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Theories and Methods of the Business Cycle. Part
1 Dynamic Stochastic General Equilibrium
Models III. Evaluating the RBC model Jean-Olivi
er HAIRAULT, Professeur à Paris I
Panthéon-Sorbonne et à lEcole dEconomie de
Paris (EEP)
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III. Evaluating the RBC model. 1. A controversial
approach
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II. Evaluating the RBC model. 1. A controversial
approach
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II. Evaluating the RBC model. 1. A controversial
approach
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II. Evaluating the RBC model. 2. The productivity
shock
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II. Evaluating the RBC model. 2.1 The problem of
volatility
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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.

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II. Evaluating the RBC model. 2.2 The problem of
persistence
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II. Evaluating the RBC model. 2.2 The problem of
persistence
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II. Evaluating the RBC model. 2.2 The problem of
persistence
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II. Evaluating the RBC model. 2.2 The problem of
persistence
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II. Evaluating the RBC model. 2.2 The problem of
persistence
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II. Evaluating the RBC model. 2.2 The problem of
persistence
Hump-shaped Reponse of Output after a shock
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II. Evaluating the RBC model. 3. The problem of
labor supply elasticity
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II. Evaluating the RBC model. 3. The problem of
labor supply elasticity
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II. Evaluating the RBC model. 3. The problem of
labor supply elasticity

• Making your own experiment by lowering the value
  of eta

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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

w
E
E
E
Ns, Nd
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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.