Dynamic stochastic general equilibrium (DSGE) models have become increasingly popular as a policy tool in central banks in the past few years. The advantage of this approach is that the macroeconomic model is derived from microeconomic principles by spelling out the preferences, technologies and...

This handbook shows how to set up, approximate, and estimate a standard real business cycle model enriched with labour market frictions. The structural equations of the model are derived by maximizing the agents’ objective function subject to the structure of the economy. Given the complexity...