Diary of Econ 704, Spring 20

We also discuss Calvo and Rottemberg pricing.

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

We talked about non-stationary equilibrium. We started looking at the problem of Robinson Crusoe with shocks and linear technology.

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

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

We look at the Lucas tree when the fruit has to be found. We introduce Competitive Search. We go over measure theory.

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 discuss an environment with capital income taxation and government debt. We talk about the land 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. We talk about other types of heterogeneity (skills) and move into a two country economy.

• 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.
• 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 continue to describe equilibrium of economies where the welfare theorems are of no use: a government financing a public good with capital income taxes.

• 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.