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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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22 views

What is the difference between a growth shock and a productivity shock

In a RBC context, what I mean by growth shock is a total factor productivity shock that follows a stochastic trend $ln(a_t) = ln(a_{t−1}) + \gamma + \epsilon^a_t$. I.e. the technology $a_t$, has a ...
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62 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 ...
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21 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 ...
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256 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, ...
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63 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 ...
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491 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 ...
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176 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 ...
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1answer
85 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 ...
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2answers
71 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 ...
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94 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 ...
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1answer
64 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 ...
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69 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, ...
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47 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 ...
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54 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 ...
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1answer
114 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 ...
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239 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 ...
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117 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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910 views

Given a standard Cobb-Douglas production function, how to estimate the output elasticity of labour and capital by country?

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 ...
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87 views

What are the prominent arguments for and against classifying RBC under New Classical, as opposed to being an entirely separate school of thought?

For example, Wikipedia asserts that Real business-cycle theory (RBC theory) are a class of New classical macroeconomics models Whereas Snowdon and Vane (2005, p. 28) prefer to distinguish between ...