Department of Economics, University of Minnesota,
Minneapolis, MN 55455.
Tue and Th 12:20 pm to 14:00. In Hanson Hall,
4-170. Off Hours: Before and after class and by
appointment. http://www.econ.umn.edu/~vr0j/ec8503-11/,
email:
vr0j@umn.edu,
Phone-(612) 625-0941 Fax: (612) 624-0209
Fed Phone (612) 204-5528
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What are we doing? A
class by class ex-post diary and a forecast of next class.
Mar 22.
We talked about the class and what it is
about. We discusses what are the possible topics that we
will cover (see below). We discussed various issues about
wage determination We then went over the theories capable
of yielding an age wage profile like that in the
data. We went in some detail over the hormone theory and
the learning by doing theory.
Mar 24.
We finished the Ben-Porath model. We
then talked about how to aggregate this Life Cycle model
into a macro model. We discussed various items: survival
and its markets, leisure, the relation with the interest
rate, social security, equivalence scales. how to think
of prices of stuff that people have to account for
changes (skills, traits). We discussed how to deal with
heterogeneity in human capital investment models.
Mar 29.
We started talking about the possible
usefulness of a project about using global methods to
solve new keynesian models and their possible
usefulness. We then moved on to discuss how to think of
muliperon households and we talked about why would we need
a notion of economies of scale and, also, time varying
utility weights. We then discussed a bit how to account
for educational differences between boys and girls.
Mar 31.
We had two very nice homework
presentations by Laura and Hitesh that induce a
discussion of various items related to the computation
of the homeworks. We then used a life insurance
example to talk about identification and alos about
how to use data to learn things via the eyes of a
model.
April 5.
I talked about Lotteries. What do
they do, what do they solve. How should we sometimes
think of markets. How does Arrow-Debreu get preserved,
in case we wanted that to be the case. Insurance. What
about loans? What about mortgages? What do lotteries do
for the labor market. How non-convexities (and private
information) expand the role of lotteries. Pareto
Optimal allocations depend on how we define the set of
possible allocations. Hopefully it was useful for some
of you to think differently about various issues. I
discussed the new homeworks.
April 7.
We discussed disagreement within
a household and the possible ways to get around
it: Pareto weights, bargaining, repetead games,
competitive search.
April 12.
I presented an environment with
search and matching. It is a version of the
Charon-Langot (04), Andolfatto (95) or
Choi-Rios-Rull(09). I also talked about personality
traits.
April 19.
Zhen talked about the sticky wage
model without log-linearization. Neha started talking
about endogenous job destruction. They both did a
great job.
April 25 Class 1.
Neha finished the stuff on
endogenobous job destruction. In particular, she
discussed how the flow Bellman equation arises from
the continuous time problem. I went over the data in
education related mortality and over how to decompose
it into its different constituents.
April 25 Class 2.
Jiwoon talked about
the Simplicial Interpolation in order to solve a problem
with a kink. I finished the discussion of how to deal
with human capital investment when there are two types
of capital, financial and health.
April 26.
I talked about competitive
search in the context of an RBC model where demand
shocks look like productivity shocks.
April 28.
Sebastian will tell us about how
to use the endogenous grid method to solve for the
location of a problem where there is a non-concavity
(a kink in the value function which is different than
a kink in the decision rule).
May 3.
Naoki talked about open MP and MPI
(Parallel computing). John talked a bit about Mortensen
Pissarides models of the business cycle, using the
Cole-Rogerson paper.
May 5.
Bernabe will talk about Block
Recursive Equilibrium. Jiwoon will briefly tell us
about an improvement over the Simplicial Interpolation
that solves a problem with a kink using endogenous
grid search. Zhen may talk about how to specify a RA
model with staggered wage setting but without slavery.
Neha may talk 10 minutes about the
joint issue of learning by doing and by not
doing.
List of Homeworks Organized
by batchs.
First Homework batch. Do
it by April 1, April Fools' day.
Data manipulation.
1.A Fetch and plot US quarterly GDP Employment,
Total hours worked, Hours per worker, Hours per adult of
working age and Hourse per person not in jail over 18
years of age both from CPS and from the firm survey (see
Cooley chapter 1, page 30). Store it in pdf, eps, and
emf or wmf formats. 1.B HP filter and plot US quarterly (log) GDP
and the series in 1.A. Store it in postcript or
pdf. Compute the same table as in the Cooley book for
those 4 variables using data up to 2003:4 or later.
