# Introduction to Dynamic Macroeconomic General Equilibrium Models

##
by José Luis Torres Chacon* (Universidad de Málaga, Spain)*

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"An impressive achievement. A book that all beginners to the topic should read, use and consult."

Prof. Fabio Canova

Pierre Werner Chair of Monetary Union, European University Institute

This book offers an introductory step-by-step course in Dynamic Stochastic General Equilibrium (DSGE) modelling. Modern macroeconomic analysis is increasingly concerned with the construction, calibration and/or estimation and simulation of DSGE models. The book is intended for graduate students as an introductory course to DSGE modelling and for those economists who would like a hands-on approach to learning the basics of modern dynamic macroeconomic modelling. The book starts with the simplest canonical neoclassical DSGE model and then gradually extends the basic framework incorporating a variety of additional features, such as consumption habit formation, investment adjustment cost, investment-specific technological change, taxes, public capital, household production, non-ricardian agents, monopolistic competition, etc. The book includes Dynare codes for the models developed that can be downloaded from the book’s homepage.

The second edition is identical to the first with the exception of a revised appendix to Chapter 2. The revised appendix can be downloaded free of charge in the accompanying downloads section.

PART I Introduction to DSGE modelling

Chapter 1

Introduction

Macroeconomic DSGE Modelling

DSGE software

Book organization

Bibliography

Chapter 2 The Canonical Dynamic Macroeconomic General Equilibrium model

Introduction

Households

Alternative functional forms for the utility function

The firms

Alternative functional forms of the production function

Model Equilibrium

Model Equilibrium(Competitive Equilibrium)

Model Equilibrium(Central Planning)

The Steady State

The Dynamic Stochastic General Equilibrium model

Equations of the model and calibration

Equilibrium equations

Calibration

Aggregate productivity shock

Conclusions

Bibliography

PART II Deviations from the Permanent Income-Life Cycle hypothesis

Chapter 3 Habit Formation

Introduction

Habit formation

The model

Households

The firms

Equilibrium

Equations of the model and calibration

Total Factor Productivity shock

Conclusions

Bibliography

Chapter 4 Non-Ricardian Agents

Introduction

Ricardian and Non-Ricardian Agents

The model

Ricardian Households

Non-Ricardian Households

Aggregation

The firms

Equilibrium of the model

Equations of the model and calibration

Total Factor Productivity shock

Conclusions

Bibliography

PART III Investment and Capital Accumulation

Chapter 5 Investment adjustment costs

Introduction

Investment adjustment costs

The model

Households

The firms

Equilibrium of the model

Equations of the model and calibration

Total Factor Productivity Shock

Conclusions

Bibliography

Chapter 6 Investment-Specific Technological Change

Introduction

Investment-specific technological change

The model

Households

The firms

Equilibrium of the model

The balanced growth path

Equations of the model and calibration

Investment-Specific Technological shock

Conclusions

Bibliography

PART IV The government

Chapter 7 Taxes

Introduction

Taxes

The model

Households

The firms

The government

Equilibrium of the model

Equations of the model and calibration

The Laffer curve

Taxes changes

Total Factor Productivity shock

Conclusions

Bibliography

Chapter 8 Public Spending

Introduction

Public spending

The model

Households

The firms

The government

Equilibrium of the model

An alternative functional form for aggregate consumption

Equations of the model and calibration

Public consumption change

Conclusions

Bibliography

Chapter 9 Public Capital

Introduction

Public capital

The model

Households

Firms

The government

Equilibrium of the model

Equations of the model and calibration

Public investment shock

Conclusions

Bibliography

PART V Time Decisions

Chapter 10 Human Capital

Introduction

Human Capital

The Model

Households

Firms

Equations of the model and calibration

Total Factor Productivity shock

Conclusions

Bibliography

Chapter 11 Home Production

Introduction

Home Production

The model

Households

The goods market sector

Home production sector

Household’s maximization problem

Equilibrium of the model

Equations of the model and calibration

Total Factor Productivity shock

Conclusions

Bibliography

PART VI Imperfect competition

Chapter 12 Monopolistic Competition

Introduction

Monopolistic Competition

The model

Households

The firms

Equilibrium of the model

Equations of the model and calibration

Total Factor Productivity Shock

Conclusions

Bibliography

Index

José L. Torres is Associate Professor of Economics, Head of the Department of Economics, Faculty of Economics, University of Málaga (Spain). His current research areas include: Technological Change, Economic Growth, Dynamic General Equilibrium modelling. He has published several books and a large number of papers in journals as Information Economics and Policy, Public Choice, Macroeconomic Dynamics, Journal of Macroeconomics, Eastern European Economics, Empirical Economics, Economic Modelling, Open Economies Review, Economic Letters, Journal of International Financial Markets, Institutions and Money, SERIES, and Economic Issues.

### Subjects

#### Economics

#### Statistics and Quantitative Methods

### Series

#### Series in Economic Methodology

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Find in a library near you Download print-friendly flyer Download sample chapter Download HQ cover Find in Bookshop.org Find this title in Amazon Download accompanying files You can download software code for the models described in the book, using Dynare. Dynare is a freely-available, open source software platform for economic modeling, and can be downloaded from: http://www.dynare.org/ The following files are contained in the ZIP file available below (the number refers to the corresponding book chapter): model2.mod: Canonical Dynamic General Equilibrium Models. model3.mod: Habit persistence. model4.mod: Ricardian and Non-Ricardian agents. model5.mod: Investment adjustment costs. model6.mod: Investment-specific technological change. model7a.mod: Taxes: Non-announced permanent change in the consumption tax rate model7b.mod: Taxes: Non-announced transitory change in the consumption tax rate model7c.mod: Taxes: Announced transitory change in the consumption tax rate model8a.mod: Public spending: Permanent change in public consumption model8b.mod: Public spending: Stochastic change in public consumption model9.mod: Public capital. model10.mod: Human capital. model11.mod: Home production. model12.mod: Monopolistic competition. A revised appendix to Chapter 2 (as appears in the second edition) is also included.### See also

### Bibliographic Information

#### Book Title

Introduction to Dynamic Macroeconomic General Equilibrium Models

#### ISBN

978-1-62273-030-8

#### Edition

2nd

#### Number of pages

282

#### Physical size

236mm x 160mm