RBCs and DSGEs - the computational approach to business cycle theory and evidence

Release date
01/11/2007
Reference
DP2007/15
Authors
Özer Karagedikli; Troy Matheson; Christie Smith; Shaun P. Vahey
Published as
Karagedikli, Özer, Troy Matheson, Christie Smith and Shaun Vahey (2010). ‘RBCs and DSGEs - the computational approach to business cycle theory and evidence’, Journal of Economic Surveys, Volume 24(1), Pages 113-136, DOI: https://doi.org/10.1111/j.1467-6419.2009.00589.x.
Real Business Cycle (RBC) and Dynamic Stochastic General Equilibrium (DSGE) methods have become essential components of the macroeconomist’s toolkit. This literature review stresses recently developed (often Bayesian) techniques for computation and inference, providing a supplement to the Romer (2006) textbook treatment which stresses theoretical issues. Many computational aspects are illustrated with reference to the simple divisible labour RBC model familiar to graduate students from King, Plosser and Rebelo (1988), Christiano and Eichenbaum (1992), Campbell (1994) and Romer (2006). Code and US data to replicate the computations are provided on the Internet, together with a number of appendices providing background details.