Diary of Econ 704, Spring 21, 2nd Session

• We finish the Epi-Macro model we talk about endogenous growth and a model with small businesses.

Link to Class Video Passcode: T*2#.STe

• We look at what are extreme value shocks and how they should be used in Macro.
• We start with an Epi-Macro model

Link to class video Passcode: #qpJBw4M

• Solved the household’s problem in the monopolistic competition model, and analyzed its properties (elasticity of substitution, dependence on number of varieties, etc.)

• Solved the firm’s problem in the Calvo pricing model in sequence space, and showed its properties with fully flexible pricing decisions and in steady state with price rigidity

  Link to Recitation Video Passcode: !M6oS+ws

• We also discuss Calvo and Rottemberg pricing.

  Link to Class Video Passcode: K21MV8*S

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

• 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=

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

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

• 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%

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

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

• 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)

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

Link to Class Video Passcode: df1.aAr$

We finish Competitive Search. We start measure theory.

Link to Class Video Passcode: 2!3?jiU9

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:

• 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+

• 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

• 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

• 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.