This book is a historical investigation of the theoretical development of equilibrium business cycle theory (EBCT). The approach to the setting of the problem is retrospective. In adopting this sort of approach, one takes the risk of selecting and interpreting historical materials unobjectively, thereby creating a distorted picture of history. However, when carefully applied, the retrospective approach has certain advantages. It involves comparisons of the past and the present, though its viewpoint is that of the latter. The similarities and dissimilarities thus uncovered would contribute to our understanding of the intrinsic characteristics of both the past and present. Three retrospective questions form the main thread of this book: How does economists’ understanding of the business cycle in the past differ from that of contemporary thinkers? What sorts of theoretical momentum from the past have brought forth the current mode of understanding the cycle? And how have the relationships among cycle theory, classical economic theory, and empirical inferences evolved over time? In a sense, this book is an effort to provide a dialogue between past theoretical achievements and today's economic thinking.

As discussed in the preceding chapters, two central features of the EBCT are the optimization foundation and its econometric strategy. The optimization foundation suggests that economic phenomena should be viewed as outcomes of individuals’ optimizing behaviors and thus that the business cycle has to be explained in terms of such behaviors. That is, one facet of the optimization foundation is that business cycles are understood to be equilibrium phenomena in which agents optimize and markets clear. The econometric strategy of the EBCT emphasizes the role of theory in empirical inquiry.