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Hot answers tagged rbc

Textbook on the mathematics of RBC/DSGE models?

The mathematical theory behind DSGE models can be found in any textbook on stochastic dynamic optimisation. One common reference that economists use for this is Stokey, Lucas and Prescott. Of course, ...
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Can we add well-being into macro model as an endogenous variable?

One can model anything, that's why it is a model. The real question is what the value of such a model would be. More to the point, I think this would be a very hard thing to do sensibly because how ...
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What does it mean for a technology to have a $|\rho|<1$?

New technology makes past technology obsolete. How many people know these days how to light a fire by rubbing wood together? How many people know the nuts and bolts of tending to the engine of a train ...
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Guess and verify?

As Dave Harris commented it depends a bit on the context. I know the guess and verify solution method mainly from solving value functions in differential resource games (more specifically the papers ...
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Depreciation vs. obsolescence in RBC and New Keynesian DSGE models

On the empirical side, there might be answers for you in the national accounts. I only know about the french case : the french statistical institute (INSEE) has different depreciation data for ...
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Good paper/article on the mechanisms in RBC vs New Keynesian models

If possible, clarifying what exactly you're most interested in might help answers be more on point and useful. Are you interested in the mechanisms that cause a one-period shock to last (and not just ...
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1 vote

What are the major flaws of the RBC model and how does the New Keynesian model address them?

Following Galí (2015, p.3) the RBC model rests in three major assumptions: i) the efficiency of business cycle, ii) technology shocks as source of economic fluctuations, iii) the limited role of ...
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Is IS-LM still used in research or we learn it just to understand basic macro?

Yes, it is still used a recent example of IS-LM model used in literature is (Bonyah et al. 2019). Also, it is important to understand those two are not substitutes for each other. IS-LM is a general ...
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Textbook on the mathematics of RBC/DSGE models?

One I can introduce is " ABC of RBC " It was so helpful to me.
1 vote

Utility function of habit formation model

$n_{t-1}$ is exogenous at time $t$. Since you must be working in a dynamic setting, $n_t$ will also show up in the utility function at time $t+1$.
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Utility function of habit formation model

I believe $n_{t-1}$ is a quantity from the past, so you should be able to treat it as an exogenous variable
1 vote
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Can saddle path not go through the origin in Ramsey model?

I guess you already went trough the algebra below, but just for context, the problem you're trying to solve is  \max_{c}\sum_{t=0}^{+\infty}\beta^t u(c_t) \\ \text{s.t.}~~ f(k_t) + (1- \delta)k_t =...
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How to deal with Prescott's formulation of time to build in his original RBC model?

By re-indexing all investment projects in the form of $s_{J,t}$, I get the following two equivalent constraints \begin{align} c_t+y_{t+1}-y_t&\leq f(k_t)-\sum_{i=1}^\infty\varphi_j s_{J,t-(J-j)} %...
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