Housing and the Business Cycle
|
|
- Alfred Lawson
- 6 years ago
- Views:
Transcription
1 Housing and the Business Cycle Morris Davis and Jonathan Heathcote Winter 2009 Huw Lloyd-Ellis () ECON917 Winter / 21
2 Motivation Need to distinguish between housing and non housing investment,! produced using di erent technologies,! di erent rates of depreciation,! housing yields "home production" services not in National Accounts "Stylized facts" for models with heterogeneous capital goods: (1) comovement between consumption and investment in di erent assets (2) residential investment is 2x as volatile as business investment (3) residential investment leads cycle, business investment lags it Huw Lloyd-Ellis () ECON917 Winter / 21
3 Model Overview Households consume goods and housing services, supply land and labour " Real estate developers combine land and structures to build houses " Two nal goods sector one produces structures; the other C and K " Three intermediate sectors construction, manufacturing and services " Labour, capital and productivity shocks Huw Lloyd-Ellis () ECON917 Winter / 21
4 Main Findings Purely neoclassical model can account for "puzzles" (1) and (2), but not (3) Also matches facts on relative volatility of sub-sectors Implies pro-cyclical house prices, but not volatile enough Why positive comovement and high volatility?,! not due to correlated shocks,! nal goods sectors use all intermediates,! housing requires land, which acts like an adjustment cost,! residential investment is relatively labour intensive,! low depreciation of housing Huw Lloyd-Ellis () ECON917 Winter / 21
5 Population Gross population growth: η > 1 All variables in per capita terms Huw Lloyd-Ellis () ECON917 Winter / 21
6 Intermediate sectors Intermediate rms output: x it = k θ i it (z itn it ) 1 θ i i 2 fb, m, sg,! rent capital at rate r t and hire labour at w t,! output prices p it,! productivity shocks: where ^z t+1 = B^z t + ε t+1 ε t+1 N(0, V) ^z t = [ln z bt, ln z mt, ln z st ] 0 ln z it = ln z it t ln g zi ln z i0 Huw Lloyd-Ellis () ECON917 Winter / 21
7 Final goods sectors Final goods output: y jt = b B j jt mm j jt ss j jt j 2 fc, dg, S j = 1 B j M j,! output prices, p ct = 1 (numeraire) and p dt = relative price of residential investment Huw Lloyd-Ellis () ECON917 Winter / 21
8 Land and real estate Each household sells one unit of land each period Developers combine new residential structures, x d, and new land, x l, to build houses: y ht = x φ φ Structures depreciate at rate δ s lt x 1 dt Total stock of "e ective" housing: ηh t+1 = x 1 dt φ x φ lt + (1 δ s ) 1 φ h t Let 1 δ h = (1 δ s ) 1 φ Huw Lloyd-Ellis () ECON917 Winter / 21
9 Households Optimization problem: max E 0 t=0 β t η t U(c t, h t, n t ) s.t. c t + ηk t+1 + ηp ht h t+1 = (1 τ n )w t n t + [1 (1 τ k ) (r t δ k )] k t +(1 δ h )p ht h t + p lt x lt + ξ t where U(c t, h t, n t ) = 1 1 σ c µ c t h µ h t (1 n t ) 1 µ c µ h 1 σ Huw Lloyd-Ellis () ECON917 Winter / 21
10 First order conditions: where U c (t) = U n (t)(1 τ n )w t U c (t) = βe t [U c (t + 1) (1 (1 τ k ) (r t+1 δ k ))] U c (t)p ht = βe t [U c (t + 1) (1 δ h ) p ht+1 + U h (t + 1)] U c (t) = µ c c 1 t c µ c t h µ h t (1 n t ) 1 µ c µ h 1 σ U n (t) = (1 µ c µ h ) (1 n t ) 1 c µ c t U h (t) = µ h h 1 t c µ c t h µ h t (1 n t ) 1 µ c µ h 1 σ h µ h t (1 n t ) 1 µ c µ h 1 σ Huw Lloyd-Ellis () ECON917 Winter / 21
11 Market Clearing Conditions Final goods and real estate Intermediate goods Factor markets c t + ηk t+1 + g t = y ct + (1 δ k ) k t ηh t+1 = y ht + (1 δ h ) h t x dt = y dt x lt = 1 b ct + b dt = x bt m ct + m dt = x mt s ct + s dt = x st k bt + k mt + k st = k t n bt + n mt + n st = n t Huw Lloyd-Ellis () ECON917 Winter / 21
12 Government budget constraint: ξ t + g t = τ n w t n t + τ k (r t δ k ) k t Huw Lloyd-Ellis () ECON917 Winter / 21
13 Equilibrium prices Factor prices r t = p it θ i k θ i 1 it (z it n it ) 1 θ i i 2 fb, m, sg w t = z it p it (1 θ i )k θ i it (z itn it ) θ i Prices of intermediates y ct p p bt = B c = dt y dt B d b ct b dt y ct p p mt = M c = dt y dt M d m ct m dt p st = S c y ct s ct Prices of structures and land = S d p dt y dt s dt p dt = (1 φ) p hty ht x dt p lt = φ p hty ht x lt Huw Lloyd-Ellis () ECON917 Winter / 21
14 Implication for House prices Relative price of residential investment can be written as ln p dt = (B c B d ) (1 θ b ) ln z bt + (M c M d ) (1 θ m ) ln z mt + (S c S d ) (1 θ s ) ln z st + other terms,! a positive shock in sector i will reduce p dt if residential investment is relatively intensive in input i ) implications for comovement Price of new housing ln p ht = ln(1 φ) + φ ln y dt + ln p dt Huw Lloyd-Ellis () ECON917 Winter / 21
