Questions tagged [real-business-cycles]

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Why do investment adjustment and capital adjustment costs yield different dynamics?

Both the Business Cycle and DSGE literature find that Investment adjustment costs and capital adjustment costs give rise to different dynamics for investment, output, consumption etc. Investment ...
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26 views

Solving complex RBC/DSGE models

Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible? I am a ...
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1answer
54 views

Basic New Keynesian model with flexible price

I would like to know what would be the response of variables in the Basic New Keynesian model but with flexible prices (ie not with Calvo pricing). For example I have troubles to see how having ...
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40 views

What is the best measure for the world's economic cycle?

I'm trying to make a graph that shows how the return of major assets (S&P 500 index, % of 3Y T-notes, oil, gold, etc) move along with the world's expansion& recession cycle. I looked into ...
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7 views

Implications for Labour after a Productivity Shock, RBC Model

I am trying to understand the implication for labour after a one time productivity shock where $A_t$ follows a AR (1) process with persistence $\rho_A=0.95$. It is stated the following : labour ...
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1answer
30 views

Economic Reasoning for Structural change vs Cyclical change

Often when there is an episode of low output growth, a debate takes place: Whether the downturn/recession is due to structural factors or is it cyclical. I understand that the analysis is largely ...
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47 views

Why is there a Lagrangian Multiplier in the Dynamic Programming Problem of the RBC model?

Suppose that the household faces the following problem: $\underset{ c_t , k_{t+1}, n_t } \max \mathbb{E}_0 \sum_{t=0}^{\infty} \beta^t \ln c_t + \ln (1 - n_t)$ subjected to $ k_{t+1} = A_t k_t ^{\...
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70 views

Consumer preferences and government spending

I am studying for an exam and I am focusing on different types of preferences and shocks and the respective responses. This problem has been causing me trouble. The representative consumer in an ...
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1answer
119 views

Real Business Cycle Theory

Which academic paper does this diagram come from? Need to know for citation purposes. Apparently its King and Rebelo (2005) but doesn't seem to be the case.
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1answer
78 views

Basic New Keynesian Model - Price and Wage Level after shock

I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work. Everything has worked out fine ...
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1answer
2k views

What are the assumptions of real business cycle theory and Keynesian theory?

What are the differences between the approaches of Keynes and Real Business Cycle theorists? What are the assumptions made by both the theories? How do they differ in their methodology? Do they ...
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1answer
140 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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1answer
76 views

How can I calculate with the average of the consumption in an RBC framework?

In the following open-economy RBC model consumption level ($C_t$) is not the most important for the representative households, but the difference of the consumption level and the earlier level of the ...
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1answer
297 views

Is the basic RBC model a weak model?

There are a plethora of examples of weaknesses in my textbook, such as: The Walrasian assumption Not including nominal shocks Not including indivisible labour Not including distortionary taxes Not ...
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1answer
5k views

The period of the business cycle in which the real GDP is increasing is called the?

The period of the business cycle in which the real GDP is increasing is called the? And no, this is not an homework question. I'm a college student and we starting our exams soon. I'm just going ...
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0answers
51 views

The correlation between depreciation rate and variance of output in RBC model

I would like know the correlation between depreciation rate and variance of output in RBC model. As you know, the basic motion of capital is as follows. $$K_{t+1} = (1-\delta) K_t + I_t$$ If $\...
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1answer
115 views

RBC model and indivisible labour

First of all, I would like to apologise for the fact that I will include a link in my question rather than a direct question, however, I have no idea how to do it in a different way. I have been ...
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1answer
133 views

Gali and van Rens: The Vanishing Procyclicality of Labor Productivity

Let's see how questions like the following are taken here. Gali and van Rens, 2014 show that empirically, the correlation between $Y, Y/L$ has been declining over time. In fact, it only was a "real ...