1.C Calculate a linear trend and decompose log
GDP in the linear trend the hp trend and the hp
residual.
1.D Plot the growth rates together with the hp
residual and comment the differences.
1.E Compute a VAR of GDP, Total Hours and Labor
Productivity and plot the impulse responses. Make sure
that you explicitly state what are the identifying
assumptions that you make.
A life cycle problem.
2.A Solve for the assets and consumption of
the houeholds in an economy where they live 90 years
(assume they are born at 16) and have the wage
profile and of American persons. (Find it from
somewhere in the literature, later we will compute
it from data). Let the agents have standard per
period preferences over consumption with risk
aversion coefficient of 2, discount rate of 1. and
interest rate of 3\%. Plot them. You should use the
three methods we discussed in class to solve this
problem (if you want you can solve in five year
intervals, for which you have to adjust the interest
and discount rates). These methods were forward and
backward iterations that transform the problem into
one equation and one unknown and brute force.
2.B Now make changes in preferences so that
the induced profiles for consumption are inversed
U-shaped. Plot them too.
2.C Briefly explain the computational logic
that you followed. (I will talk a bit in class for
this but start now).
A more complicated life cycle
problem.
3.A Choose a learning-by-doing technology
(explain how you did so) and solve for the optimal
paths of consumption, savings hours worked,
productive hours worked and wages. Plot them. Do
they match the data?
3.B
Choose a Ben-Porath learning-by-not-doing
technology (explain how you did so) and solve for
the optimal paths of consumption, savings hours
worked, productive hours worked and wages. Plot
them. Do they match the data?
3.C
Specify a model with both a learning-by-doing and
a learning-by-not-doing technology (explain how
you did so) and solve for the optimal paths of
consumption, savings hours worked, productive
hours worked and wages. Plot them. Do they match
the data?
3.D
Discuss your findings
Second Homework batch. Do
it by April 15, Tax day.
Life Cycle or infinitely medium hard problem.
4.A Pose a stochastic problem with compact but
continous support of the shock that affects the
household. A boring possibility is an income shock. A
nicer one is a shock to the wage or efficiency units of
labor. Shocks to health in the form of either expenses or
disability are also fine. Make sure that you handle
corner solutions (no borrowing, no working
negative). Solve it by piecewise linear approximations to
the Euler equations. Pose the details yourself.
4.B Solve for the stationary distribution of
these people. Compute average wealth and labor. Compute
also the following measure of the persistence of
wealth. What is the probability that households in each
wealth quintile at age 45, are in each other quintile at
age 50. Note that you have to do it by both approximating
the stationary measure and by generating large samples of
households.
Third Homework batch. Do it by
April 30, Nothing day.
A harder life cycle problem.
5.A Pose a problem where agents make decisions
that are of a different kind. Discrete choices. Have a
baby, get married, file for bankruptcy, quit a job, get
divorced. First by posing an effort function that keeps
the solution in the Euler equation world.
5.B Now pose one of those problems as a purely
discrete shock. Solve it by posing an iid idiosyncratic
shock with continuous domain when there are finitely
many states.
5.C Now do the continuous domain problem, say
of a bankruptcy problem, using endogenous grid
method. This requires a lot of ingenuity and some good
luck.
Course Description
This course should be thought of as a Labor course with a
close link to Macro that should be of interest to people with
interest in both areas. Its main purpose is to learn the map
from models to data i.e. to answer quantitative questions that
we are interested in (in the process of doing so, some
interesting theoretical questions arise). We will develop
tools by stating general questions, and then discussing how to
approach its answer.
Tools. The tools that we will be
developing beyond those already covered in the first year
can be grouped into:
Theoretical tools. Not all the
necessary tools have been acquired in the first year. We
will look at models of individual decision making,
obviously, but mostly in the context of equilibrium models. We
will look at representative agent models, models with a
continuum of agents represented with measures, overlapping
generations models, as well as models where agents form
households. We will look at models where equilibria are
optima and where they are not. We will look at stationary
and non--stationary equilibria. We will look at models
without perfect commitment and without perfect
information.
