A Human Capital Explanation of Real Business Cycles

We contribute an alternative explanation of business cycles using human capital investment as a second sector tied down with accounting methods. Inputs of education expenditure and tertiary student time in this sector enable explanation of a broad set of business cycle moments A challenge difficult to meet in the one-sector models, the labor time share, labor productivity, and consumption are jointly well-explained. With the goods sector less human capital-intensive, human capital deepening occurs during contractions, while expansions see physical capital deepening in the goods sector The external margin from human capital investment clarifies conflicting estimates of the labor elasticity.