15 Mapping between model and NIPA In NIPA private consumption includes imputed value for rents from owner occupied housing: where PCE t = c t + q t h t q t = U h(c t, h t, n t ) U c (c t, h t, n t ) In NIPA, raw land is not part of GDP ) should only include value of residential investment, not of new houses: GDP t = y ct + p dt y dt + q t h t Real private consumption and GDP de ned using balanced growth prices ) does not capture short-run price movements Huw Lloyd-Ellis () ECON917 Winter / 21
16 Balanced Growth Path Although each sector has di erent growth rates, a BGP exists due to Cobb-Douglas assumptions All variables are made stationary by dividing by gross growth rate Model is solved using Klein (2000) ˆx t = x t g t x Huw Lloyd-Ellis () ECON917 Winter / 21
17 Table 1: Growth Rates on Balanced Growth Path (growth rates gross, variables per-capita) n b, n m, n s, n, r 1 1 [ ] Bcθ b M cθ m Scθ s k b, k m, k s, k, c, i k, g, y c, w Bc ( 1 θ b ) M c ( 1 θ m ) Sc ( 1 θ s ) g g g g b c, b h, x b k = 1 zb zm zs g b = g g θ b 1 θ b k zb m c, m h, x m s c, s h, x s x d g d g m s = g = g g = g m k g θ θ g 1 m zm θ s 1 θ s k zs Bh b g M h m g Sh s x 1 l g l = η y h, h g h = g g φ 1 φ l d p h y h, p d x d, p l x l, p b x b, p m x m, p s x s g k Table 2: Tax Rates, Depreciation Rates, Adjustment Costs, Preference Parameters Davis Heathcote Grenwood Hercowitz (GH) Tax rate on capital income: τ k Tax rate on labor income: τ n Govt. cons. to GDP 0.179* Transfers to GDP 0.076* Depreciation rate for capital: δ k * Depreciation rate for res. structures: δ s * Land s share in new housing: φ Population growth rate: η * 0.0 Discount factor: β Risk aversion: σ 2.00* 1.00 Consumption s share in utility: µ c Housing s share in utility: µ h Leisure s share in utility: 1-µ c -µ h Starred parameter vales are chosen independently of the model.
18 Calibration Period is one year µ c and µ h chosen so that ˆn = 0.3 and value of stock of residential structures = GDP τ k and τ n chosen so that non-residential capital stock = 1.5 x annual output and ξ/gdp = Shock processes estimated as VAR,! little evidence of spillovers weak correlation of shocks,! shocks to construction and manufacturing much more volatile input shares based on input output tables Huw Lloyd-Ellis () ECON917 Winter / 21
19 Table 3: Production Technologies Con. Man. Ser. GH Input shares in cons/inv production B c, M c, S c Input shares in res. structures B d, M d, S d Capital s share by sector θ b, θ m, θ s Trend productivity growth (%) g zb, g zm, g zs Autocorrelation coefficient see table 4 ρ = 1.0 Std. dev. innovations to logged productivity see table Table 4: Estimation of Exogenous Shock Process System estimated: ~ z ~ t+ 1 = Bz t + ε t+ 1 log ~ zbt ε where zt = log ~ bt ~ zmt, ε log ~ t = ε mt and ε t ~ N(0, V ). 5 z st ε st Autoregressive coefficients in matrix B (Seemingly unrelated regression estimation method: standard errors in parentheses) log ~ z b,t + 1 log ~ z m,t + 1 log ~ z s,t + 1 log ~ z bt (0.089) log ~ z mt (0.083) log ~ z st (0.098) (0.078) (0.073) (0.087) (0.038) (0.036) (0.042) R Correlations of innovations ε b ε m ε s ε b ε b ε m ε m ε s 1 ε s Standard deviation of innovations 5 All variables are linearly detrended prior to estimating this system.
20 Main Results Steady state implications look "reasonable" Second moments:,! accounts well for high relative volatility of residential investment,! yields comovement between investment sectors,! relative volatilities of sub-sectors is correct,! house price volatility is too low,! housing investment does not lead cycle Huw Lloyd-Ellis () ECON917 Winter / 21
21 Table 5: Decomposition of Final Expenditure into Final Sales From Industries (%) (based on 1992 IO-Use Table) PCE BFI + RESI RESI 6 BFI G 7 Construction Manufacturing Services Table 6: Decomposition of Final Expenditure into Value Added by Industry (%) PCE BFI + RESI RESI BFI PCE + BFI + GOVI 8 Construction Manufacturing Services Table 7: Properties of Steady State: Ratios to GDP % Data ( ) Model Capital stock (K) Residential structures stock (P d x S) Private consumption (PCE) Government consumption (G) Non-residential inv (non-resi) Residential inv (P d x RESI) Construction (P b x Y b ) Manufacturing (P m x Y m ) Services (P s x Y s ) Real after tax interest rate (%) We attribute all $225.5 billion of residential investment in 1992 to sales from the construction industry, since the first I/O use table does not have a residential investment column. We defend this choice in the data appendix. 7 G is government expenditure, which includes government consumption and government investment expenditures. 8 GOVI is government investment. We assume that the value-added composition of government investment by intermediate industry is the same as business fixed investment. 9 The shares of construction, manufacturing and services do not add to exactly one, since the product approach to computing GDP does not give exactly the same answer as the expenditure approach. In both model and data, imputed rental income from owner-occupied housing is attributed to the service sector.
