The original DSGE models are actually the extension of real business cycle(RBC) models. Kydland and Prescott (1982) laid the foundation of DSGE modeling in the spirit of RBC theory. Real Business Cycle theory, assuming price flexibility and rationality of optimizing agents facing some constraints, investigates quarterly fluctuations when economy is hit by a real shock (the most common one being a technology shock). The earlier RBC models were criticized because economic policies had no role to play in these models. Furthermore these models failed to replicate some of the empirical regularities such as liquidity effects, comovement of productivity and employment or the comovement of real wages and output (Kremer et al., 2006). However, over time, there has been extensive work done that has helped in making these models theoretically parsimonious and empirically sound.