” models and “better” policy-making. RBC models are supposed to have widely anticipated the advent of the DSGE model, the common workhouse for all contemporary macroeconomists. This “Fairy Tale History of Macroeconomics is, like all such stories, a tale of triumph” (Hartley, 2014, 237). As such, it plays an active role in legitimating the current status of the discipline, its objects, its methods, and its results.

39This interpretation of the history of macroeconomics (or, in Duarte's (2012) words the “standard narrative”) has been critically analyzed by several recent contributions—including among others, De Vroey (2009), Duarte and Lima (2012) and Backhouse and Boianovski (2013). Historical research in this vein has rediscovered the tortuous paths in the transformation of the field, has shone some light on blind alleys, and emphasized crossroads and bifurcations. This more recent body of research explicitly advocates a critical perspective on the “standard narrative”. For instance, contemporary microfoundations—i.e. the microfoundations introduced by New Classical macroeconomics—are neither “better” nor “sounder” than other kinds of microfoundations—e.g. disequilibrium theory. They are simply different and have become widely accepted and used through decades of debate and trial-and-error attempts by competing research programs (Hoover, 2012).

40Real Business Cycle Models in Economics contributes, in its own distinctive way, to the recent renewal of this research on the history of macroeconomics, to the extent that it also emphasizes how the path of so-called “progress” in macroeconomics is anything but linear and as clear-cut as the preexisting narrative advocates. However, Young does not endorse explicitly this critical perspective on the “fairy tale history of macroeconomics”. Nor does he mention other recent work on the history of macroeconomics—which is a major regrettable omission of the book. Nevertheless, Young brings a full range of evidence supporting the idea that the complex intellectual developments to the RBC model involved many substantial debates, including disagreements and failures. It is regrettable that all the precious, factual findings presented in the book are not discussed from this critical perspective.

41The second criticism is about the unconvincing reconstruction of the spread of RBC models in macroeconomics. As underlined in the first two sections of this essay, Real Business Cycle Models in Economics delivers to the reader a large and worthy amount of information, especially in the first three chapters. Although this evidence is accurate, original, and convincing—at least from a “factual” point of view— it is poorly discussed. The book fails to provide persuasive underlying reasons for the spread of the RBC approach in the field. This lack could be explained by the historiographic method chosen by Young.

42One could describe the problem as an “aggregation” problem. Indeed, the textual evidence excavated from the archival material provides very convincing and exhaustive results related to the origins of “Time to Build” per se. The method is effective in focusing on “individual” networks; it is definitely very efficient for studying the interaction between two authors (Kydland and Prescott) writing an article and interacting with a limited number of other macroeconomists. It provides a very satisfactory reconstruction of the intellectual path followed by Kydland and Prescott—as well as their interactions with some of theirs fellows macroeconomists at this period. A consubstantial limitation of this method of inquiry is that it is much less appropriate for a discussion of the collective and group dimensions of the history. In moving from this “micro” perspective to a bigger picture, i.e. to the history of the RBC as a collective research program and as a “class of models” it provides very poor results. Two examples are particularly telling.

43The first refers to the relation between New Classical macroeconomics as a research program, and RBC models. In my view, Young's reconstruction of the intellectual relations linking Kydland and Prescott to New Classical macroeconomics is quite complete; not enough attention is paid to the issues opposing them to this program. For instance, in the early 1980s, the empirical results estimated New Classical models had quite shaky foundations (Sergi 2015a): Can this unsatisfactory state of New Classical macroeconomics explain why Kydland and Prescott turned to non-estimation techniques for their “Time to Build” model? Similarly, the relations in the 1980s and 1990s between the RBC and the New Classical research program could be characterized as hostile. Lars Hansen who worked closely with Thomas Sargent in the late 1970s (Hansen and Sargent, 1980) is an emblematic case of this hostility exemplified by his criticism of the calibration methodology (Hansen and Heckman, 1996).

  • 8 Note also that analysis of the policy implications of the RBC model, and a discussion on policy rec (...)

44The second example deals with the success of the RBC. Young’s book provides few “material” reasons for this success. In contrast to the first three chapters, regrettably Young does not exploit his huge body of material to explicitly discuss some of the elements of the institutional networks (seminars, conferences, volumes, journals, academic recruitment, advising strategies8 …) of this tiny group of macroeconomists who became so influential in the field. This is perhaps the most surprising feature of the RBC story. However, after reading Real Business Cycle Models in Economics, with the exception of some vague consideration given to the “adaptability” of the RBC to the criticisms (Ch. 5) we lack many answers. Again, the lack of an institutional or network oriented perspective leaves open the possibility of a “standard narrative” kind of explanation: the RBC models were successful because they were “good” models.

