7 votes
Accepted

Is the basic RBC model a weak model?

When is a model really weak? A model is an abstraction of reality, to explain a part of it. A model is weak when it cannot explain what it's supposed to be explaining. Just adding features to a model ...
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  • 10.4k
5 votes
Accepted

Real Business Cycle Theory

It's from King and Rebelo (2000) "Resuscitating Real Business Cycles". Here is a link to the NBER working paper version. The graph is in Figure 8 on p.94.
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  • 14.4k
2 votes
Accepted

Basic New Keynesian Model - Price and Wage Level after shock

Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-...
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  • 106
2 votes
Accepted

RBC model and indivisible labour

The only reason I can see right now could possibly be pedagogical. While that term does indeed just equal zero, there could be generalizations where the agent works a high amount with probability $\...
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  • 1,040
2 votes

Gali and van Rens: The Vanishing Procyclicality of Labor Productivity

A napkin theoretical exploration of the issue, to find possible directions to look for explanations, could go like this: According to the paper, the volatility of output and productivity has fallen....
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2 votes

Basic New Keynesian model with flexible price

I think what you are looking for is a standard RBC-model. Because the main step, going from RBC to New Keynesian, is to include Calvo pricing among other things. This is covered in many textbooks like ...
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2 votes

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

Consider the risk free steady state. In that situation the Euler equation becomes: $$ \left(\frac{C_{t+1}-b \overline{C_{t}}}{C_t-b \overline{C_{t-1}}}\right)^{-\sigma}=\frac{1}{\beta \cdot (1+r)}$$ ...
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  • 15.8k
1 vote

Real effect of monetary policy

Does it come from the fact that prices are rigid in DSGE models? Or that there is imperfect competition? The result that monetary policy can affect real variables itself is due to price stickiness, ...
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  • 42.2k
1 vote

Basic New Keynesian model with flexible price

As DoubleBass says basic New-Keysian model with fully flexible prices is RBC model, I'd just add that if you have already the set-up of Calvo and want to convert it to fully flexible prices you need ...
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  • 717
1 vote

Economic Reasoning for Structural change vs Cyclical change

It is not possible ex-ante, it's all about: economic interpretations, i.e., economic schools of thought expectations on central banks' next moves, political/ideological views, the (hidden and/or ...
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  • 1,395
1 vote

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

The distinction is between "nominal" and "real" recessions and booms. Real business cycle theory was developed to point out the fact that variations in employment and hours could occur even in an ...
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  • 671
1 vote

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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  • 741

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