Empirical tools. A necessary condition to be able
to do applied theory is to be able to characterize
some properties of the world. This involves the
capability of accessing some data and of understanding
the way it is organized as well as the principles that
guide the construction of the main sources. This
requires some knowledge of NIPA and of the way data
are organized,
Computational Tools. Students should be able to
construct and characterize the properties of the
equlibrium allocations of artificial model economies.
Calibration. We will spend a lot of
time thinking of how a model is related to the
data. This is I think the more important part of the
learning process. We will discuss this in much
detail.
This is a Ph.D. course not a Masters course. Not to learn
about others but to to do things, and, therefore, it
requires to do some things.
Format.
Every class except the first one we will devote the first
twenty minutes or so to students presentations of
homeworks. I expect professional competence in this regard.
Relation to 8501 and 8502. This
course complements those courses. We will overlap a bit with
enough differences to make them all worthwhile to the
enthusiast. Any one of them provides sufficient material, if
properly mastered, to pass the prelim.
Content. In terms of content
here is a list of some of the issues that we may cover.
Wage formation. Over ages,
education, sexes, occupation, marital status,
states, cities, what not.
Household Types. Single,
cohabitating, married, with children, with other
adults, with elderly, sharing dwellings. How does
it shape people?
Household Formation. How does
it change? How is it chosen? Both children and spouses.
Time Allocation. What do we do
with our time? Is labor/leisure useful?
Engagement in the labor market.
Female labor force participation, choices of hours,
retirement.
Really?
Occupational Choice. What career
to choose (in a parallel sense). This includes
entrepreneurship, and even which legal status to
choose.
Crime. We will think of it in
part as a form of occupational choice (for property
crime). But we will also talk in terms of murder. How
could we think of it.
Savings and borrowing. With
special emphasis on the particular set of U.S. laws
that guarantee the right to bankruptcy.
Death and Health. Death is
unequal why people die? Does health care matter?
Really?
Aggregate Search Models. We will
look at how to build protoypical search models with
flows of workers entering and exiting the labor
force.
Aggregate Fluctuations and Macro in
general. Are any of these things changing over
time?
Course Requirements
Students will place the solution to the homeworks and to
other requirements in electronic form.
You have to send an email ASAP to help@cla.umn.edu
stating your name and university email and username and
that you are in my course to have access to a directory
named /pkg/8503-11 and a subdirectory your user
name.
There are various types of requirements that are a necessary
part of the course, all of which have to be fulfilled.
Regular Homeworks.The ones posted
here. Full credit only if on time. Partial credit otherwise.
Class Presentations Every student
will make at least two class presentations with at least
one being of a subset of a homework. The first
presentation should take no more than 15 minutes and it
will be absolutely professional. Every second wasted,
every statement not planned, every bad thing will be
highlighted. The second presentation (that will depend on
class size and interests) maybe on a paper or on another
homework.
Referee Report. I will assign a
paper to each of you as we go along to write a referee
report and perhaps also to present the paper in no more
than 20 minutes. The refere report should be no longer
than five pages and should contain a clear and concise
exposition of the main points of the article as well as a
critical evaluation of the article's contributions. In
addition, you should write a letter to the editor with your
personal recommendations. If very good, I will use them,
anonymously.
Wikipedia Article. Optional, but
excellent training. This is something that should be done by
the end of the course. The moment you post it email me and
place a copy in your directory. Think of a topic of the
course no matter how silly.
This course believes drastically in Learning by Doing. To learn
the material that we cover requires that students do all the
homeworks in a timely manner. Given the way to collect the
homeworks, timeliness is automatically recorded. I will look at
what is done weekly.
Grading Rules and Registration.
To do superbly in the course, registered students have to do all
the requirements well.
For those that do not register but take the course, I recommend
that they do the homeworks. We learn to solve problems by facing
them. Learning jointly with others greatly speeds the
process.
In any case, the University is to help you learn and become
a great economist not to issue grades, so use the course in
the way you say it is best for you. If all equal, register
so that there is evidence that the course is useful.
What about the prelim?
The prelim will consist on some problem or question or
discussion of something that has been at the core of the
course. Take a look at the last two prelims (from Kara, I think)
and the homepages of the courses of previous years (via my
homepage) for clues.