22 Table 8: Business Cycle Properties 10 Data ( ) Model % Standard Deviations GDP (rel. to GDP) PCE Labor (N) Non-RESI RESI House prices (P h ) 1.37 ( ) 0.40 Construction output (Y b ) Manufacturing output (Y m ) Services output (Y s ) Construction hours (N b ) Manufacturing hours (N m ) Services hours (N s ) Correlations PCE, GDP P h, GDP 0.65 ( ) 0.65 PCE, non-resi PCE, RESI non-resi, RESI P h, RESI 0.34 ( ) N b, N m N b, N s N m, N s Lead-lag correlations i = 1 i = 0 i = -1 i = 1 i = 0 i = -1 non-resi t-i, GDP t RESI t-i, GDP t non-resi t-i, RESI t Statistics are averages over 500 simulations, each of length 54 periods, the length of our data sample. Prior to computing statistics all variables are (i) transformed from the stationary representation used in the solution procedure back into non-stationary representation incorporating trend growth, (ii) logged, and (iii) Hodrick-Prescott filtered with the smoothing parameter, λ, set to 100.
23 Understanding the results Model GH one sector RBC model with some capital entering (log) utility function Model A σ = 2 and non-permanent shocks Model B adding land Model C sector speci c shocks Model D a distinct technology for residential structures Model E sector speci c capital shares Model F asset speci c depreciation rates (benchmark) Huw Lloyd-Ellis () ECON917 Winter / 21
24 Table 9: Alternative Parameterizations Model Description Selected parameter values GH Greenwood and Hercowitz see tables 2 and 3 A One sector model, housing in utility (re-parameterized GH) σ = 2, ρ = 0.85, σ(ε) = δ k = δ s = θ b = θ m = θ s = 0.25 B d, = B c, M d, = M c, S d, = S c B A + land φ = C B + sector-specific shocks see table 4 D C + two final goods technologies see table 3 E D + sector-specific capital shares θ b = 0.132, θ m = 0.309, θ s = F (Benchmark) E + different depreciation rates δ s = Table 10: Alternative Parameterizations: Business Cycle Properties Data GH A B C D E F GDP (% std dev) Std. dev. relative to GDP PCE N Non-RESI RESI Y b Y m Y s P h Correlations Non-RESI, RESI P h, RESI Lead-lag pattern: corr(x t-1, GDP t ) corr(x t+1, GDP t) x = RESI x = Non-RESI
25 Comparison to US Historical Time Series Model matches trend growth in hours, consumption and output Residential investment exhibits relatively slow growth (due to low prod. growth in construction) Does not match growth of non-residential investment or manufacturing Model does reasonably well at business cycle frequencies Does not account well for house price dynamics Huw Lloyd-Ellis () ECON917 Winter / 21
26
27
28
29 Supply vs. Demand Shocks Traditional view based on regressions of residential investment on house prices (controlling for other factors),! positive coe cient ) demand shocks more important than supply shocks Regression using simulated data from model yields positive coe cient, despite no demand shocks,! due to omitted variable bias Huw Lloyd-Ellis () ECON917 Winter / 21
Dynamics of Firms and Trade in General Equilibrium. Robert Dekle, Hyeok Jeong and Nobuhiro Kiyotaki USC, Seoul National University and Princeton
Dynamics of Firms and Trade in General Equilibrium Robert Dekle, Hyeok Jeong and Nobuhiro Kiyotaki USC, Seoul National University and Princeton Figure a. Aggregate exchange rate disconnect (levels) 28.5
More informationSolving a Dynamic (Stochastic) General Equilibrium Model under the Discrete Time Framework
Solving a Dynamic (Stochastic) General Equilibrium Model under the Discrete Time Framework Dongpeng Liu Nanjing University Sept 2016 D. Liu (NJU) Solving D(S)GE 09/16 1 / 63 Introduction Targets of the
More informationproblem. max Both k (0) and h (0) are given at time 0. (a) Write down the Hamilton-Jacobi-Bellman (HJB) Equation in the dynamic programming
1. Endogenous Growth with Human Capital Consider the following endogenous growth model with both physical capital (k (t)) and human capital (h (t)) in continuous time. The representative household solves
More informationSmall Open Economy RBC Model Uribe, Chapter 4
Small Open Economy RBC Model Uribe, Chapter 4 1 Basic Model 1.1 Uzawa Utility E 0 t=0 θ t U (c t, h t ) θ 0 = 1 θ t+1 = β (c t, h t ) θ t ; β c < 0; β h > 0. Time-varying discount factor With a constant
More informationThe economy is populated by a unit mass of infinitely lived households with preferences given by. β t u(c Mt, c Ht ) t=0
Review Questions: Two Sector Models Econ720. Fall 207. Prof. Lutz Hendricks A Planning Problem The economy is populated by a unit mass of infinitely lived households with preferences given by β t uc Mt,
More informationNegative Income Taxes, Inequality and Poverty
Negative Income Taxes, Inequality and Poverty Constantine Angyridis Brennan S. Thompson Department of Economics Ryerson University July 8, 2011 Overview We use a dynamic heterogeneous agents general equilibrium
More informationAdvanced Economic Growth: Lecture 8, Technology Di usion, Trade and Interdependencies: Di usion of Technology
Advanced Economic Growth: Lecture 8, Technology Di usion, Trade and Interdependencies: Di usion of Technology Daron Acemoglu MIT October 3, 2007 Daron Acemoglu (MIT) Advanced Growth Lecture 8 October 3,
