# Questions tagged [rbc]

Real Business Cycle models account for business cycle fluctuations as efficient responses to real economic exogenous changes or shocks

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### Ignoring expectation in first order conditions for RBC model

I'm currently learning the RBC model, but as someone with a Math's background am struggling to understand the lack of rigour around the expectation. It's clearly explained that you can view the RBC as ...
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### Hansen's Basic Model (RBC)

In Hansen's RBC Model, random technology variable follows the process λ_(t+1)=γλ_t+ε_(t+1) How do the assumptions of shocks ε_(t) being positive and bounded above with mean of 1-γ imply that the mean ...
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I am struggling to log-linearize the following around the steady state: $U'\left(e^{z_t} F(k_t, 1) + (1 - \delta)k_t - k_{t+1}\right) - \beta E_{z_t}U'\left(e^{z_{t+1}} F(k_{t+1}, 1) + (1 - \delta)k_{... 0 votes 0 answers 23 views ### In RBC model, why is importnt to match unconditional second moments? This is a sentence I just read in the literature: Following common practice in the RBC literature, we compare unconditional second moments in the model and in the data. I am wondering why. Why does it ... 2 votes 1 answer 130 views ### Log-linearization in RBC model Can anyone show how by applying log-linearization we can turn this equation:$\frac{X_t}{C_t} = \left( (1 - \vartheta) + \vartheta \left( \frac{L_t}{C_t} \right)^{1-\nu} \right)^\frac{1}{1-\nu}$into ... • 125 1 vote 0 answers 61 views ### How to derive a solution to stochastic difference equation using Blanchard-Kahn method? Let$z_t =\rho z_{t-1}+\epsilon_t$, where$|\rho|<1$and$E_t e_{t+1}=0$I need to solve the stochastic difference equation$E_t[y_{t+2}-2ay_{t+1}+by_t]=z_t$for$y_t$,$t\geq0$, where$0<b<1$... • 31 2 votes 1 answer 108 views ### What are the major flaws of the RBC model and how does the New Keynesian model address them? Looking for a generic answer to this question and potentially literature etc. that will help me study this question. Thanks in advance. 0 votes 0 answers 49 views ### In the RBC model, why is household's problem dynamic? Why is capital assumed to be a good accumulated in the current period t but being used in t+1? I think my interpretation is wrong here. I understand that households problem is dynamic because of this ... • 21 2 votes 1 answer 148 views ### Is IS-LM still used in research or we learn it just to understand basic macro? Since i had my "Introduction to advanced macroeconomics" and discovered DSGE i've been wondering if IS-LM is used in research, i know it was used in the 80's or so, but now? • 25 2 votes 0 answers 59 views ### Are typical macro DSGE (RBC or New Keynesian DSGE) models linear, non-linear, or log (linearized)? In Carl Hommes 2015 book on Expectations, it seems he considers DSGE models (being it either RBC DSGE or New Keynesian DSGE) to be linear, or (log)linearized models, on page 3 of the introduction. He ... 3 votes 1 answer 285 views ### Consumption smoothing in RBC Model I have the following inter temporal utility function:$U(t)=(\frac{s(t)}{1-\sigma})(c_t/c_{t-1}^\gamma)^{(1-\sigma)} - \chi*h(t)$where$h(t)$is the hours worked. I know that gamma is responsible ... 1 vote 0 answers 36 views ### Impact of technology shock on hours worked in basic RBC model - short and long run with logarithmic preferences First off, I apologise if, in the following, I do not present the model adequately - I'm at an intermediate level of the study of economics. My question is at the bottom. Anyway, consider a basic RBC ... 