Diagnostic Evaluation of the Real Business Cycle Model with Factor Hoarding

Reduced-form relationships can be used to create model-consistent derivations of capital and labor input. Since several relationships exist for each input, comparison of their properties highlights weaknesses and strengths in the model assumptions. Applied to the RBC model with factor hoarding and depreciation through use, the approach highlights weaknesses in the standard utility function and casts doubt upon use of the model to improve official capital stock measures or utilization rates.