More information1 The Basic RBC Model
IHS 2016, Macroeconomics III Michael Reiter Ch. 1: Notes on RBC Model 1 1 The Basic RBC Model 1.1 Description of Model Variables y z k L c I w r output level of technology (exogenous) capital at end of
More information1 The social planner problem
The social planner problem max C t;k t+ U t = E t X t C t () that can be written as: s.t.: Y t = A t K t (2) Y t = C t + I t (3) I t = K t+ (4) A t = A A t (5) et t i:i:d: 0; 2 max C t;k t+ U t = E t "
More informationDSGE-Models. Calibration and Introduction to Dynare. Institute of Econometrics and Economic Statistics
DSGE-Models Calibration and Introduction to Dynare Dr. Andrea Beccarini Willi Mutschler, M.Sc. Institute of Econometrics and Economic Statistics willi.mutschler@uni-muenster.de Summer 2012 Willi Mutschler
More information4- Current Method of Explaining Business Cycles: DSGE Models. Basic Economic Models
4- Current Method of Explaining Business Cycles: DSGE Models Basic Economic Models In Economics, we use theoretical models to explain the economic processes in the real world. These models de ne a relation
More informationA simple macro dynamic model with endogenous saving rate: the representative agent model
A simple macro dynamic model with endogenous saving rate: the representative agent model Virginia Sánchez-Marcos Macroeconomics, MIE-UNICAN Macroeconomics (MIE-UNICAN) A simple macro dynamic model with
More informationProblem 1 (30 points)
Problem (30 points) Prof. Robert King Consider an economy in which there is one period and there are many, identical households. Each household derives utility from consumption (c), leisure (l) and a public
More informationIn the benchmark economy, we restrict ourselves to stationary equilibria. The individual
1 1. Appendix A: Definition of Stationary Equilibrium In the benchmark economy, we restrict ourselves to stationary equilibria. The individual state variables are deposit holdings, d, mortgage balances,
More informationAdvanced Macroeconomics II. Real Business Cycle Models. Jordi Galí. Universitat Pompeu Fabra Spring 2018
Advanced Macroeconomics II Real Business Cycle Models Jordi Galí Universitat Pompeu Fabra Spring 2018 Assumptions Optimization by consumers and rms Perfect competition General equilibrium Absence of a
More informationPublic Economics The Macroeconomic Perspective Chapter 2: The Ramsey Model. Burkhard Heer University of Augsburg, Germany
Public Economics The Macroeconomic Perspective Chapter 2: The Ramsey Model Burkhard Heer University of Augsburg, Germany October 3, 2018 Contents I 1 Central Planner 2 3 B. Heer c Public Economics: Chapter
More informationGraduate Macroeconomics - Econ 551
Graduate Macroeconomics - Econ 551 Tack Yun Indiana University Seoul National University Spring Semester January 2013 T. Yun (SNU) Macroeconomics 1/07/2013 1 / 32 Business Cycle Models for Emerging-Market
More informationFoundation of (virtually) all DSGE models (e.g., RBC model) is Solow growth model
THE BASELINE RBC MODEL: THEORY AND COMPUTATION FEBRUARY, 202 STYLIZED MACRO FACTS Foundation of (virtually all DSGE models (e.g., RBC model is Solow growth model So want/need/desire business-cycle models
More informationFEDERAL RESERVE BANK of ATLANTA
FEDERAL RESERVE BANK of ATLANTA On the Solution of the Growth Model with Investment-Specific Technological Change Jesús Fernández-Villaverde and Juan Francisco Rubio-Ramírez Working Paper 2004-39 December
More informationMotivation Non-linear Rational Expectations The Permanent Income Hypothesis The Log of Gravity Non-linear IV Estimation Summary.
Econometrics I Department of Economics Universidad Carlos III de Madrid Master in Industrial Economics and Markets Outline Motivation 1 Motivation 2 3 4 5 Motivation Hansen's contributions GMM was developed
More informationBusiness Cycles: The Classical Approach
San Francisco State University ECON 302 Business Cycles: The Classical Approach Introduction Michael Bar Recall from the introduction that the output per capita in the U.S. is groing steady, but there
More informationMacroeconomics IV Problem Set I
14.454 - Macroeconomics IV Problem Set I 04/02/2011 Due: Monday 4/11/2011 1 Question 1 - Kocherlakota (2000) Take an economy with a representative, in nitely-lived consumer. The consumer owns a technology
More informationModelling Czech and Slovak labour markets: A DSGE model with labour frictions
Modelling Czech and Slovak labour markets: A DSGE model with labour frictions Daniel Němec Faculty of Economics and Administrations Masaryk University Brno, Czech Republic nemecd@econ.muni.cz ESF MU (Brno)
More informationNeoclassical Business Cycle Model
Neoclassical Business Cycle Model Prof. Eric Sims University of Notre Dame Fall 2015 1 / 36 Production Economy Last time: studied equilibrium in an endowment economy Now: study equilibrium in an economy
More informationDiscussion of Riccardo DiCecio \Comovement: It's not a Puzzle" Matteo Iacoviello Boston College
Discussion of Riccardo DiCecio \Comovement: It's not a Puzzle" Matteo Iacoviello Boston College THE QUESTION Question: can we construct a coherent DSGE macro model that explains the comovement puzzle?
