Economics 2010c: Lecture 3 The Classical Consumption Model
|
|
- Liliana Holland
- 5 years ago
- Views:
Transcription
1 Economics 2010c: Lecture 3 The Classical Consumption Model David Laibson 9/9/2014
2 Outline: 1. Consumption: Basic model and early theories 2. Linearization of the Euler Equation 3. Empirical tests without precautionary savings effects
3 1 Application: Consumption. Sequence Problem (SP): Find ( ) such that X ( 0 )= sup 0 ( ) { } =0 =0 subject to a static budget constraint for consumption, Γ ( ) and a dynamic budget constraint for assets, +1 Γ ³ Here is the vector of assets, is consumption, is the vector of financial asset returns, and is the vector of labor income.
4 For instance, consider the case where the only asset is cash-on-hand (so is cash-on-hand) and consumption is constrained to lie between 0 and Then, Γ ( ) [0 ] +1 Γ ³ ( ) = 0
5 We will always assume that is exogenous and iid. However, in the welfare state, is not independent of See Hubbard, Skinner, and Zeldes (1995). We will always assume that is concave ( 00 0 for all 0). We will usually assume lim 0 0 ( ) = so 0 as long as 0 I ll highlight exceptions to this rule.
6 1.1 Bellman Equation representation The state variable, is stochastic, so it is not directly chosen (rather a distribution for +1 is chosen at time ). It is more convenient to think about asthechoicevariable. Bellman Equation: ( ) = sup { ( )+ ( +1 ) } [0 ] +1 = +1 ( ) = 0
7 1.2 Necessary Conditions First Order Condition: 0 ( )= +1 0 ( +1 ) if 0 0 ( ) +1 0 ( +1 ) if = Envelope Theorem: 0 ( ) = 0 ( ). Prove this. What if =? Euler Equation: 0 ( )= +1 0 ( +1 ) if 0 0 ( ) +1 0 ( +1 ) if =
8 1.3 Perturbation intuition behind the Euler Equation: What is the cost of consuming dollars less today? Utility loss today = 0 ( ) What is the (discounted, expected) gain of consuming +1 dollars more tomorrow? Utility gain tomorrow = h³ +1 0 ( +1 ) i Let s now rederive the Euler Equation:
9 1. Suppose 0 ( ) +1 0 ( +1 ) Then cut by and raise +1 by +1 to generate a net utility gain: h 0 ( ) ( +1 ) i 0 This perturbation is always possible on the equilibrium path, so: 0 ( ) +1 0 ( +1 ) 2. Suppose 0 ( ) +1 0 ( +1 ) then raise by and cut +1 by +1 to generate a net utility gain: h 0 ( ) +1 0 ( +1 ) i 0 This perturbation is possible on the equilibrium path as long as so: 0 ( ) +1 0 ( +1 ) as long as
10 It follows that 0 ( )= +1 0 ( +1 ) if 0 ( ) +1 0 ( +1 ) if =
11 1.4 Important consumption models: Life Cycle Hypothesis: Modigliani & Brumberg (1954) = =1 Perfect capital markets (and no moral hazard), so that future labor income can be exchanged for current capital.
12 Bellman Equation: ( ) =sup{ ( )+ ( +1 ) } +1 = ( ) 0 = X =0 e Sometimes referred to as eating a pie/cake problem. Euler Equation implies, 0 ( )= 0 ( +1 )= 0 ( +1 ) Hence, consumption is constant.
13 Budget constraint: X X = 0 e =0 =0 Substitute Euler Equation, 0 = to find X X 0 = 0 e =0 =0 So Euler Equation + budget constraint implies µ 0 = 1 1 X 0 e =0 Consumption is an annuity. What s the value of your annuity? Remark 1.1 Friedman s Permanent Income Hypothesis (Friedman, 1957) is much like Modigliani s Life-Cycle Hypothesis.
14 1.4.2 Certainty Equivalence Model: Hall (1978) = =1 Quadratic utility: ( ) = 2 2 This admits negative consumption. And this does not imply that lim 0 0 ( ) = Can t sell claims to labor income.