45To conclude, Real Business Cycle Models in Economics will be extremely useful to those interested in the origins of the RBC approach despite questions about the “success” of the RBC model and its place in current “New Neoclassical Synthesis” remain largely unanswered. This lack should be regarded as a problem that is consubstantial to the historiographic method chosen by Young. The book is a preliminary step towards building an alternative, complex, and critical history of the RBC, and from a wider perspective, the recent history of macroeconomics.

Haut de page


Altug, Sumru. 1989. Time To Build and Aggregate Fluctuations: Some New Evidence. International Economic Review, 30(4): 889-920.

Backhouse, Roger and Boianovski, Mauro, 2013. Tranforming Modern Macroeconomics. Exploring Disequilibrium Microfoundations (1956-2003). Cambridge: Cambridge University Press.

Black, Fischer. 1982. General Equilibrium and Business Cycles. NBER Working Paper Series, N° 950, August 1982.

Blanchard, Olivier. 2000. What Do We Know About Macroeconomics That Fisher and Wicksell Did Not? Quarterly Journal of Economics, 65(4): 1375-1409.

Boumans, Marcel. 1999. Built-in justification. In Morgan, Mary S. and Morrison, Margaret (eds.), 1999. Models as Mediators: Perspectives on Natural and Social Science, Cambridge: Cambridge University Press, 66-96.

Brock, William A. 1979. An Integration of Stochastic Growth Theory and the Theory of Finance—Part I: The Growth Model. In Green, Jerry and Scheinkman, José (eds) General Equilibrium, Growth and Trade: Essays in honor of Lionel McKenzie, New York: Academic Press, 165-192.

Brock, William A. and Mirman, Leonard J., 1972. Optimal Economic Growth and Uncertainty: The Discounted Case. Journal of Economic Theory, 4(2): 225-243.

Cooley, Thomas, 1995. Frontiers of Business Cycle Research. Princeton: Princeton University Press.

De Vroey, Michel, 2009. Keynes, Lucas : d’une macroéconomie à l’autre. Paris: Dalloz.

Duarte, Pedro Garcia, 2012. Not going away? Microfoundations in the making of a new consensus in macroeconomics. In Duarte et al. 2012: 190-237.

Duarte, Pedro Garcia and Lima, Gilberto Tadeu, 2012. Microfoundations Reconsidered. The Relationship of Micro and Macroeconomics in Historical Perspective. Cheltenham: Edward Elgar.

Frisch, Ragnar. 1933. Propagation Problems and Impulse Problems in Dynamic Economics. In Frisch, Ragnar and Koch, Karin, (eds.): Essays in Honour of Gustav Cassel. London: George Allen and Unwin Ltd, 171-147.

Hansen, Lars P. and James J. Heckman. 1996. The Empirical Foundations of Calibration. The Journal of Economic Perspectives, 10(1): 87-104.

Hansen, Lars P. and Thomas J. Sargent. 1980. Formulating and Estimating Dynamic Linear Rational Expectations Models. Journal of Economic Dynamics and Control, 2(1): 7-46.

Hartley, James E., 2014. The Quest for Microfoundations. Œconomia, 4(2): 237-247.

Hodrick, Robert and Edward C. Prescott. 1980. Post-war U.S. business cycles: a descriptive empirical investigation. Carnegie-Mellon Working Paper, August 1980.

Hoover, Kevin D., 1988. The New Classical Macroeconomics: A Sceptical Inquiry. Oxford: Basil Blackwell.

Hoover, Kevin D., (ed.), 1995. Macroeconometrics: Developments, Tensions, and Prospects. Norwell, MA: Kluwer Academic Publisher.

Hoover, Kevin D. 2012. Microfoundational programs. In Duarte et al. 2012: 19-61.

Kydland, Finn and Edward C. Prescott. 1977. Rules rather than Discretion: The Inconsistency of Optimal Plans. Journal of Political Economy, 85(3): 473-492.

Kydland, Finn and Edward C. Prescott. 1982. Time to Build and Aggregate Fluctuations, Econometrica, 50(6): 1345-1370.

Long, John and Charles Plosser. 1983. Real Business Cycles. Journal of Political Economy, 91(1): 36-69.

