Diary of Econ 7210, Spring 25, 2nd Session

We finish looking at New Keynesian Models. We look at what are extreme value shocks and how they should be used in Macro.

We look at monopolistic competition. We discuss Calvo and Rottemberg pricing. I may name this paper for alternative preferences with interesting properties.

We continue looking at undirected search using as framework the Aiyagari Economy. We look at entrepreneurship. We look at unsecured debt.

We look at the Huggett economy. We look at the Aiyagari Economy and Policy Changes, Welfare and Business cycles in this Economy.

We apply the Boppart et al MIT shock approximation to the standard Social planner Model. We start looking at the farmer's problem with shocks and linear technology.

We look at endogenous entry and exit, stationary equilibrium, adjustment costs, problem of a bank with various state variables. We talk about non-stationary equilibrium. We start describing computational methods.

We use no arbitrage conditions to price all kind of securities. We then turn to endogenous productivity and competitive search.

We look into a two country economy. We briefly discuss overlapping generation economies. We start the Lucas tree and derive a pricing condition.

We finish the discussion of an environment with capital income taxation and government debt. We talk about various forms of habits and/or externalities in consumption. We talk about the economy with a stock market. We start talking about economies with heterogeneity, starting with wealth. We talk about other types of heterogeneity (skills).

• I describe the course and discussed some context of what are the main facts over which macro has to be organized around:
  1. output per capita has grown at a roughly constant rate
  2. the capital-output ratio has remained roughly constant (where capital is measured using the perpetual inventory method based on past consumption foregone)
  3. the capital-labor ratio has grown at a roughly constant rate equal to the growth rate of output
  4. the wage rate has grown at a roughly constant rate equal to the growth rate of output
  5. the real interest rate has been stationary and, during long periods, roughly constant
  6. labor income as a share of output has remained roughly constant
  7. 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.
• We describe equilibrium of economies where the welfare theorems are of no use: a government financing a public good with capital income taxes.