Understanding Economic Pulses: Real Business Cycle Theory and Empirical Applications Training Course

Introduction

Real Business Cycle (RBC) theory revolutionized macroeconomics by demonstrating how fluctuations in aggregate economic activity can arise from the optimal responses of rational agents to real shocks, primarily changes in productivity or technology. Unlike earlier theories that emphasized nominal rigidities or demand-side disturbances, RBC models provided a compelling, micro-founded framework where business cycles are seen as efficient, equilibrium phenomena. This paradigm shifted the focus of macroeconomic research towards dynamic optimization, general equilibrium, and the role of supply-side factors in driving economic booms and busts.

This intensive training course is meticulously designed to equip participants with a comprehensive and practical understanding of Real Business Cycle theory and its extensive empirical applications. From grasping the core assumptions and mathematical derivations of the foundational RBC model to mastering its calibration, simulation, and confrontation with real-world data, you will gain the expertise to analyze business cycles from a modern, micro-founded perspective. This empowers you to conduct rigorous macroeconomic research, critically evaluate economic fluctuations, and deepen your understanding of the underlying forces shaping economic dynamics.

Target Audience

  • Macroeconomists and econometricians in central banks, government, and research institutions.
  • Researchers and academics in economics and finance.
  • Graduate students (Master's and PhD) specializing in macroeconomics or quantitative economics.
  • Quantitative analysts with an interest in business cycle analysis.
  • Anyone seeking a deep, micro-founded understanding of aggregate economic dynamics.
  • Professionals involved in economic forecasting and policy analysis who wish to understand the theoretical underpinnings of modern macro models.
  • Applied economists interested in calibrating and simulating theoretical models.
  • Individuals aiming to understand the link between economic growth and business cycle fluctuations.

Duration: 10 days

Course Objectives

Upon completion of this training course, participants will be able to:

  • Understand the core tenets and historical context of Real Business Cycle (RBC) theory.
  • Grasp the mathematical foundations of dynamic optimization and general equilibrium as applied in RBC models.
  • Analyze the structure and key equations of the foundational RBC model, including household and firm optimization problems.
  • Comprehend the role of technology shocks as the primary impulse mechanism in RBC models.
  • Evaluate the methods for solving, calibrating, and simulating RBC models to generate artificial data.
  • Develop practical skills in comparing simulated model moments with empirical business cycle stylized facts.
  • Navigate the critiques and extensions of the basic RBC framework (e.g., labor market, government).
  • Formulate a strategic approach to using RBC models as a benchmark for understanding economic fluctuations.

Course Content

  1. Introduction to Business Cycles and Macroeconomic Modeling
  • Stylized facts of business cycles: co-movements, volatility, persistence
  • Historical overview of business cycle theories: Keynesian, Monetarist, New Classical
  • The Lucas Critique and the rise of micro-founded models
  • Introduction to Real Business Cycle theory: key ideas and contributions
  • The representative agent framework in macroeconomics
  1. Foundations of the RBC Model: Households
  • Consumer preferences: utility function, consumption, leisure, and labor supply
  • Intertemporal budget constraint: saving and borrowing decisions
  • Dynamic optimization: setting up and solving the household's problem (e.g., using Lagrangian, Bellman equation)
  • Euler equation for consumption-saving decisions
  • Determinants of labor supply and intertemporal substitution of leisure
  1. Foundations of the RBC Model: Firms and Technology
  • Production function: Cobb-Douglas, constant returns to scale
  • Firm's profit maximization problem: labor demand, capital demand
  • Law of motion for capital accumulation and depreciation
  • The role of total factor productivity (TFP) and technology shocks
  • Modeling technology shocks as a stochastic process (e.g., AR(1))
  1. General Equilibrium and Competitive Equilibrium
  • Defining a competitive equilibrium in the RBC model
  • Market clearing conditions for goods, labor, and capital markets
  • The social planner's problem: decentralizing the social optimum
  • Equivalence of social planner's solution and competitive equilibrium
  • Steady-state analysis: finding the long-run equilibrium of the economy
  1. Solving the RBC Model Numerically
  • Log-linearization of model equations around the steady state
  • State-space representation of the linearized model
  • Perturbation methods for solving dynamic models
  • Using computational tools (e.g., Dynare, Matlab, Python) to solve the model
  • Simulating the model's response to a technology shock
  1. Calibration and Simulation
  • The methodology of calibration: choosing parameter values based on microeconomic evidence and long-run averages
  • Calibrating key parameters: discount factor, capital share, depreciation rate, technology shock persistence and volatility
  • Generating artificial data from the calibrated model
  • Detrending actual macroeconomic data (e.g., Hodrick-Prescott filter) for comparison
  • Comparing simulated moments (standard deviations, correlations) with empirical stylized facts
  1. Empirical Applications and Model Evaluation
  • Confronting the RBC model with observed business cycle regularities (e.g., procyclical investment, countercyclical real wages)
  • Explaining the magnitude and persistence of business cycle fluctuations through technology shocks
  • Solow Residuals as a measure of technology shocks
  • Strengths of RBC models in explaining aggregate quantities
  • Limitations of the basic RBC model (e.g., explaining unemployment, asset prices)
  1. Extensions to the Basic RBC Model
  • Indivisible labor and variable labor supply
  • Government spending shocks and their impact
  • Preferences: habit formation, non-separable utility
  • Investment-specific technology shocks
  • Open economy RBC models: international linkages and terms of trade
  1. Critiques and Developments of RBC Theory
  • The "puzzle" of labor supply elasticity
  • The magnitude of required technology shocks
  • The absence of nominal rigidities and the role of money
  • The Great Moderation and its implications for RBC models
  • The transition from RBC to New Keynesian DSGE models
  1. Advanced Topics and Real-World Relevance
  • Using RBC models as a benchmark for more complex DSGE models
  • Understanding the role of RBC insights in central banking and policy analysis
  • Current debates and ongoing research in RBC theory
  • Beyond technology shocks: other real shocks (e.g., preference shocks, investment-specific shocks)
  • Future directions in business cycle research and the role of microfoundations.

CERTIFICATION

  • Upon successful completion of this training, participants will be issued with Macskills Training and Development Institute Certificate

TRAINING VENUE

  • Training will be held at Macskills Training Centre. We also tailor make the training upon request at different locations across the world.

AIRPORT PICK UP AND ACCOMMODATION

  • Airport pick up and accommodation is arranged upon request

TERMS OF PAYMENT

Payment should be made to Macskills Development Institute bank account before the start of the training and receipts sent to info@macskillsdevelopment.com

For More Details call: +254-114-087-180

 

Understanding Economic Pulses: Real Business Cycle Theory And Empirical Applications Training Course in Kenya
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