I wonder if business cycle fluctuations are usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?


1 Answer 1


Business cycle fluctuations can be studied in many ways including also growth models. An example of using growth model to study business cycle would be this 1995 paper by Cho & Cooley. This being said growth models are not as common for examining business cycles as for example DSGE models so saying they are usually used for that purpose is correct. To my best knowledge no statistics on the relative use of this or that model for explaining business cycles exist but anecdotally, speaking from attending macro conferences, DSGE or various non-stochastic (when we talk about pure theory) New Keynesian or to lesser extent real business cycle models remain popular.

  • $\begingroup$ Thanks for you answer. Yeah I am a bit confused, because indeed in papers I read, they talk about BC (business cycles) both in DSGE as in OLG frameworks. However I wonder if the definition of a cycle is the same in both approaches, as OLG typically looks at long term changes, rather than variations along those long term developments. E.g. a Boone and Quaghebeur 2018 paper, versus e.g. their Quaghebeur 2019 paper. 2018 Beyond rational expectations: The effects of heuristic switching in an Overlapping Generations model. 2019. Expectations and the Macroeconomic Dynamics of Fiscal Policy. $\endgroup$ Commented Jul 22, 2020 at 15:11
  • $\begingroup$ Gasteiger and Zhang (2014) is another example of a ramsey growth model approach $\endgroup$ Commented Jul 22, 2020 at 15:14
  • $\begingroup$ I just wonder why in some cases they choose a growth model, and in other cases a DSGE NK model $\endgroup$ Commented Jul 22, 2020 at 15:14
  • 1
    $\begingroup$ @BeckBatucada I don’t think there are some simple clear cut rules where to use which model. This requires some soft skills as you can often modify/mold a model in various ways. I agree that OLG is probably suited more for some examination of business cycles from long term perspective but you can make a multiperiod versions of New Keynesian models as well. $\endgroup$
    – 1muflon1
    Commented Jul 22, 2020 at 19:31

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.