15 Bellman Equation: ( ) =sup { ( )+ ( +1 ) } +1 = ( ) = 0 X =0 X =0 e (BC) Euler Equation implies, = +1 = + (consumption is a random walk w/o drift): +1 = + +1 So +1 can not be predicted by any information available at time
16 Budget constraint at date : X =0 + = + X =1 e + X =0 + = + X =1 e + Substitute = + to find X X = + e + =0 =1 So Euler Equation + budget constraint implies = µ 1 1 X + =1 e +
17 2 Linearizing Euler Equation Recall Euler Equation: 0 ( )= +1 0 ( +1 ) Want to transform this equation so it is more amenable to empirical analysis. Assume that +1 isknownattime. Assume is an isoelastic (i.e., constant relative risk aversion) utility function, (Aside: lim ( ) = =ln. Important special case.)
18 Note that We can rewrite the Euler Equation as 0 ( ) = = = exp h ln ³ +1 i +1 1= exp [ + +1 ln( +1 )] where ln = and ln +1 = +1 Since, ln( +1 )=ln( +1 ) ln( ) we write, 1= exp [ +1 ln +1 ]
19 Assume that ln +1 is conditionally normally distributed. So, 1=exp +1 ln ln +1 Taking the natural log of both sides yields, ln +1 = 1 ( +1 )+ 2 ln +1
20 3 Empirical tests without precautionary savings effects Recall Euler Equation: 0 ( )= +1 0 ( +1 ) We write the linearized Euler Equation in regression form: ln +1 = 1 ( +1 )+ 2 ln where +1 is orthogonal to any information known at date The conditional variance term is often referred to as the precautionary savings term, (more on this later).
21 We sometimes (counterfactually) assume that ln +1 is constant (i.e., independent of time). So the Euler Equation reduces to: ln +1 = constant + 1 ( +1 )+ +1 When we replace the precautionary term with a constant, we are effectively ignorning its effect (since it is no longer separately identified from the other constant term: )
22 Hundreds of papers have estimated a linearized Euler Equation: ln +1 = constant The principal goals of these regressions are twofold: 1. Estimate 1, the elasticity of intertemporal substitution (EIS) = ln For example, see Hall (1988). For this model, the EIS is the inverse of the CRRA.
23 2. Test the orthogonality restriction: {Ω information set at date } +1 In other words, test the restriction that information available at time does not predict consumption growth in the following regression ln +1 = constant For example, does the date expectation of income growth, ln +1 predict date +1consumption growth?
24 ln +1 = constant ln [ ] so ln +1 covaries with ln +1 (e.g., Campbell and Mankiw 1989, Shea 1995, Shapiro 2005, Parker and Broda 2014). Orthogonality restriction is violated: information at date predicts consumption growth from to +1 In other words, the assumptions (1) the Euler Equation is true, (2) the utility function is in the CRRA class, (3) the linearization is accurate, and (4) ln +1 is constant, are jointly rejected.
25 A note on Shea s methodology (for estimating ln +1 ) 1. Assign respondents to unions with national or regional bargaining national: trucking, postal service, railroads regional: lumber in Pacific Northwest, shipping on East Coast 2. Assign respondents to dominant local employer automobile worker living in Genesee County, MI (GM s Flint plant)
26 Why does expected income growth predict consumption growth? Leisure and consumption expenditure are substitutes (Heckman 1974, Ghez and Becker 1975, Aguiar and Hurst 2005, 2007) Work-based expenses Households support lots of dependents in mid-life when income is highest (Browning 1992, Attanasio 1995, Seshadri et al 2006) Households are liquidity constrained and impatient (Deaton 1991, Carroll 1992, Laibson 1997).
