I describe the course and discuss
some context of what are the main facts over which macro has
to be organized around:
output per capita has grown at
a roughly constant rate
the capital-output ratio (where
capital is measured using the perpetual inventory
method based on past consumption foregone) has
remained roughly constant
the capital-labor ratio has
grown at a roughly constant rate equal to the growth
rate of output
the wage rate has grown at a
roughly constant rate equal to the growth rate of
the real interest rate has been
stationary and, during long periods, roughly constant
labor income as a share of
output has remained roughly constant
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 also 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
We define Recursive Competitive
Equilibrium. We look both at rational expectations
equilibria and at recursive equilibria with arbitrary
I go over the role of the first welfare theorem (to yield
I continue by describing equilibrium of economies where the
welfare theorems are of no use. A government financing a
public good with lump sum, labor and capital income taxes,
and then with debt.
I finished the discussion of debt in RCE.
I talked about RCE with agents differing in wealth and or
skills. We also viewed the economy with two countries.
We looked at the Lucas tree and discussed the role of supply
and demand shocks in generating business cycles.
We then extended the Lucas tree to have some search
frictions in the goods markets. We posed the comepetitive
search equilibrium for this economy.
We will define one period ahead Arrow
securities. We will use them to price stuff.
Measure Theory and Hopenhayn's Industry Equilibria.
First half of December 2 and Second half of December 9
Models with Incomplete Markets and Heterogeneous Agents: The