More informationIndivisible Labor and the Business Cycle
Indivisible Labor and the Business Cycle By Gary Hansen Zhe Li SUFE Fall 2010 Zhe Li (SUFE) Advanced Macroeconomics III Fall 2010 1 / 14 Motivation Kydland and Prescott (1982) Equilibrium theory of the
More informationNew Notes on the Solow Growth Model
New Notes on the Solow Growth Model Roberto Chang September 2009 1 The Model The firstingredientofadynamicmodelisthedescriptionofthetimehorizon. In the original Solow model, time is continuous and the
More informationReal Business Cycle Model (RBC)
Real Business Cycle Model (RBC) Seyed Ali Madanizadeh November 2013 RBC Model Lucas 1980: One of the functions of theoretical economics is to provide fully articulated, artificial economic systems that
More informationGold Rush Fever in Business Cycles
Gold Rush Fever in Business Cycles Paul Beaudry, Fabrice Collard & Franck Portier University of British Columbia & Université de Toulouse UAB Seminar Barcelona November, 29, 26 The Klondike Gold Rush of
More informationPopulation Aging, Government Policy and the Postwar Japanese Economy
Population Aging, Government Policy and the Postwar Japanese Economy Keisuke Otsu and Katsuyuki Shibayama University of Kent 27 December 2016 Otsu & Shibayama (Kent) Aging 12/27 1 / 33 Introduction Motivation
More informationGranger Causality and Equilibrium Business Cycle Theory
Granger Causality and Equilibrium Business Cycle Theory Yi Wen Department of Economics Cornell University Abstract Post war US data show that consumption growth causes output and investment growth. This
More informationGold Rush Fever in Business Cycles
Gold Rush Fever in Business Cycles Paul Beaudry, Fabrice Collard & Franck Portier University of British Columbia & Université de Toulouse Banque Nationale Nationale Bank Belgischen de Belgique van Belgïe
More informationShiftwork in the Real Business Cycle
Preliminary: 11/02 Shiftwork in the Real Business Cycle Yoram Halevy Department of Economics, UBC and James M. Nason Department of Economics, UBC Research Department, FRB-Atlanta The usual disclaimers
More informationThe Real Business Cycle Model
The Real Business Cycle Model Macroeconomics II 2 The real business cycle model. Introduction This model explains the comovements in the fluctuations of aggregate economic variables around their trend.
More informationGlobal Value Chain Participation and Current Account Imbalances
Global Value Chain Participation and Current Account Imbalances Johannes Brumm University of Zurich Georgios Georgiadis European Central Bank Johannes Gräb European Central Bank Fabian Trottner Princeton
More informationProblem Set 4. Graduate Macro II, Spring 2011 The University of Notre Dame Professor Sims
Problem Set 4 Graduate Macro II, Spring 2011 The University of Notre Dame Professor Sims Instructions: You may consult with other members of the class, but please make sure to turn in your own work. Where
More informationPANEL DISCUSSION: THE ROLE OF POTENTIAL OUTPUT IN POLICYMAKING
PANEL DISCUSSION: THE ROLE OF POTENTIAL OUTPUT IN POLICYMAKING James Bullard* Federal Reserve Bank of St. Louis 33rd Annual Economic Policy Conference St. Louis, MO October 17, 2008 Views expressed are
More informationInvestment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment
WP/1/27 Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment Federico S. Mandelman, Pau Rabanal, Juan F. Rubio-Ramírez, and Diego Vilán 21 International Monetary
More informationAdvanced Economic Growth: Lecture 3, Review of Endogenous Growth: Schumpeterian Models
Advanced Economic Growth: Lecture 3, Review of Endogenous Growth: Schumpeterian Models Daron Acemoglu MIT September 12, 2007 Daron Acemoglu (MIT) Advanced Growth Lecture 3 September 12, 2007 1 / 40 Introduction
More informationThe Ramsey Model. (Lecture Note, Advanced Macroeconomics, Thomas Steger, SS 2013)
The Ramsey Model (Lecture Note, Advanced Macroeconomics, Thomas Steger, SS 213) 1 Introduction The Ramsey model (or neoclassical growth model) is one of the prototype models in dynamic macroeconomics.
More informationECON 582: The Neoclassical Growth Model (Chapter 8, Acemoglu)
ECON 582: The Neoclassical Growth Model (Chapter 8, Acemoglu) Instructor: Dmytro Hryshko 1 / 21 Consider the neoclassical economy without population growth and technological progress. The optimal growth
More informationThe Ramsey Model. Alessandra Pelloni. October TEI Lecture. Alessandra Pelloni (TEI Lecture) Economic Growth October / 61
The Ramsey Model Alessandra Pelloni TEI Lecture October 2015 Alessandra Pelloni (TEI Lecture) Economic Growth October 2015 1 / 61 Introduction Introduction Introduction Ramsey-Cass-Koopmans model: di ers
More informationMacroeconomics Theory II
Macroeconomics Theory II Francesco Franco FEUNL February 2016 Francesco Franco (FEUNL) Macroeconomics Theory II February 2016 1 / 18 Road Map Research question: we want to understand businesses cycles.
