Garett Jones's guest post on El Salvador reminded me of a more general point: real business cycle theory explains 98 percent or more of the business cycles in human history, especially before the eighteenth century and the advent of modern financial markets. Some parts of the world still are ruled by real business cycle theory.
And yet somehow the theory has low status or sometimes is considered outside the mainstream. Admittedly, the theory can be misapplied or oversimplified by its proponents. Yet…it explains 98 percent or more of the business cycles in human history. It also helps explain the propagation mechanisms of monetary-based cycles.
I call that an important theory.
If only there were a textbook which taught RBC!