Econ 8108 Macroeconomics First Year Session IV Spring 2009

José-Víctor Ríos-Rull: vr0j@umn.edu,

  • Department of Economics University of Minnesota Phone-(612) 625-0941 4-101 Hanson Hall (off 4-179) Fed Phone (612) 204-5528 1925 Fourth Street South Fax: (612) 624-0209 Minneapolis, MN 55455

    Homepage http://www.econ.umn.edu/~vr0j/index.html

    http://www.caerp.com

    Department of Economics, University of Minnesota,
  • Tue and 14:30-15:45 Hanson Hall 4-170. Off Hours: Before and after class and by appointment. http://www.econ.umn.edu/~vr0j/ec8501-09/, email: vr0j@umn.edu, Phone-(612) 625-0941 Fax: (612) 624-0209 Fed Phone (612) 204-5528
  • TA, Manuel Macera , Office Hours: . Recitation time is Tuesdays 4-5:15. macer001@umn.edu

    • Good luck in the prelim

  • What are we doing? Brief description of previous classes and next one.
  • Course Description
  • Homeworks and Grades
  • Textbooks
  • Preliminary List of Material to Cover
  • References
  • Problem Sets problems and solutions with due dates. Do not wait for the posting to answer them.
  • Class Notes taken in class by Manuel.

    • What we are doing each day.

    1. May 7.

      We finished search and the course. We did so by discussing continuous time and how to pose the difference equation that governs unemployment and how to get endogenous vacancy creation and a wage through bargaining.

    2. May 5.

      We started search. We looked at the decision problem of the worker. We started continuous time.

    3. April 30.

      We talked about OLG models. Both from a historic, monetary theory point of view and from a modern, usefull recursicve point of view. We define RCE for OLG economies and talked of how it can accommodate many details of life as we know it.

    4. April 28.

      I went over the Romer growth model with intermediate goods monopolistic competition and innovation industry.

    5. April 23.

      I finished Ind Eq. First by deriving a quitting condition when productivity is Markovian. We talked about stochastic dominance. We then posed endogenous state variables (adjustment costs in labor) and we discussed things like skilled and unskilled labor and how we could use these things to assess some policies. I started growth discussing AK models, human capital models, externality in capital models and exogenous growth models all of which I will assume that you are familiar with.

    6. April 21.

      We had the midterm. I went over industry equilibria and how to get an endogenous distribution of firms. We had the free entry condition.

    7. April 16.

      We finished talking about the two country model with shocks. I reviewed the basic notions of measure theory that we need and that were discussed with Manuel at the beginning of the class. We started Competitive Industry Equilibria.

    8. April 14.

      We looked at the Lucas tree and priced all securities. We derived prices for one period ahead securities and for trees. We looked at the general way of pricing all kinds of assets. We also looked at the recursive implementation of the model economy where firms own 1 unit of land for which there is no market and accumulate capital while households trade shares in firms and receive dividends. We started discussing the two country model with shocks.

    9. April 9.

      We looked at the recursive implementation of economies with shocks with Arrow securities that pay in capital goods. We discussed how it compares with the case without such securities. We then discussed the FOCs of that model and how the envelope theorem simpliefies things. We also talked even if briefly about the pricing of options and about how to obtain decision rules by successive approximations in a similar manner to that in which we take advantage of the contractions mapping theorem to obtain value functions.

    10. April 7.

      We looked at the growth model with aggregate shocks. We talked about how to go from the social planner problem to the sequence of markets equilibrium. And we started talking about recursive equilibrium. State contingent one period ahead securities are key.

    11. April 2.

      We looked at economies with two types of agents differing in labor earnings and wealth.

    12. March 31.

      We defined Recursive Comp Equil. We started looking at particular non optimal or multiple agent economies. The first one was an economy with fixed government spending and lump sum taxes, then we switched to capital income taxes. The third economy we looked at added debt.

    13. March 26.

      We discussed how to construct the objects that allow us to apply the 2nd Welfare theorem. We then defined a Seq of Mkts Eq and built one from the objects delivered by the 2nd Welfare Theorem. We started with the definition of over Recursive Comp Eq (RCE).

    14. March 24.

      We talked about the differences between equilibrium and Pareto Optima and what role does the latter play in Macro. We argue that an equilibrium concept is a tool to pick outocomes (allocations). We went over the logic that allows to look at Social Planner allocations to see what sequence of markets equilibria predict.

    Course Description.

