# Diary of Econ 704, Spring 21, 2nd Session

## 14. Apr 28 An Endogenous Growth Model and a Model with Small Businesses

## 13. Apr 26 Extreme Value Shocks and Macro and Pandemics

## 12. Apr 21 Monopolistic Competition

We also discuss Calvo and Rottemberg pricing.

## 11. Apr 19 Other Issues in Aiyagari Type Economies

We go over Policy Changes and Welfare and Business cycles in these economies. We discuss Search and Entrepreneurship within Aiyagari Economies.

Link to Class Video Passcode: &3Hsh+s6

## Apr 16 Recitation

- Reviewed the first section of the midterm (international economy/growth models)
- Analyzed properties of the Aiyagari model with leisure, as articulated in the Pijoan paper, and compared it with complete markets

Link to Recitation Video Passcode: x!U3Rm8=

## 10. Apr 14 Imrohoroglu, Huggett, and Aiyagari Economies

We look at the Huggett (93) and Aiyagari (94) Economies.

Link to Class Video Passcode: 6y#yc!4n

## Apr 12 Recitation

- Reviewed the midterm and gave a detailed solution to part 2 (Lucas tree with search and work)
- Calculated some interesting statistics from the industry equilibrium
- Analyzed the problem of the firm in the industry equilibrium model with R&D expenditures
- Went over the Farmer’s problem in more detail, and described why the asset space is bounded

Link to Recitation Video Passcode: Nk?P+2T%

## 9. Apr 9 Midterm

## 8. Apr 7 Computation of MIT shocks and the Farmer's problem

We apply the Boppart et al to the standard Social planner Model. We start looking at the problem of Robinson Crusoe with shocks and linear technology.

Link to Class Video Passcode: sV4V#m8Z

## 7. Apr 5 Continuing Industry Equilibria

Look at endogenous entry and exit, stationary equilibrium, adjustment costs. We talk about non-stationary equilibrium. We start the Boppart et al MIT shock approximation.

Link to Class Video Passcode: n.#nx1ib

## Apr 2 Recitation

- Solved the household’s problem in the competitive search Lucas tree model and derived the Euler equation
- Wrote down and solved the static social planner’s problem for the model and showed it is equivalent to the result from competitive search
Introduced the McCall search problem, characterized the baseline solution, and characterized the solution with bargaining

Link to Recitation Video Passcode: P2b3m?b. (the period is part of the passcode)

## 6. Mar 31 Industry Equilibria

We go over industry equilibria using the notions of measure theory.

Link to Class Video Passcode: df1.aAr$

## 5. Mar 29 Endogenous Productivity: The Lucas tree economy with search frictions and Competitive Search

We finish Competitive Search. We start measure theory.

Link to Class Video Passcode: 2!3?jiU9

## Mar 26 Recitation

Jonathan summarized some of the earlier homework assignments (how often does output per capita double if growing at 2 percent, showing that the neoclassical growth model satisfies the Kaldor facts) and then gave detailed explanations and solutions to the following problems:

- showing the RCE with capital income tax is not optimal
- defining RCE with habit formation preferences, solving the household’s problem and comparing to the social planner’s problem
- writing down the Euler equations for the household and firm in the capital-land economy and explaining the no arbitrage condition

Link to Recitation's Video Passcode: zx=k8YfN

## 4. Mar 24 Lucas Trees Economies: Preference and Productivity Shocks

- We look at Lucas trees and derive a pricing condition. We use no arbitrage conditions to price all kind of securities. We discuss the role of Preference Shocks. We start endogenous productivity and competitive search.

Link to Class Video Passcode: sqd4i?J+

## 3. Mar 22 Economies with Distortions and Heterogeneity

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

Link to Class Video Passcode: #GPA2*ML

## 2. Mar 17 Recursive Equilibria without and with Distortions

- We describe equilibrium of economies where the welfare theorems are of no use: a government financing a public good with capital income taxes.
We discuss an environment with capital income taxation and government debt. We talk about the economy with a stock market. We talk about various forms of habits and/or externalities in consumption. We start talking about economies with heterogeneity, starting with wealth. (19)

Link to Class Video Passcode: @SKbB*4W

## 1. Mar 15 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 discuss 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)
- I go very fast over RCE equilibrium. First an optimal one. Then a few that are not optimal: We pose a government that spends.