Macrodynamics I: Real Business Cycle Models

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The main goal of this course is to study the foundations of the theory of the Real Business Cycles (RBC) as extensions. The main extensions are: the indivisible labor supply, the role of money and the cost of adjusting capital, among others. The computational tool of the course is Matlab, which allows to perform exercises of simulation of the studied models. In particular, Dynare is used, which is a Matlab toolbox that allows not only finding the solution of the model, but also simulating these models against different shocks (productivity, terms of trade, among others).

Other Class Notes:

[1] Overview of macroeconomics, [2] Model of Solow-Swan (here you can download m.file), [3] Model of Ramsey.

Class Notes Link / Download
Class 1: Overview of RBC Models

This class note describes the main assumptions, results, and critiques of RBC. In addition, the historical evolution of this school is studied.

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Class 2: Long y Plosser model (1983)

In this class note the model of Long and Plosser (1983) is developed, which has analytical solution under the assumption of total depreciation and logarithmic utility.

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Class 3: Dynare

This class note describes the steps to bring a DSGE model to Dynare. This Matlab toolbox allows you to solve and simulate the model.

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Class 4: Campbell (1994) model

In this class note the model of Campbell (1994) is developed with fixed work. The goal is to develop the model step by step until finding the solution (policy and state function) and then find the times series ARMA (p, q) form of each endogenous variab

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Class 5: Methods for solving DSGE Models

In this class note I describe some methods for solving DSGE models. In particular, I describe in detail two methods: [1] Method of Blanchard y Kahn, and [2] Method of Indeterminate Coefficients. 

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Class 6: Hansen Model (1985)

In this class note the RBC model with indivisible labor is developed. This means that the representative household has two options: working (employment) or not working (unemployment). This model is important because it overcomes some weakness of RBC models. This model is considered as "Base Model" of RBC School.

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Class 7: Cooley and Hansen Model (1989)

In this class note the RBC model with money is developed. In particular, Cooley and Hansen (1989) evaluate the effects of money on real variables in the short term.

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Class 8: Greenwood, Hercowitz y Huffman Modelo (1988)

In this class note the RBC model with investment shock is developed. This is different of the standard vision of RBC models, which consider that productivity shock is the main impulse mechanism of business cycles.

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Class 9: Mendoza Model (1991)

In this class note the RBC model with open economy is developed. This model is proposed by Mendoza (1991), who evaluates if RBC model can explain the positive correlation between saving and investment, and the countercyclical behavior of trade of balance.

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Class 10: Baxter y King Model (1993)

This class note will be available soon.

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Class 11: Rotemberg and Woodford Model (1993)

This class note will be available soon.

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Class 12: Mehra y Prescott Model (1985)

In this class note I examine the capacity of Real Business Cycle Theory in captures some stylized facts of risk prime. The main conclusion is that the RBC model can replicate qualitative characteristic of risk prime but no the quantitative characteristic. This fail of the RBC theory is known as "Equity Premium Puzzle".

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