• What are we doing? Brief description of previous classes and next one.
• Homeworks.
• Course description.
• Requirements. List of homeworks and other requirements and due dates. Will be updated as we go along.
• Computers? and Textbooks? and Grading rules.
• A preliminary version of the Syllabus. It is very likely that it will change. I will update it.
• Other relevant links. Here you may find an occasional paper, homepage or subroutine of interest.

What are we doing? A class by class diary.

1. Sept 4.

   We talked about the class, and what it is about, going over all the details. We start with a discussion of what is the meaning of an approximation to a function and the criterias (family of approximating functions, criteria of distance, and method to find it) that are used to describe a particular approximation approach. We then go in detail over the first set of homeworks and its purpose. We finish with a discussion of the Solow residual. This includes the components of GDP on the income side. You should read the Cooley-Prescott chapter on the Cooley book or the - appendices here or here for details of the construction of the Solow residual needed to compute it. We discussed how to use a model to answer quantitative questions about the economy. In particular, we talked about how calibration and estimation operate, and what are their differences and similarities. We put special emphasis in saying that what matters is not the statistical techniques as much as the sources of identification. I refer to the first 5 sections of this paper, but in particular, Section 3. We discuss the next batch of homeworks if the computer works well (and I want volunteers to present some of them in the next class, Sept 18). Such discussion involves a minimal description of log linearization using dynare as well as comments on the use of software to take derivatives and on how to implement the notions of calibration discussed at the beginning of the class. While doing this, we talked about how to calibrate a model economy so that its steady state looks like the U.S. in the dimensions that we want. A place to find Jesus Fdez-Villaverde's examples of dynare code is this.

2. Sept 11

   We went into the details of what to do in the homeworks and how does calibration answer the question of what is the contribution of TFP shocks to business cycles. We started the discussion of global approximation methods talking about piecewise linear functions (and their base represenation) with exact solution in the grid points. I want somebody to present Sept 18th the endogenous grid method. This paper is a great reference to a particularly efficient way to obtain a global approximation. Sign up to present it. I also talked about how shocks to wealth work in the growth model and what adjustments it needs to generate a recession. We started to develop an alternative to the TFP shocks: shocks that increase savings. These ideas will end up in a homework due October 2 that will require some thinking.

3. Sept 18

   Tom and Chris presented the endogenous grid method. Thanks Tom and Chris. I started to talk about a model susceptible of having non TFP shocks yet perhaps capable of dealing with BC as we see them.

4. October 2

   Sergio presented the main homework, and we discussed many relevant issues around it. Thanks Sergio. Then Annaliina presented the fundamentals of the Mortensen-Pissarides model using these slides. Thanks Annaliina. After that we commented both homeworks. The one for the global methods very briefly, the other one more thoroughly. Recall that I asked you to measure the contribution of preference shocks to the volatility of hours worked by using a version (and a closed economy version would be great) of the stuff in these slides and this paper. I also said that a similar task that what I ask in the homework was done in section 5.1 of this paper using a slightly different model. One that it essentially a neoclassical growth model. What I am asking is to use a close economy version of the model in the paper with Huo above to do the same exercise that is done in the paper with Bai and Storesletten. Contact me if you have any doubt.

5. October 9

   Sebastian Dyrda taught how to read and use data sets. He used these notes from last year that he may update. He also used these slides. I will soon post some homeworks that require you to read some data sets.

6. October 16

   We had a long class. Eugenia described global approximations and showed us how to solve the growht model using 3 different approaches. Thanks Eugenia. Sergio finished presenting HW batch 2. We discussed a few issues there but the bottom line that he found is that productvitiy shocks really do not move hours. I then described how to compute the household problem and the stationary distribution in the Aiyagari economy. We then talked about how to solve the transition and briefly about the GEE.

7. October 23

   We talked about the problems of the Third HW Batch. We looked at two issues, first what is Nash Bargaining, how it works and what is what determines the surplus for each of the two sides. We also talked about how to determine the price of non tradables. This required us to look at monopolistic competition. We also talked about the concept of equilibrium and how a recession out of a financial crisis or impoverishment can happen. We will continue talking about this issue next week.

8. October 30

   We talked a bit about the problems of the Third HW Batch. I used the discussion of the Nash bargaining problem (see these notes) to argue about models where everything is described in terms of fundamentals and models where we want to account for allocations and arrangements. We talked about the Krusell Smith methods and about the Bankruptcy problem including the issue of credit scores. We also discussed the problems with Non-Markov equilibria, and how to think of types.

9. November 6

   Joaquin talked about the data homeworks. We discussed various issues.

10. November 27

    I talked about a positive theory of Time Consistent economic policy. Mons talked about homework 7, the Aiyagari economy; Thanks Mons. I discussed a few things during his presentation including the simultanous posing of some targets of calibration.

11. December 4

    I talked about two important technical issues: one the Krusell-Smith type of approximations to solutions to business cycles in Aiyagari type economies (both with aggregate capital as sufficient statatistics for prices and when that is not the case); and algorithms to solve a large system of equations for calibration. Sergio presented the Fella paper. Thanks Sergio.

12. December 11

    We will finish the discussion of HW 3. I will continue talking about the endogenous determination of policy and the GEE. This completes the course.