When RBC economists compare the correlations 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 correlations in their models to the data, they are looking at the degree to which different economic variables move together. This is because a central assumption of RBC models is that economic fluctuations are primarily driven by changes in technology, which affect all sectors of the economy and cause different variables to move together. By comparing the model's correlations to those in the data, economists can assess whether the model captures this important feature of the business cycle.

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