Dynamic Stochastic General Equilibrium Models: Real Business Cycles Models: Closed and Open Economy

Abstract

This textbook guides the student step-by-step in developing and solving a DSGE (Dynamic Stochastic General Equilibrium) model–not only from the technical and conceptual aspects but also through the simulation process of each model. Characterized by a learning-by-doing approach, the book is set apart from the extant textbooks in three ways. First, it performs all the algebra associated with each model, such as the calculation of steady-state and the log-linearization of the model. Second, each model developed has been generated in Dynare, and every chapter is accompanied by a set of codes (mod-files and m-files) that the reader can use to replicate the model developed in every chapter. Finally, the models considered are toy models in the closed and open economy, which allows the student to learn the basic lessons and understand the fundamental relationships of the variables. All of this prepares the student to deal with more complex models. This book is intended for advanced undergraduate or beginning graduate courses in economics, finance, or applied mathematics, as well as practitioners in central banks that use these models daily in the preparation of forecasts or simulations of aggregate variables.