When RBC economists compare the volatility in their models to the data,what are they looking at?
A)the degree to which variables lead output over the business cycle
B)the strength of procyclicality of different variables
C)the amount of random variation in economic variables
D)the degree to which different economic variables move together

Question

Quizplus · Accepted Answer

When RBC economists compare the volatility in their models to the data, they are looking at the amount of random variation in economic variables. This is because one of the key features of RBC models is that business cycle fluctuations are driven by shocks that are purely random in nature. Therefore, by comparing the volatility in their models to the data, RBC economists are effectively testing how well their models capture this key feature of business cycle dynamics.

When RBC Economists Compare the Volatility in Their Models to the Data,what