More informationMSC Macroeconomics G022, 2009
MSC Macroeconomics G022, 2009 Lecture 4: The Decentralized Economy Morten O. Ravn University College London October 2009 M.O. Ravn (UCL) Lecture 4 October 2009 1 / 68 In this lecture Consumption theory
More informationAdvanced Macroeconomics
Advanced Macroeconomics The Ramsey Model Marcin Kolasa Warsaw School of Economics Marcin Kolasa (WSE) Ad. Macro - Ramsey model 1 / 30 Introduction Authors: Frank Ramsey (1928), David Cass (1965) and Tjalling
More informationGraduate Macro Theory II: Business Cycle Accounting and Wedges
Graduate Macro Theory II: Business Cycle Accounting and Wedges Eric Sims University of Notre Dame Spring 2017 1 Introduction Most modern dynamic macro models have at their core a prototypical real business
More informationMacroeconomics Theory II
Macroeconomics Theory II Francesco Franco FEUNL February 2011 Francesco Franco Macroeconomics Theory II 1/34 The log-linear plain vanilla RBC and ν(σ n )= ĉ t = Y C ẑt +(1 α) Y C ˆn t + K βc ˆk t 1 + K
More informationCapital Structure and Investment Dynamics with Fire Sales
Capital Structure and Investment Dynamics with Fire Sales Douglas Gale Piero Gottardi NYU April 23, 2013 Douglas Gale, Piero Gottardi (NYU) Capital Structure April 23, 2013 1 / 55 Introduction Corporate
More informationEcon 5110 Solutions to the Practice Questions for the Midterm Exam
Econ 50 Solutions to the Practice Questions for the Midterm Exam Spring 202 Real Business Cycle Theory. Consider a simple neoclassical growth model (notation similar to class) where all agents are identical
More informationThe Small-Open-Economy Real Business Cycle Model
The Small-Open-Economy Real Business Cycle Model Comments Some Empirical Regularities Variable Canadian Data σ xt ρ xt,x t ρ xt,gdp t y 2.8.6 c 2.5.7.59 i 9.8.3.64 h 2.54.8 tb y.9.66 -.3 Source: Mendoza
More informationEconomic Growth: Lectures 10 and 11, Endogenous Technological Change
14.452 Economic Growth: Lectures 10 and 11, Endogenous Technological Change Daron Acemoglu MIT December 1 and 6, 2011. Daron Acemoglu (MIT) Economic Growth Lectures 10 end 11 December 1 and 6, 2011. 1
More informationSolow Growth Model. Michael Bar. February 28, Introduction Some facts about modern growth Questions... 4
Solow Growth Model Michael Bar February 28, 208 Contents Introduction 2. Some facts about modern growth........................ 3.2 Questions..................................... 4 2 The Solow Model 5
More information(a) Write down the Hamilton-Jacobi-Bellman (HJB) Equation in the dynamic programming
1. Government Purchases and Endogenous Growth Consider the following endogenous growth model with government purchases (G) in continuous time. Government purchases enhance production, and the production
More informationAdvanced Economic Growth: Lecture 2, Review of Endogenous Growth: Expanding Variety Models
Advanced Economic Growth: Lecture 2, Review of Endogenous Growth: Expanding Variety Models Daron Acemoglu MIT September 10, 2007 Daron Acemoglu (MIT) Advanced Growth Lecture 2 September 10, 2007 1 / 56
More informationAdvanced Macroeconomics II The RBC model with Capital
Advanced Macroeconomics II The RBC model with Capital Lorenza Rossi (Spring 2014) University of Pavia Part of these slides are based on Jordi Galì slides for Macroeconomia Avanzada II. Outline Real business
More informationLecture 2. (1) Aggregation (2) Permanent Income Hypothesis. Erick Sager. September 14, 2015
Lecture 2 (1) Aggregation (2) Permanent Income Hypothesis Erick Sager September 14, 2015 Econ 605: Adv. Topics in Macroeconomics Johns Hopkins University, Fall 2015 Erick Sager Lecture 2 (9/14/15) 1 /
More informationGraduate Macro Theory II: Notes on Quantitative Analysis in DSGE Models
Graduate Macro Theory II: Notes on Quantitative Analysis in DSGE Models Eric Sims University of Notre Dame Spring 2011 This note describes very briefly how to conduct quantitative analysis on a linearized
More informationPopulation growth and technological progress in the optimal growth model
Quantitative Methods in Economics Econ 600 Fall 2016 Handout # 5 Readings: SLP Sections 3.3 4.2, pages 55-87; A Ch 6 Population growth and technological progress in the optimal growth model In the optimal
More informationEconomic Growth: Lecture 9, Neoclassical Endogenous Growth
14.452 Economic Growth: Lecture 9, Neoclassical Endogenous Growth Daron Acemoglu MIT November 28, 2017. Daron Acemoglu (MIT) Economic Growth Lecture 9 November 28, 2017. 1 / 41 First-Generation Models
More informationBusiness Failure and Labour Market Fluctuations
Business Failure and Labour Market Fluctuations Seong-Hoon Kim* Seongman Moon** *Centre for Dynamic Macroeconomic Analysis, St Andrews, UK **Korea Institute for International Economic Policy, Seoul, Korea
More informationStructural change in a multi-sector model of the climate and the economy
Structural change in a multi-sector model of the climate and the economy Gustav Engström The Beijer Institute of Environmental Economics Stockholm, December 2012 G. Engström (Beijer) Stockholm, December