27 Some consumers use rules of thumb: = (Campbell and Mankiw 1989, Thaler and Shefrin 1981) Welfare costs of smoothing are second-order (Cochrane 1989, Pischke 1995, Browning and Crossley 2001)
ECOM 009 Macroeconomics B. Lecture 2
ECOM 009 Macroeconomics B Lecture 2 Giulio Fella c Giulio Fella, 2014 ECOM 009 Macroeconomics B - Lecture 2 40/197 Aim of consumption theory Consumption theory aims at explaining consumption/saving decisions
More informationOnline Appendix for Precautionary Saving of Chinese and US Households
Online Appendix for Precautionary Saving of Chinese and US Households Horag Choi a Steven Lugauer b Nelson C. Mark c May 06 Abstract This online appendix presents the analytical derivations and estimation
More informationECOM 009 Macroeconomics B. Lecture 3
ECOM 009 Macroeconomics B Lecture 3 Giulio Fella c Giulio Fella, 2014 ECOM 009 Macroeconomics B - Lecture 3 84/197 Predictions of the PICH 1. Marginal propensity to consume out of wealth windfalls 0.03.
More informationLecture 2. (1) Permanent Income Hypothesis (2) Precautionary Savings. Erick Sager. February 6, 2018
Lecture 2 (1) Permanent Income Hypothesis (2) Precautionary Savings Erick Sager February 6, 2018 Econ 606: Adv. Topics in Macroeconomics Johns Hopkins University, Spring 2018 Erick Sager Lecture 2 (2/6/18)
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 information1 Bewley Economies with Aggregate Uncertainty
1 Bewley Economies with Aggregate Uncertainty Sofarwehaveassumedawayaggregatefluctuations (i.e., business cycles) in our description of the incomplete-markets economies with uninsurable idiosyncratic risk
More informationEconomics 2010c: Lectures 9-10 Bellman Equation in Continuous Time
Economics 2010c: Lectures 9-10 Bellman Equation in Continuous Time David Laibson 9/30/2014 Outline Lectures 9-10: 9.1 Continuous-time Bellman Equation 9.2 Application: Merton s Problem 9.3 Application:
More informationMacroeconomic Theory II Homework 2 - Solution
Macroeconomic Theory II Homework 2 - Solution Professor Gianluca Violante, TA: Diego Daruich New York University Spring 204 Problem The household has preferences over the stochastic processes of a single
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 informationEconomics 2010c: Lecture 2 Iterative Methods in Dynamic Programming
Economics 2010c: Lecture 2 Iterative Methods in Dynamic Programming David Laibson 9/04/2014 Outline: 1. Functional operators 2. Iterative solutions for the Bellman Equation 3. Contraction Mapping Theorem
More informationConcavity of the Consumption Function with Recursive Preferences
Concavity of the Consumption Function with Recursive Preferences Semyon Malamud May 21, 2014 Abstract Carroll and Kimball 1996) show that the consumption function for an agent with time-separable, isoelastic
More informationAn approximate consumption function
An approximate consumption function Mario Padula Very Preliminary and Very Incomplete 8 December 2005 Abstract This notes proposes an approximation to the consumption function in the buffer-stock model.