    This course complements 8105-8107. In my view, the ultimate goal of this course is to learn to use a variety of models that can be used to give quantitative answers to a variety of economic questions by producing allocations in the form of model generated data that can be meaningfully related to actual data. In this course most (if not all) of the material will be studied from the strict point of view of the theory, so we will not look at data in any serious manner nor at solving the models with the computer. The emphasis will be on economic rigor, i.e. the target is to learn tools that will be useful later in a variety of contexts. The course, then, is not a survey of topics in macroeconomics. When some specific topic is addressed the objective is not to give a review of known results but rather to give an example of how an issue is addressed and of how tools are used.
    There will be recitations once a week. These will be used either to introduce some mathematical apparatus that we need, to solve homeworks, or to explore issues related to those presented in class. The material covered in recitations constitutes part of the required curriculum.

    Homeworks and Grades

    In the context of the course some homework will be assigned. Sometimes I will ask you to prove something during a lecture, sometimes they will be posted in the homepage. These problems are not required but will give you an idea of what is expected for the exams, and especially for the prelim. The grades will be based 30% on a midterm, 60% on a final that will take place the last day of class and 10% on class participation Manuel will give you feedback regarding the homeworks.

    Textbooks and papers

    Besides those used and recommended by my colleagues, there is a good little book (out of print actually) that is useful, Harris, [1987]. The papers that I cite (in a very incomplete form below) are not to be read in general, although some students may find them useful. First year is to learn tools, not to read papers.

    Preliminary List of Material to Cover

    This list is of material that I want to go over. The first few items you have seen in a very similar way, so I will go very fast over it, but I find it very useful to go over them again.
    1. Introduction
      1. Equilibrium. What is its meaning.
      2. Competitive equilibrium in the growth model. Taking advantage of the welfare theorems.
        1. Arrow Debreu.
        2. Sequence of Markets.
        3. Recursive Competitive Equilibrium.
        Stokey and Lucas, [1989], Chapters 15 and 16; Harris, [1987], Chapters 3 and 4; Cooley and Prescott, [1995].
      3. A stochastic version of the growth model. What are complete markets? What are one period ahead Arrow-securities? How to define Competitive equilibrium in stochastic growth model.
        1. Arrow Debreu.
        2. Sequence of Markets.
        3. Recursive Competitive Equilibrium.
    2. Attacking recursive equilibria directly.
      1. Non-optimal Economies.
        1. An economy with an externality in production.
        2. An economy with public expenditures, income taxes and a period by period balanced budget constraint.
        3. An economy with public expenditures, income taxes and a present value balanced budget constraint.
        4. An economy with money some form of cash in advance.
        5. Normative versus Positive thinking: Optimal policy. Optimal Time-consistent policy. Markov equilibria with sequences of governments.
        6. An Economy with decentralized bargaining in labor markets.
      2. Multiple Agents Complete Markets Economies.
        1. An economy with two types of agents differing in skills and/or wealth.
        2. A two country economy.
    3. Finance and Asset pricing
      1. The Lucas tree non-recursive.
      2. Recursive. Some formulas.
    4. Another excursion into Growth:
      1. Exogenous growth
      2. Transforming the economy
      3. Externalities.
      4. Research and development (Romer 86).
      5. Non balanced growth paths.
    5. Industry Equilibria.
      1. Exogenous entry and exit. A measure of firms.
      2. Endogenous entry and exit.
    6. Search and bargaining over the job.
    7. Monopolistic Competition Environment.
    8. Recursive Preferences. Epstein-Zin recursive utility. Epstein and Zin, [1989].
      Ljungqvist and Sargent, [2000]
    9. Recursive Models with demographic detail.
      1. Overlapping Generations with many periods.
      2. Overlapping Generations with variable demographics.
      3. A hybrid. The exponential population, exponential aging, model.
    10. Fertility in the utility.
    11. Multiplicity of Equilibria.





    References

    COOLEY, T. F., AND E. C. PRESCOTT (1995): "Economic Growth and Business Cycles," in Frontiers of Business Cycle Research, ed. by T. F. Cooley, chap. 1. Princeton University Press, Princeton.
    EPSTEIN, L. G., AND S. ZIN (1989): "Substitution, Risk Aversion and the Temporal Behavior of Asset Returns: a Theoretical Framework," Econometrica, 57, 937-969.
    HARRIS, M. (1987): Dynamic Economic Analysis. Oxford University Press.
    LJUNGQVIST, L., AND T. SARGENT (2000): Recursive Macroeconomic Theory. MIT Press.
    LUCAS, R. E. (1978): "Asset Prices in an Exchange Economy," Econometrica, 46(6), 1429-1445.
    STOKEY, N. L., AND E. C. LUCAS, R. E. WITH PRESCOTT (1989): Recursive Methods in Economic Dynamics. Harvard University Press.

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    On 23 Mar 2008, 22:31.