More informationThe Smets-Wouters Model
The Smets-Wouters Model Monetary and Fiscal Policy 1 1 Humboldt Universität zu Berlin uhlig@wiwi.hu-berlin.de Winter 2006/07 Outline 1 2 3 s Intermediate goods firms 4 A list of equations Calibration Source
More informationSticky Leverage. João Gomes, Urban Jermann & Lukas Schmid Wharton School and UCLA/Duke. September 28, 2013
Sticky Leverage João Gomes, Urban Jermann & Lukas Schmid Wharton School and UCLA/Duke September 28, 213 Introduction Models of monetary non-neutrality have traditionally emphasized the importance of sticky
More informationOnline Appendix for. Endogenous Labor Share Cycles: Theory and Evidence. Jakub Growiec Warsaw School of Economics and Narodowy Bank Polski
Online Appendix for Endogenous Labor Share Cycles: Theory and Evidence Jakub Growiec Warsaw School of Economics and Narodowy Bank Polski Peter McAdam European Central Bank and University of Surrey Jakub
More informationA Modern Equilibrium Model. Jesús Fernández-Villaverde University of Pennsylvania
A Modern Equilibrium Model Jesús Fernández-Villaverde University of Pennsylvania 1 Household Problem Preferences: max E X β t t=0 c 1 σ t 1 σ ψ l1+γ t 1+γ Budget constraint: c t + k t+1 = w t l t + r t
More informationMacroeconomics II Dynamic macroeconomics Class 1: Introduction and rst models
Macroeconomics II Dynamic macroeconomics Class 1: Introduction and rst models Prof. George McCandless UCEMA Spring 2008 1 Class 1: introduction and rst models What we will do today 1. Organization of course
More informationECON 581: Growth with Overlapping Generations. Instructor: Dmytro Hryshko
ECON 581: Growth with Overlapping Generations Instructor: Dmytro Hryshko Readings Acemoglu, Chapter 9. Motivation Neoclassical growth model relies on the representative household. OLG models allow for
More informationPermanent Income Hypothesis Intro to the Ramsey Model
Consumption and Savings Permanent Income Hypothesis Intro to the Ramsey Model Lecture 10 Topics in Macroeconomics November 6, 2007 Lecture 10 1/18 Topics in Macroeconomics Consumption and Savings Outline
More informationGeneral motivation behind the augmented Solow model
General motivation behind the augmented Solow model Empirical analysis suggests that the elasticity of output Y with respect to capital implied by the Solow model (α 0.3) is too low to reconcile the model
More informationFinancial Factors in Economic Fluctuations. Lawrence Christiano Roberto Motto Massimo Rostagno
Financial Factors in Economic Fluctuations Lawrence Christiano Roberto Motto Massimo Rostagno Background Much progress made on constructing and estimating models that fit quarterly data well (Smets-Wouters,
More informationA t = B A F (φ A t K t, N A t X t ) S t = B S F (φ S t K t, N S t X t ) M t + δk + K = B M F (φ M t K t, N M t X t )
Notes on Kongsamut et al. (2001) The goal of this model is to be consistent with the Kaldor facts (constancy of growth rates, capital shares, capital-output ratios) and the Kuznets facts (employment in
More informationLecture 2: Firms, Jobs and Policy
Lecture 2: Firms, Jobs and Policy Economics 522 Esteban Rossi-Hansberg Princeton University Spring 2014 ERH (Princeton University ) Lecture 2: Firms, Jobs and Policy Spring 2014 1 / 34 Restuccia and Rogerson
More informationChapter 11 The Stochastic Growth Model and Aggregate Fluctuations
George Alogoskoufis, Dynamic Macroeconomics, 2016 Chapter 11 The Stochastic Growth Model and Aggregate Fluctuations In previous chapters we studied the long run evolution of output and consumption, real
More informationIn the Ramsey model we maximized the utility U = u[c(t)]e nt e t dt. Now
PERMANENT INCOME AND OPTIMAL CONSUMPTION On the previous notes we saw how permanent income hypothesis can solve the Consumption Puzzle. Now we use this hypothesis, together with assumption of rational
More informationADVANCED MACROECONOMICS I
Name: Students ID: ADVANCED MACROECONOMICS I I. Short Questions (21/2 points each) Mark the following statements as True (T) or False (F) and give a brief explanation of your answer in each case. 1. 2.
More informationAdvanced Macroeconomics
Advanced Macroeconomics The Ramsey Model Micha l Brzoza-Brzezina/Marcin Kolasa Warsaw School of Economics Micha l Brzoza-Brzezina/Marcin Kolasa (WSE) Ad. Macro - Ramsey model 1 / 47 Introduction Authors:
More informationHousing in a two sector dynastic altruism model
Housing in a two sector dynastic altruism model Xavier Raurich Universitat de Barcelona Fernando Sanchez-Losada Universitat de Barcelona December 2008 Introduction Aims: 1. Study the e ects of housing
More informationSession 4: Money. Jean Imbs. November 2010
Session 4: Jean November 2010 I So far, focused on real economy. Real quantities consumed, produced, invested. No money, no nominal in uences. I Now, introduce nominal dimension in the economy. First and
More informationSimple New Keynesian Model without Capital
Simple New Keynesian Model without Capital Lawrence J. Christiano January 5, 2018 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand.
