AØKA08207U Theoretical and Empirical Foundations of DSGE Modeling

Volume 2013/2014
MSc in Economics

We will focus on the construction, solution and empirical validation of dynamic stochastic general equilibrium (DSGE) macroeconomic models. The first week of the course will be centered around the formulation and solution of DSGE models.  We will first review the baseline structure of the Real Business Cycle model and the New Keynesian model. We will next consider some recent extensions to these baseline settings. There will be afternoon classes designed to acquaint participants with the numerical analysis of DSGE models. During the second week there will be lectures and classes aimed at reviewing various methods employed to validate DSGE models. Finally, a guest lecture will be provided by Jesper Pedersen from Danmarks Nationalbank on the structure and estimation of the DSGE model of the Danish economy.

Learning Outcome
After the course the student should:

  1. Have knowledge of the key building blocks of dynamic stochastic general equilibrium (DSGE) models. 
  2. Be able to formulate, solve and analyze small-scale DSGE models. 
  3. Be able to interpret formal results obtained from the analytical and numerical analysis of DSGE models, reporting them in economic and intuitive terms. 
  4. Be able to perform monetary policy analysis in the baseline New Keynesian model. 
  5. Have knowledge of the main empirical methodologies used to validate DSGE models. 
  6. Have a basic understanding of how DSGE models are implemented for both business cycle and normative analyses at modern monetary institutions.
Syllabus: 1. Jordi Galí (2008): Monetary Policy, Inflation, and the Business Cycle. Princeton University Press. 2. Carl. E. Walsh (2010): Monetary Theory and Policy. Third Edition, The MIT Press. Slides and articles will be made available at the course webpage.
Familiarity with intertemporal optimization, the analysis of static and dynamic systems under rational expectations and basic multivariate econometrics.
Formal Requirements: no formal requirements.
3 hours of lectures and 2 hours of classes every workday.
  • Category
  • Hours
  • Class Exercises
  • 20
  • Exam
  • 24
  • Lectures
  • 30
  • Preparation
  • 132
  • Total
  • 206
7,5 ECTS
Type of assessment
Written assignment, 7 days
The exam is a 7 days take-home assignment given on July 12 with deadline July 19.
All aids allowed
Marking scale
7-point grading scale
Censorship form
External censorship
100 % censorship
Exam period
Will be updated before the start of the semester
Same as ordinary. But if only a few students have registered for the re-exam, the exam might change to an oral exams with a synopsis to be handed in. This means that the examination date also will change.
Criteria for exam assesment
The Student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course.