Allocative Disturbances and Specific Capital in Real Business Cycle Theories
chanted, albeit in varying degree, with business cycle theories that either posit unexplained nominal wage and price rigidities or rely on misperceptions about nominal variables as a key driving force. One response to this disenchantment has been a concentration of research effort on business cycle theories. Aside from dissatisfaction with competitor theories, the very visible oil price shock episodes of the 1970's lent plausibility to the view that exogenous real disturbances cause large fluctuations in aggregate economic activity. This essay on business cycle theory considers the role of disturbances in aggregate economic fluctuations when human and physical capital are specialized. By allocative disturbances, I mean events that impinge on the economy by inducing a costly, time-consuming reallocation of specialized resources. At least since the publication of Ricardo's Principles in 1817, economists have recognized some of the potentially important aggregate consequences of disturbances. Ricardo writes:
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