I described 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. As a consequence, 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 discussed what restrictions do these facts pose on the models
that we use.
I discussed some of the limitations of this point of view.
I also discussed 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 talked 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 (RCE). We discussed
the role of
rational expectations. We talked about the role of complete
markets and the set of functional equations that RCE
satisfies. We derived the Euler equation.
I continued 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.
We defined one period ahead Arrow securities. We will use
them to price stuff.
I talked about RCE with agents differing in wealth and or
skills. We also viewed the economy with two countries.
We continued talking about economies with
more than one type of agents. We started talking about the
Lucas tree and discussed the role of supply and demand shocks
in generating business cycles.
We continued talking about the Lucas tree Economy and
extended it to have some search frictions in the goods
markets. We posed the competitive search equilibrium for
We went over Measure Theory and Hopenhayn's Industry
We finished Industry equilibrium and we continued talking
about Models with Incomplete Markets and Heterogeneous
Agents: The Aiyagari Economy.
We will answer questions and perhaps go in
more depth over some of the issues that we discussed in