Title: Loglinear approximate solutions to RBC models: An illustration and some observations
Reference Number: 1093
Publication Date: January 2004
JEL Classifcation: E13

Sau-Him Paul Lau
The University of Hong Kong

Philip Hoi-Tak Ng
The University of Hong Kong

Following the analytical approach suggested in Campbell (1994), this paper considers a baseline real-business-cycle (RBC) model with endogenous labor supply. It is observed that the coeffcients in the loglinear equations approximating the equilibrium are related to the fundamental parameters in a relatively simple manner. These equations can be utilized to obtain the closed-form approximate solution with ease and to demonstrate the properties (say, uniqueness) of the solution with clarity. Furthermore, comparative static results can be confirmed analytically (by, for example, straightforward differentiation). We believe that (at least some of) these conclusions can be generalized to more complicated RBC models.

Key words: Real-business-cycle models; Loglinear approximate solution

Last modified: 06/10/2004