> Michael Pollak wrote:
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>> Assuming arguendo that there is nothing misleading
>> about the Minn Fed figures
>>
>
> There are relevant priors, as the econometricians like to say. I understood the Minneapolis Fed to be a bastion for Real Business Cycle theorists. Such theorists believe macro fluctuations are the result of external shocks and do not originate from within self-regulating markets. All flux is merely the self-correction to changes Out There by omniscient markets.
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That's not what Real Business Cycle theory says. It says the opposite - fluctuations are caused by changes in real technological or supply shifts that take place regularly over the business cycle, so booms and busts are "natural" outgrowths of the market economy and can't be ameliorated by monetary policy. I don't think the MN Fed's paper has much to do with the theory, either pro or con.
SA