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ABSTRACT This paper shows how classicals have gone further, Keynesian and new classicals are two

polar extremes. The monetarist position was considered radical a decade ago, they interpret changes in employment levels as rational agents responses to perceived changes in relative prices.The new classicals profoundly changed the technical underpinnings of modern macroeconomics. t is widely agreed that wages and prices do not move !uic"ly and smoothly to the values needed for long#run e!uili$rium $etween !uantities supplied and demanded. %mployment, li"e output, would clearly rise with favora$le shoc"s and fall with unfavora$le shoc"s. Business cycle pose a special challenge for new classical economists.The fact that the economy experiences good and $ad shoc"s is not enough to explain $usiness cycles. An ade!uate theory must account for persistence&the fact that $usiness cycles typically display long runs of good times followed $y shorter, $ut still significant, runs of $ad times. ARTICLES: News about Aggregate Demand and the Business Cycle by ang!Ting "uoy #ni$ersity o% Cali%ornia& Ri$erside Anca!Ioana Sirbu' (est )irginia #ni$ersity *ar+ (eder, The #ni$ersity o% Adelaide une -& ./01 This article show that an otherwise standard one#sector real $usiness cycle model with varia$le capital utili'ation and mild increasing returns#to#scale is a$le to generate !ualitatively as well as !uantitatively realistic aggregate fluctuations driven $y news shoc"s to two formulations of future consumption demand or government spending on goods and services. n sharp contrast to many studies in the existing expectations#driven $usiness cycle literature, this result does not rely on non#separa$le preferences or investment ad(ustment costs. )hen the economy is su$(ect to anticipated total factor productivity or investment#specific technology shoc"s, the relative strength of the intertemporal su$stitution effect needs to $e enhanced for our model to exhi$it positive macroeconomic co movement and $usiness cycle statistics that are consistent with the data. Real Business Cycle *odels: 2ast& 2resent and 3uture Author4s5: Sergio Rebelo Source: The Scandina$ian ournal o% Economics& )ol6 0/7& No6 . 4 un6& .//85& 996 .07!.1: *inn Kydlandand %dward+rescottintroduced one, $ut three, revolutionary ideas in their ,-./ paper, 0Time to Build and Aggregate *luctuations0. The first idea, which $uilds on prior wor" $y 1ucas and +rescott 2,-3,4, is that $usiness cycles can $e studied using dynamic general e!uili$rium models. These models feature atomistic agents who operate in competitive mar"ets and form rational expectations a$out the future. The second idea is that it is possi$le to unify $usiness cycle and growth theory $y insisting that $usiness cycle models should $e consistent with the empirical regularities of long#run growth. The third idea is that we can go way $eyond the !ualitative comparison of model properties with styli'ed facts that dominated theoretical wor" on macroeconomics until ,-./. )e can cali$rate models with parameters drawn, to as far an extent as possi$le, from micro# economic studies and long#run properties of the economy, and we can use these cali$rated models to generate artificial data that can $e compared with actual data. t is not surprising that a paper with so many new ideas has shaped the macroeconomics research agenda of the last two decades. The wave of models that first followed Kydland and +rescott5s 2,-./4 wor" were referred to as 0real $usiness cycle0 models $ecause

of their emphasis on the role of real shoc"s, particularly technology shoc"s, in driving $usiness fluctuations. But real $usiness cycle 2RBC4 models also $ecame a point of departure for many theories in which technology shoc"s do not play a central role.