Theories and Methods of the Business Cycle. Part 1: Dynamic Stochastic General Equilibrium Models

Theories and Methods of the Business Cycle.Part 1: Dynamic Stochastic General Equilibrium ModelsIII. Evaluating the RBC model

Jean-Olivier HAIRAULT, Professeur à Paris I Panthéon-Sorbonne et à l’Ecole d’Economie de Paris (EEP)

III. Evaluating the RBC model. 1. A controversial approach

II. Evaluating the RBC model. 1. A controversial approach

II. Evaluating the RBC model. 1. A controversial approach

II. Evaluating the RBC model. 2. The productivity shock

II. Evaluating the RBC model. 2.1 The problem of volatility

II. Evaluating the RBC model. 2.1 The problem of volatility

Make your own experiment sdepsilona=.0012

The variance of output is approximately divided by 6

Changes in the variance of the productivity shock work to

rescale the aggregate fluctuations.

But at this point nothing in the model explain how to

correct the measurement of the SR.

II. Evaluating the RBC model. 2.2 The problem of persistence

II. Evaluating the RBC model. 2.2 The problem of persistence

II. Evaluating the RBC model. 2.2 The problem of persistence

II. Evaluating the RBC model. 2.2 The problem of persistence

II. Evaluating the RBC model. 2.2 The problem of persistence

II. Evaluating the RBC model. 2.2 The problem of persistence

Hump-shapedReponse of Output after ashock

II. Evaluating the RBC model. 3. The problem of labor supply elasticity

II. Evaluating the RBC model. 3. The problem of labor supply elasticity

II. Evaluating the RBC model. 3. The problem of labor supply elasticity

Making your own experiment by lowering the value of eta

II. Evaluating the RBC model. 4. The problem of the correlation between labor and wages

Productivity shocks lead to a strong positive correlation

between labor and wages at odds with facts (roughly zero

in US, negative in European countries).

Results:

E

E’

E’’

w

Ns, Nd

III. Evaluating the RBC model. 5. RBC or DGSE models?

Two kinds of responses

Some criticisms have been adressed in the RBC theory, ie.

Models where productivity shocks are the main

perturbation of optimal fluctuations.

Some criticisms have led to take into account new-

keynesian features as nominal and real rigidities in DGSE

models.