2. DSGEM - Three fundamental models

Readings:

Any modern textbook on advanced macroeconomics will cover the three basic models discussed in this session: the Real Business Cycle (RBC), the Money in the Utility Function (MIUF), and the New Keynesian Model (NKM).

The RBC is well discussed, for example, in:

(1) McCandless, George (2008). The ABCs of RBCs, Harvard University Press. See Chapter 6 (optimization is based on the value function approach, instead of the Lagrange multipliers used in the slides)

(2) Wickens, Michael (2012). Macroeconomic theory: a dynamic general equilibrium approach, 2nd Edition, Princeton University Press. See Chapter 14 (optimization is based on the value function approach, instead of the Lagrange multipliers used in the slides)

(3) Krueger, Dirk (2007). "Quantitative Macroeconomics: An Introduction", Lecture Notes, University of Pennsylvania. These are lecture notes extremely well written. This is the best source if you want to know all the little details about an RBC model. link here

The MIUF model can be consulted in:

(4) Walsh, Carl E. (2003). Monetary Theory and Policy, 2nd Edition, MIT Press. See Chapters 1 and 2 (section 2.3) and 3 (sections 3.2 and 3.3).

(5) Karel Mertens (2016). "Money and Output: Basic Facts and Flexible Price Models", Lecture Notes, University of Cornell. These are lecture notes extremely well written. This is the best source if you want to know all the little details about money in a flexible price setup. You get the models and also Matlab files to replicate the simulations. See, in particular, section 2.1.2. link here

The NKM is covered in many textbooks. To make it short:

(6) Galí, Jordi (2015). Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications, 2nd Edition, Princeton University Press. See Chapter 3.