The Bounds of Argument and the Impact of RBC Models in Macroeconomic History
Alexander J. Field
In 1982 Finn Kydland and Edward Prescott published “Time to Build and Aggregate Fluctuations”, an event generally recognized as marking the birth of real business cycle theory. Economic historians and prominent macroeconomists reacted with vigorous critiques of the first generation of RBC models in the 1980s. RBC proponents persisted, encouraging new methods and objectives for macroeconomic research and new standards for explanation and model validation. In the ensuing decades, DSGE methods and models, including New Keynesian variants, flourished among macro theorists, but economic historians, many empirical and policy oriented economists, and private sector analysts largely ignored them. This paper suggests that this differential uptake should be understood not only or primarily in terms of which models explain the data better, but also as the outcome of contests over the bounds of acceptable argument within professional communities.