Econ 8108 Macroeconomics First Year Session IV Spring 2008

 Department of Economics, University of Minnesota, 1130
Heller Hall, 271 19th Avenue South, Minneapolis,
MN 55455
 Tue and 14:3015:45 BlegH 415. Off Hours:
Before and after class and by appointment.
http://www.econ.umn.edu/~vr0j/ec850108/, email:
vr0j@umn.edu,
Phone(612) 6250941 Fax: (612) 6240209
Fed Phone (612) 2045528

TA, Ali Shourideh, Office Hours: Mondays 10am12pm.
Recitation time is Tuesdays
45:15.
shourideh@gmail.com

 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 Ali.

What we are doing each day.

May 8.
The final.

May 6.
We will rap up the search and will
talk about the Romer growth model with innovations.

May 1.
We talked more about search and the
problem of the worker with on the job offers. We talked
about bargaining and matching.

April 29.
We talked about labor search. We
discussed its discrete and continuous. We also looked at
the case when searcg effort rewards with more offers,
and discussed the differences between the distribution
of offers and that of wages.

April 24.
We finished the
characterization of Industry Equilibria by looking at an
economy with labor adjustment costs. We talked about
growth and the Romer externality in Physical capital model.

April 22.
We continued the
characterization of Industry Equilibria with some tweaks
to provide for interesting economics. We had the test.

April 17.
We talked about measure theory
briefly and started the discussion of Industry
equilibria.

April 15.
We did finance and the pricing of
assets using Lucas trees.

April 10.
We finished the two country
economy, with complete and incomplete markets and looked
at the RCE of economies with a government that issues
debt. We discussed the meaning of the present valu
budget contraint.

April 8.
We looked at the recursive
implementation of economies with shocks with Arrow
securities that pay in capital goods. We then moved to a
two country world. We saw that to understand the problem
of where to invest we should pose a dynamic problem for
firms. We looked at a version of the growth model where
L stands for land owned by firms who install capital.

April 3.
We looked at the recursive
implementation of economies with shocks and complete
markets with Arrow securities that yield consumption goods.

April 1.
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 had rich and poor
(but otherwise identical) agents.

March 27.
We solidified concepts and went go
over Recursive Comp Eq (RCE) with and without Rational
Expectation and justified its components. We saw how
this notion can be used to find equilibra dyirectly with
tools similar to dynamic programming.

March 25.
We went over the homepage contents
(although you could never see it). 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 81058107. 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 Ali 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.
 Introduction
 Equilibrium. What is its meaning.
 Competitive equilibrium in the growth model. Taking
advantage of the welfare theorems.
 Arrow Debreu.
 Sequence of Markets.
 Recursive Competitive Equilibrium.
Stokey and Lucas, [1989], Chapters 15 and 16;
Harris, [1987], Chapters 3 and 4;
Cooley and Prescott, [1995].
 A stochastic version of the growth model. What are complete
markets? What are one period ahead Arrowsecurities? How to define
Competitive equilibrium in stochastic growth model.
 Arrow Debreu.
 Sequence of Markets.
 Recursive Competitive Equilibrium.
 Attacking recursive equilibria directly.
 Nonoptimal Economies.
 An economy with an externality in production.
 An economy with public expenditures, income taxes and
a period by period balanced budget constraint.
 An economy with public expenditures, income taxes and
a present value balanced budget constraint.
 An economy with money some form of cash in advance.
 Normative versus Positive thinking: Optimal policy. Optimal
Timeconsistent policy. Markov equilibria
with sequences of governments.
 An Economy with decentralized bargaining in labor markets.
 Multiple Agents Complete Markets Economies.
 An economy with two types of agents differing in
skills and/or wealth.
 A two country economy.
 Finance and Asset pricing
 The Lucas tree nonrecursive.
 Recursive. Some formulas.
 Another excursion into Growth:
 Exogenous growth
 Transforming the economy
 Externalities.
 Research and development (Romer 86).
 Non balanced growth paths.
 Industry Equilibria.
 Exogenous entry and exit. A measure of firms.
 Endogenous entry and exit.
 Search and bargaining over the job.
 Monopolistic Competition Environment.
 Recursive Preferences. EpsteinZin recursive utility.
Epstein and Zin, [1989].
Ljungqvist and Sargent, [2000]
 Recursive Models with demographic detail.
 Overlapping Generations with many periods.
 Overlapping Generations with variable demographics.
 A hybrid. The exponential population, exponential
aging, model.
 Fertility in the utility.
 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, 937969.
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), 14291445.
STOKEY, N. L., AND E. C. LUCAS, R. E. WITH PRESCOTT
(1989): Recursive Methods in Economic Dynamics. Harvard University
Press.
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