Nothing is more central to macroeconomics than the attempt to understand business cycles. A large fraction of all macroeconomic research in recent years has been devoted to exploring the implications of models in which all households and firms form expectations about the future rationally and act in the pursuit of well-defined objectives, and comparing these implications to observed facts about business cycles. The contribution of this project comes from developing and studying analytically business cycle models that are more consistent qualitatively and quantitatively with observed facts about business cycles. More specifically, the project extends and solves analytically a central set of business cycle models based on Professor Edward Prescott's Real Business Cycle Model. The following elements are added to this model: distortionary taxation, more than one production sector, changes in the composition of government spending, more than one type of labor, time-nonseparabilities in the utility, and sluggish price adjustment. These elements capture important aspects of economic reality missing in other models of business cycles.
