# Diary of Econ 704, Spring 19

## 14. May 1 Monopolistic Competition. An Endogenous Growth Model

## 13. Apr 29 Applications of Imrohoroglu, Huggett and Aiyagari Economies

The Cost of Business cycles (Imrohoroglu); Entrepreneurship (Quadrini); Fluctuations (Krusell and Smith); Unsecured Credit (Corbae et al; Livshits et al.)

## 12. Apr 24 Imrohoroglu, Huggett, and Aiyagari Economies

We look at an extension with households putting effort to find jobs.

## 11. Apr 22 Non-Stationary Industry Equilibria and the Farmer’s problem

We talked about non-stationary equilibrium. We started looking at the problem of Robinson Crusoe

## 10. Apr 17 Continuing Industry Equilibria

Look at entry and exit, stationary equilibrium, adjustment costs. We also talk about non-stationary equilibrium.

## 9. Apr 15 Measure Theory and Industry Equilibria

## 8. Apr 10 Midterm: Recursivity and the Lucas Tree (with and without endogenous productivity)

## 7. Apr 8 Endogenous Productivity: The Lucas tree economy with search frictions and Competitive Search

We finished the first part of the course.

## 6. Apr 3 Lucas Trees Economies: Preference and Productivity Shocks

We will continue with Lucas trees using no arbitrage to price all kind of securities. We started to look at the Lucas tree when the fruit has to be found.

## 5. Apr 1 Economies with Heterogeneity and Aggregate Shocks

We introduced shocks and we posed complete markets. We looked at Lucas trees and derived a pricing condition.

## 4. Mar 27 Economies with Heterogeneity

We talk about other types of heterogeneity (skills) and move into a two country economy.

## 3. Mar 25 Economies with Distortions

We finish discussing the environment with capital income taxation and government debt. We talk about the land economy with a stock market. We talked about various forms of habits and/or externalities in consumption. We started talking about economies with heterogeneity, starting with wealth.

## 2. Mar 20 The Workings of Recursive Competitive Equilibrium

We finish characterizing the problem of the agent. We define RCE with and without Rational Expectations.

We start looking at economies that are not optimal: We pose a government that spends. We continue to describe equilibrium of economies where the welfare theorems are of no use: a government financing a public good with lump sum, labor and capital income taxes, and then with debt.

## 1. Mar 18 Intro

- I describe the course and discussed some context of what are the main

facts over which macro has to be organized around:

- output per capita has grown at a roughly constant rate
- the capital-output ratio has remained roughly constant (where capital is measured using the perpetual inventory method based on past consumption foregone)
- the capital-labor ratio has grown at a roughly constant rate equal to the growth rate of output
- the wage rate has grown at a roughly constant rate equal to the growth rate of output
- the real interest rate has been stationary and, during long periods, roughly constant
- labor income as a share of output has remained roughly constant
- hours worked per capita have been roughly constant.

I discus what restrictions do these facts pose on the models that we use.

I discuss some of the limitations of this point of view.

I discuss what is the meaning of an equilibrium (a mapping from environment to allocations) and then talked about why the social planner problem may be a problem whose solution is interesting (it is because it is the unique equilibrium of the economy once we use the welfare and other theorems). We talk of how an Arrow Debreu Equilibrium for the growth model, supports the social planners solution using the second welfare theorem. I refer to how to build a sequence of markets equilibrium out of an Arrow-Debreu equilibrium (and viceversa) and argue that we can then solve for Social Planner problem sometimes, but that we do so using recursive methods (dynamic programming). Why not then always recursive methods? This is to define equilibria recursively.

We started characterizing the problem of the household in a RCE, what are the states and what are the conditions for optimality.