Material for EconG207

Table of Contents

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1 First Lecture: Intro, productivity shocks and aggregate fluctuations

  1. Discussion of the content of the course.
  2. Questioning of students about their expertise and interests.
  3. Discussed the meaning of equilibria and went over Recursive Equilibria.
  4. We then talked about how to answer the question of how important are productivity shocks for business cycles. How to look at data and how does econometrics and macro proceed to get an answer. In the process, discussed the properties of functional forms.

2 Second Lecture: International business cycles

  1. We talked about how to specify international real business cycle models
  2. We talked about the main international macro puzzles and why this is the case. a- The international consumption correlation is smaller than the output correlation(the so called quantity anomaly). Backus, D. K., P. J. Kehoe, and F. Kydland, “International Business Cycles,” Journal of Political Economy, 1992, 100 (4), 745–75. b- the real exchange rate (RER) depreciates when domestic consumption increases more than foreign consumption. In contrast, the observed correlations of RER and relative consumption of the home to the foreign country for most pairs of countries are small and mostly negative. This is the so called Backus-Smith puzzle. Backus, David K and Gregor W Smith, “Consumption and real exchange rates in dynamic economies with non-traded goods,” Journal of International Economics, 1993, 35 (3), 297–316.
  3. We talked about a new class of models that can address these puzzles. a- First in a special Lucas tree setting. We did not finish. In the main page of this class there is a link to the notes for the shopping Lucas model.

3 Third Lecture Endogenous Productivity

  1. We finished the characterization of the Shopping Lucas tree economy. This required us to pose the competitive search protocol or some alternative bargaining one.
  2. We used explicitly the international model with shopping, an extension of the Lucas shopping model, to address the IBC puzzles.
  3. We discussed how a small open economy growth model with various frictions (reallocation, shopping, labor market, financial and other frictions) could accommodate the possibility that negative wealth shocks create recessions. Our theory of Southern Europe.
  4. We talked about how to set up a life cycle model with people choosing partner. This is to measure what is it that people like in each other.

4 Fourth Lecture Match formation

  1. We continued with the general equilibrium matching model of marriage and divorce.
  2. How do couples make decisions. What if they disagree?
  3. We went over the homework of the RCE with a stock market where the firms invest and own land.

5 Fifth Lecture Variability in the Number of Households

  1. A primer on observable attributes to discriminate when considering marriage: education.
  2. Children. How to model them.
  3. Savings by households.
  4. What is a household? An aggregate macro model of household formation.

6 Sixth Lecture The two H’s: Health and Houses

  1. Health: Who has it?
  2. A human capital accumulation model.
  3. Houses. Facts.
  4. How to model houses: They easy, and the hard way.
  5. We talked about how to model long term mortgages.

7 Seventh Lecture

  1. Salvatore presented his work on structural change. Thanks Salvatore.
  2. I continued with a couple of models of houses and of the budget constraints.
  3. I discussed teasr rates as possible optimal contracts.
  4. Then we talked about default with and without commitment as a gate to the general problem of commitment.

8 Eighth Lecture

  1. We talked about equilibrium theories of policy.
  2. Benevolent governments.
  3. Sovereign default.
  4. Political economy and conflict.

9 Ninth Lecture

  1. We went in some detail over how to develop the GEE in models of policy determination.
  2. We saw how to use forward FOC to get rid of terms of the envelop condition.
  3. We analyzed how the Markov Perfect Policies look.

10 Tenth Lecture

  1. This was the last lecture.
  2. Krisztina talked about optimal monetary policy when agents do not have RE, but learn. Thanks Krisztina.
  3. We then talked about some issues about non-convexities.
  4. Each of you described your research plans.
  5. We talked about how to make the class better.
  6. We also talked about topics for future research.