RBC Model Simulation Results: Impulse Responses to Shocks - How do RBC model economies behave in response to shocks? - Good examples of this type of exercise: Heijdra Ch. 15 Section 15.5 Foundations of Modern Macroeconomics Romer Ch. 5, Section 5.6 Advanced Macroeconomics McCandless Ch. 6, Section 6.5 The ABCs of RBCs - The results in these sources are derived using the same type of method as Uhlig: start with a version of the Ramsey model, derive first-order conditions and the steady-state, create a log-linearized version of the model, find the law of motion for the model and then generate the impulse responses. - But the models are slightly more complicated versions of the Uhlig’s model. - What do the more typical first generation RBC models add? - Labour - Government - Notation: Y = output (GDP); Z = productivity; K = capital; N = employment; w = wages; r = interest rate I = investment; C = consumption; = leisure l FK = marginal product of capital = depreciation rate  FN = marginal product of labour
RBC Model Simulation Results: Impulse Responses to Shocks - How do RBC model economies behave in response to shocks? - Good examples of this type of exercise: Heijdra Foundations of Modern Macroeconomics Ch. 15 Section 15.5 Romer Advanced Macroeconomics Ch. 5, Section 5.6 McCandless The ABCs of RBCs Ch. 6, Section 6.5 - The results in these sources are derived using the same type of method as Uhlig: start with a version of the Ramsey model, derive first-order conditions and the steady-state, create a log-linearized version of the model, find the law of motion for the model and then generate the impulse responses. - But the models are slightly more complicated versions of the Uhlig’s model. - What do the more typical first generation RBC models add? - Labour - Government - Notation: Y = output (GDP); Z = productivity; K = capital; N = employment; w = wages; r = interest rate I = investment; C = consumption; l = leisure FK = marginal product of capital  = depreciation rate FN = marginal product of labour