4 votes 1 answer 948 views ### Good paper/article on the mechanisms in RBC vs New Keynesian models I have read technical books about the (baseline) RBC and New Keynesian models. However, these books tend not to explain very intuitively the propagation mechanisms of shocks between the two models, ... • 845 1 vote 1 answer 68 views ### Can we add well-being into macro model as an endogenous variable? People talk a lot about well-being as an objective of macro policy (together with gdp growth). So if well-being is an objective, i'm wondering if we can add well-being into macro model as an ... • 131 3 votes 2 answers 1k views ### Textbook on the mathematics of RBC/DSGE models? I'm reading David Romer's Macroeconomics. However, what I don't like is that he doesn't go at all into detail about the mathematical underpinnings of RBC/DSGE models. When it comes to the central ... • 845 2 votes 2 answers 247 views ### Utility function of habit formation model In the habit formation RBC model, the utility can be given as follows:$U(c_{t},n_{t}) = \ln(c_{t}) - \frac{\theta}{1+\upsilon} \bigg(\frac{n_{t}}{n_{t-1}^{\phi}}\bigg)^{1+\upsilon}$When I do FOC ... • 131 2 votes 1 answer 164 views ### Can saddle path not go through the origin in Ramsey model? In my case, the utility function is CEIS and discrete, the production fuction is$f(k_{t})=k_{t}^\alpha$, the budget constraint is$f(k_{t})+(1-\delta)k_{t}=c_{t} + k_{t+1}$. I use Jacobian matrix and ... • 131 2 votes 2 answers 91 views ### What does it mean for a technology to have a$|\rho|<1$? Nowadays, when trying to model (log)technology$a_t$, I've seen many times the following:$a_t = \rho a_{t-1}+\epsilon$, where epsilon is given a certain probability distribution. What does it mean ... 0 votes 1 answer 295 views ### Guess and verify? I am trying to understand the intuition of the guess and verify method. Please could someone furnish me with a basic and very intuitive explanation of what we are trying to achieve and how this method ... • 361 0 votes 1 answer 90 views ### Depreciation vs. obsolescence in RBC and New Keynesian DSGE models A common calibration for depreciation rates within RBC models is to assume 10% depreciation rate (based on NIPA stats, for instance). This implies a half-life of about 6.5 years. But this estimate ... • 361 1 vote 0 answers 98 views ### Technological shocks and Labour supply in RBC and NK models In the class notes of Eric Sims on RBC and New Keynesian models, in his site, we get to see several graphs with the impulse response functions (IRF) of real variables such as output, labour hours, ... 1 vote 0 answers 52 views ### What are the most used functional forms for utility in RBC literature, and why? In the RBC/NK literature one has to define a functional form for the utility function of the representative household. What are the most used forms, and why are they used? Any help would be ... 1 vote 0 answers 66 views ### What's an RBC BGP's feasibility? I'm reading some note of Eric Sims on extensions to RBCs and he writes «In any balanced growth path, feasibility requires that hours do not grow». The author then explains that this is so, because if ... 1 vote 1 answer 180 views ### How to deal with Prescott's formulation of time to build in his original RBC model? So I was replicating the results obtained in section 4 of Prescott's original paper, which derives optimality conditions in steady state without shock. I hope to solve the social planner's ... • 821 2 votes 1 answer 382 views ### The stochastic discount factor$M_t$in a simple RBC model In these class notes, page 3, the author defines the stochastic discount factor as$M_t=\beta^t\frac{E_0(u'(C_{t+1}))}{u'(C_{0}))}$. I'm trying to find the rationale behind it. A cash flow at ... 1 vote 0 answers 129 views ### Find the standard deviation of a log-normal AR1-process with exponent I am trying to replicate a RBC model with technology shock$\log(z_{t+1})=\rho \log(z_t)+\epsilon_{t+1} \ $with$\epsilon_t \sim$i.i.d.$ \mathcal{N}(0,\sigma^2)$and$0 < \rho < 1\$ The ...
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Given a standard Cobb-Douglas production function: $$Y_t=(A_t L_t)^{\alpha} K_t^{1-\alpha}$$ Moreover, the production function has constant returns to scale: $$\alpha + (1-\alpha)=1$$ How to estimate ...