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RBC makes no assumptions about the inability of the market to clear.  Markets always clear in RBC models.  RBC models have instantaneous price adjustment, perfect competition, etc.

To get markets that don't clear, you have to add (usually nominal) rigidities and imperfect competition, at which point your model becomes New Keynesian rather than RBC.

(NK models perform a lot better at forecasting, but a lot better than "fucking terrible" is still not good.  Put it this way: Last I read, internal Federal Reserve forecasts were still putting both to shame.)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Aug 6th, 2013 at 07:46:43 AM EST
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