Notes on Business Cycle Theory from a Dynamic Stochastic General Equilibrium Perspective

Bernard Daniel Solomon

MPRA Paper from University Library of Munich, Germany

Abstract: In these notes I go over some basic aspects of the analysis of business cycles and aggregate fluctuations from a dynamic stochastic general equilibrium (DSGE) perspective. I build a cannonical DSGE model with a small number of representative agents and a large set of distortionnary wedges standing for various frictions as an organising framework. I use this model to discuss fundamental properties of business cycle dynamics. I start with some of the basic assumptions common to most applied DSGE models, and the modeling of household and firm behaviour. Then I discuss general equilibrium and the response of the economy to various shocks with flexible prices and wages, as well as ways of applying DSGE models with actual data. Finally I add nominal price rigidities to get the standard New Keynesian model, and discuss some open economy issues, fiscal policy and unconventional monetary policy.

Keywords: Business cycles; dynamic stochastic general equilibrium (search for similar items in EconPapers)
JEL-codes: E0 E12 E13 E32 E37 E44 (search for similar items in EconPapers)
Date: 2015-02-16, Revised 2015-03-11
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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https://mpra.ub.uni-muenchen.de/70321/8/MPRA_paper_70321.pdf revised version (application/pdf)

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