This research attempts to reconcile the arguments of real equilibrium business cycle theories and monetary equilibrium business cycle theories. That is, if technology is endogenous, then monetary policy may have influence on real output under real equilibrium business cycle theories. The basic assumptions are that the economic agents are rational, and that money and technology are endogenously determined in the economic system. Following the natural rate hypothesis, output is divided into two portions, the natural rate or trend component and the cyclical component. The natural rate or trend component composes of anticipated technological changes, unanticipated technological changes, allocative disturbances (sectoral shocks) and anticipated real energy price. The cyclical component composes of aggregate demand shocks, monetary surprises and real energy price surprises. The technological changes are measured using Solow's residual. The allocative disturbances are measured using Lilien's measure. The sample period is 1967-1991. To avoid the Generated Regressor Problem, all five equations: output, money supply, technological changes, real energy price and allocative disturbances equations are estimated jointly using nonlinear three stage least squares (3SLS). There are three types of model specification, short run, ad hoc and optimum-lag models. The short-run model is the model without lag. The ad hoc model is the model with two lags on every variable. The optimum-lag model is the model that uses the FPE criteria to choose optimum lag on each variable. Each type of model is estimated using three different output measures. The overall results of these nine estimation results conform to the conclusion of the real equilibrium business cycle theories with some exceptions that can be justified. More specifically, the results show that the technological changes (or real factors) are significant in affecting the fluctuations of real activity while monetary surprises are not.