Real Business Cycle Model: Competitive Equilibrium

Real Business Cycle Model: Competitive Equilibrium. Video 4 of the DSGE course. In this tutorial, we define the competitive equilibrium and enumerate the dynamic equations of the real business cycle model. This tutorial is the crucial step to get into the software. In videos 2 and 3, we have solved the household's and firms' maximization problems. Now we can define the model equilibrium. How the two agents interact in the economy will determine the model equilibrium. Finding a general equilibrium implies that all markets are in equilibrium (goods, capital and labour).

Families have to decide how much to consume, save/invest and work. Firms have to decide how much to produce depending on inputs (capital and labour). Formally speaking, finding a DSGE model equilibrium implies finding a sequence of the variables: consumption, leisure, investments, capital and labour; and a set of prices: wages and returns, such that:
1- Families will maximize their utility given wages and returns.
2- Firms maximize their profit given the prices of wages and returns.
3-Feasibility condition of the economy holds.

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*** IMPORTANT: The present video is class number 4 of my free DSGE course. In this course I teach you how to solve a real business model step by step and write the dynamic equations in the software. Finally, we compute the steady state, impulse response functions and out of sample forecast**
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🕘 Timestamps:
🎬 In this video the following analysis is performed:
👋 Introduction 0:00
📊 Competitive Equilibrium Definition 1:20
📊 Dynamic Equations 3:17
📊 Variables in the model 7:54
📊 Parameters in the model: 9:41
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