Lucas, Robert E. 1972. Expectations and the Neutrality of Money. Journal of Economic Theory, 4(2): 103-124.

Lucas, Robert E. 1976. Econometric Policy Evaluation: A Critique. Carnegie-Rochester Conference Series on Public Policy, volume 1, pages 19-46.

Lucas, Robert E., 1977. Understanding Business Cycles. Carnegie Rochester Conference Series on Public Policy, 1: 19-46.

Lucas, Robert E. 2005. Present at the creation: Reflections on the 2004 Nobel Prize to Finn Kydland and Edward Prescott. Review of Economic Dynamics, 8(2005): 777-779.

Lucas, Robert E. and Edward C. Prescott. 1971. Investment Under Uncertainty. Econometrica, 39(5): 659-681.

Mankiw, Gregory, 1989. Real Business Cycles: A New Keynesian Perspective. Journal of Economic Perspectives, 3(3): 79-90

Miller, Merton and Charles Upton. 1974. Macroeconomics: A Neoclassical Introduction. Homewood, IL: Richard D. Irwin.

Morgan, Mary S. and Morrison, Margaret (eds.), 1999. Models as Mediators: Perspectives on Natural and Social Science, Cambridge: Cambridge University Press.

Plosser, Charles, 2012. Macro Models and Monetary Policy Analysis. Bundesbank-Federal Reserve Bank of Philadelphia Research Conference,

Prescott, Edward C. and Rajnish Mehra. 1980. Recursive Competitive Equilibria: The Case of Homogenous Households. Econometrica, 48(6): 1365-1379.

Qin, Duo. 2013. A History of Econometrics: the Reformation from the 1970s. Oxford: Oxford University Press.

Sergi, Francesco. 2015a. Econometric Methods and Problems in New Classical Macroeconomics. Communication at the Annual Conference of the European Society for the History of Economic Thought, Rome, May 14-16 2015.

Sergi, Francesco, 2015b. L’approche (faussement ?) naïve de l’histoire des modèles DSGE. Communication at the Annual Conference of the Association Française d’Economie Politique (AFEP), Lyon, July 1-3 2015.

Shoven, John and John Whalley. 1972. A General Equilibrium Calculation of the Effects of Differential Taxation of Income from Capital in the U.S. Journal of Public Economics, 1(3-4): 281-322.

Solow, Robert, 1956. A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70(1): 65-94.

Swan, Trevor, 1956. Economic Growth and Capital Accumulation. Economic Record, 32(2): 334-336.

Haut de page


1 Although this precision is often useful and shows the rigorous method followed by the author, at times it seems pedantic. The story would be clearer if some quotations in extenso (not absolutely necessary for the main narrative) had been dropped.

2 Young’s approach to these building blocks is quite similar to Boumans's (1999) “model ingredients”.

3 Remarkably, Young’s book is the first historical analysis focusing on Kydland and Prescott's position in the New Classical macroeconomics research program.

4 For a global appraisal of New Classical macroeconomics, see Hoover (1988).

5 A year earlier, Fischer Black contribution had been published.

6 It is to be regretted that the empirical and econometric issues in the development of the RBC are not put in perspective with the history of econometrics and macroeconometrics (such as Hoover, 1995 or Qin, 2013). This literature would have provided useful guidelines for a better interpretation of the kinds of criticisms discussed here.

7 We developed this issue, for the history of DSGE models, in Sergi (2015b).

8 Note also that analysis of the policy implications of the RBC model, and a discussion on policy recommendation, are mostly missing from this book.

Haut de page

Pour citer cet article

Référence papier

Francesco Sergi, « Rebuilding “Time to Build”: A History of the Real Business Cycle Models », Œconomia, 5-3 | 2015, 399-413.

Référence électronique

Francesco Sergi, « Rebuilding “Time to Build”: A History of the Real Business Cycle Models », Œconomia [En ligne], 5-3 | 2015, mis en ligne le 01 septembre 2015, consulté le 15 octobre 2019. URL :

Haut de page


Francesco Sergi

Université Paris 1 – Centre d’économie de la Sorbonne (CES).

Articles du même auteur

Haut de page

Droits d’auteur

Licence Creative Commons
Les contenus d’Œconomia sont mis à disposition selon les termes de la Licence Creative Commons Attribution - Pas d'Utilisation Commerciale - Pas de Modification 4.0 International.

Haut de page
  • Logo Association Œconomia
  • Logo CNRS
  • Logo DOAJ - Directory of Open Access Journals
  • OpenEdition Journals