More informationECON 5118 Macroeconomic Theory
ECON 5118 Macroeconomic Theory Winter 013 Test 1 February 1, 013 Answer ALL Questions Time Allowed: 1 hour 0 min Attention: Please write your answers on the answer book provided Use the right-side pages
More informationSupplementary Material: What Inventory Behavior Tells Us About How Business Cycles Have Changed
Supplementary Material: What Inventory Behavior Tells Us About How Business Cycles Have Changed Thomas Lubik Pierre-Daniel G. Sarte Felipe Schwartzman Research Department, Federal Reserve Bank of Richmond
More informationSuggested Solutions to Homework #6 Econ 511b (Part I), Spring 2004
Suggested Solutions to Homework #6 Econ 511b (Part I), Spring 2004 1. (a) Find the planner s optimal decision rule in the stochastic one-sector growth model without valued leisure by linearizing the Euler
More information1. Using the model and notations covered in class, the expected returns are:
Econ 510a second half Yale University Fall 2006 Prof. Tony Smith HOMEWORK #5 This homework assignment is due at 5PM on Friday, December 8 in Marnix Amand s mailbox. Solution 1. a In the Mehra-Prescott
More informationIdentifying the Monetary Policy Shock Christiano et al. (1999)
Identifying the Monetary Policy Shock Christiano et al. (1999) The question we are asking is: What are the consequences of a monetary policy shock a shock which is purely related to monetary conditions
More informationMacroeconomics - Data & Theory
Macroeconomics - Data & Theory Wouter J. Den Haan University of Amsterdam October 24, 2009 How to isolate the business cycle component? Easy way is to use the Hodrick-Prescott (HP) lter min fx τ,t g T
More informationPractice Questions for Mid-Term I. Question 1: Consider the Cobb-Douglas production function in intensive form:
Practice Questions for Mid-Term I Question 1: Consider the Cobb-Douglas production function in intensive form: y f(k) = k α ; α (0, 1) (1) where y and k are output per worker and capital per worker respectively.
More informationRBC Model with Indivisible Labor. Advanced Macroeconomic Theory
RBC Model with Indivisible Labor Advanced Macroeconomic Theory 1 Last Class What are business cycles? Using HP- lter to decompose data into trend and cyclical components Business cycle facts Standard RBC
More informationEconomic transition following an emission tax in a RBC model with endogenous growth. EC-IILS JOINT DISCUSSION PAPER SERIES No. 17
International Labour Organization European Union International Institute for Labour Studies Economic transition following an emission tax in a RBC model with endogenous growth EC-IILS JOINT DISCUSSION
More informationLecture 15. Dynamic Stochastic General Equilibrium Model. Randall Romero Aguilar, PhD I Semestre 2017 Last updated: July 3, 2017
Lecture 15 Dynamic Stochastic General Equilibrium Model Randall Romero Aguilar, PhD I Semestre 2017 Last updated: July 3, 2017 Universidad de Costa Rica EC3201 - Teoría Macroeconómica 2 Table of contents
More informationImporting Skill-Biased Technology
Importing Skill-Biased Technology Ariel Burstein Javier Cravino Jonathan Vogel January 2012 Intro Motivation Observations Capital equipment (e.g. computers and industrial machinery): Implication embodies
More informationWhat are we going to do?
RBC Model Analyzes to what extent growth and business cycles can be generated within the same framework Uses stochastic neoclassical growth model (Brock-Mirman model) as a workhorse, which is augmented
More informationLecture 3, November 30: The Basic New Keynesian Model (Galí, Chapter 3)
MakØk3, Fall 2 (blok 2) Business cycles and monetary stabilization policies Henrik Jensen Department of Economics University of Copenhagen Lecture 3, November 3: The Basic New Keynesian Model (Galí, Chapter
More informationWhat s News In Business Cycles
What s News In Business Cycles Stephanie Schmitt-Grohé Martín Uribe First Draft: November 7 This Draft: December 6, 8 Abstract In this paper, we perform a structural Bayesian estimation of the contribution
More informationCan News be a Major Source of Aggregate Fluctuations?
Can News be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach Ippei Fujiwara 1 Yasuo Hirose 1 Mototsugu 2 1 Bank of Japan 2 Vanderbilt University August 4, 2009 Contributions of this paper
More informationA Global Economy-Climate Model with High Regional Resolution
A Global Economy-Climate Model with High Regional Resolution Per Krusell IIES, University of Göteborg, CEPR, NBER Anthony A. Smith, Jr. Yale University, NBER March 2014 WORK-IN-PROGRESS!!! Overall goals
More informationDemand Shocks, Monetary Policy, and the Optimal Use of Dispersed Information
Demand Shocks, Monetary Policy, and the Optimal Use of Dispersed Information Guido Lorenzoni (MIT) WEL-MIT-Central Banks, December 2006 Motivation Central bank observes an increase in spending Is it driven
More informationSupplement to The cyclical dynamics of illiquid housing, debt, and foreclosures (Quantitative Economics, Vol. 7, No. 1, March 2016, )
Supplementary Material Supplement to The cyclical dynamics of illiquid housing, debt, and foreclosures Quantitative Economics, Vol. 7, No. 1, March 2016, 289 328) Aaron Hedlund Department of Economics,
More informationReal Business Cycles with a Human Capital Investment Sector and Endogenous Growth: Persistence, Volatility and Labor Puzzles
Real Business Cycles with a Human Capital Investment Sector and Endogenous Growth: Persistence, Volatility and Labor Puzzles Jing Dang, SGCC, China; Max Gillman, Cardi Business School, UK Michal Kejak,
More informationMacroeconomics Qualifying Examination
Macroeconomics Qualifying Examination August 2015 Department of Economics UNC Chapel Hill Instructions: This examination consists of 4 questions. Answer all questions. If you believe a question is ambiguously
More informationBusiness Cycles and Exchange Rate Regimes
Business Cycles and Exchange Rate Regimes Christian Zimmermann Département des sciences économiques, Université du Québec à Montréal (UQAM) Center for Research on Economic Fluctuations and Employment (CREFE)
More information