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Fall, 202 Answer Key to Section 2 Questions Section. (Suggested Time: 45 Minutes) For 3 of
More informationTopic 6: Consumption, Income, and Saving
Topic 6: Consumption, Income, and Saving Yulei Luo SEF of HKU October 31, 2013 Luo, Y. (SEF of HKU) Macro Theory October 31, 2013 1 / 68 The Importance of Consumption Consumption is important to both economic
More informationLecture 1: Introduction
Lecture 1: Introduction Fatih Guvenen University of Minnesota November 1, 2013 Fatih Guvenen (2013) Lecture 1: Introduction November 1, 2013 1 / 16 What Kind of Paper to Write? Empirical analysis to: I
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 informationGeneral Examination in Macroeconomic Theory SPRING 2013
HARVARD UNIVERSITY DEPARTMENT OF ECONOMICS General Examination in Macroeconomic Theory SPRING 203 You have FOUR hours. Answer all questions Part A (Prof. Laibson): 48 minutes Part B (Prof. Aghion): 48
More informationDynamic Optimization: An Introduction
Dynamic Optimization An Introduction M. C. Sunny Wong University of San Francisco University of Houston, June 20, 2014 Outline 1 Background What is Optimization? EITM: The Importance of Optimization 2
More informationGovernment The government faces an exogenous sequence {g t } t=0
Part 6 1. Borrowing Constraints II 1.1. Borrowing Constraints and the Ricardian Equivalence Equivalence between current taxes and current deficits? Basic paper on the Ricardian Equivalence: Barro, JPE,
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 informationGraduate Macroeconomics 2 Problem set Solutions
Graduate Macroeconomics 2 Problem set 10. - Solutions Question 1 1. AUTARKY Autarky implies that the agents do not have access to credit or insurance markets. This implies that you cannot trade across
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 informationProblem Set # 2 Dynamic Part - Math Camp
Problem Set # 2 Dynamic Part - Math Camp Consumption with Labor Supply Consider the problem of a household that hao choose both consumption and labor supply. The household s problem is: V 0 max c t;l t
More informationLecture 3: Dynamics of small open economies
Lecture 3: Dynamics of small open economies Open economy macroeconomics, Fall 2006 Ida Wolden Bache September 5, 2006 Dynamics of small open economies Required readings: OR chapter 2. 2.3 Supplementary
More informationPractice Problems 2 (Ozan Eksi) ( 1 + r )i E t y t+i + (1 + r)a t
Practice Problems 2 Ozan Eksi) Problem Quadratic Utility Function and Fixed Income) Let s assume that = r; and consumers preferences are represented by a quadratic utility function uc) = c b=2 c 2 : When
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 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 informationSeminar Lecture. Introduction to Structural Estimation: A Stochastic Life Cycle Model. James Zou. School of Economics (HUST) September 29, 2017
Seminar Lecture Introduction to Structural Estimation: A Stochastic Life Cycle Model James Zou School of Economics (HUST) September 29, 2017 James Zou (School of Economics (HUST)) Seminar Lecture September
More informationMacroeconomic Theory and Analysis V Suggested Solutions for the First Midterm. max
Macroeconomic Theory and Analysis V31.0013 Suggested Solutions for the First Midterm Question 1. Welfare Theorems (a) There are two households that maximize max i,g 1 + g 2 ) {c i,l i} (1) st : c i w(1
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 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 informationChapter 4. Applications/Variations
Chapter 4 Applications/Variations 149 4.1 Consumption Smoothing 4.1.1 The Intertemporal Budget Economic Growth: Lecture Notes For any given sequence of interest rates {R t } t=0, pick an arbitrary q 0
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 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 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 informationRamsey Cass Koopmans Model (1): Setup of the Model and Competitive Equilibrium Path
Ramsey Cass Koopmans Model (1): Setup of the Model and Competitive Equilibrium Path Ryoji Ohdoi Dept. of Industrial Engineering and Economics, Tokyo Tech This lecture note is mainly based on Ch. 8 of Acemoglu
More informationDynare Class on Heathcote-Perri JME 2002
Dynare Class on Heathcote-Perri JME 2002 Tim Uy University of Cambridge March 10, 2015 Introduction Solving DSGE models used to be very time consuming due to log-linearization required Dynare is a collection
More informationRe-estimating Euler Equations
Re-estimating Euler Equations Olga Gorbachev September 1, 2016 Abstract I estimate an extended version of the incomplete markets consumption model allowing for heterogeneity in discount factors, nonseparable
More informationUncertainty Per Krusell & D. Krueger Lecture Notes Chapter 6
1 Uncertainty Per Krusell & D. Krueger Lecture Notes Chapter 6 1 A Two-Period Example Suppose the economy lasts only two periods, t =0, 1. The uncertainty arises in the income (wage) of period 1. Not that
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 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 informationRedistributive Taxation in a Partial-Insurance Economy
Redistributive Taxation in a Partial-Insurance Economy Jonathan Heathcote Federal Reserve Bank of Minneapolis and CEPR Kjetil Storesletten Federal Reserve Bank of Minneapolis and CEPR Gianluca Violante
More informationDynamic Problem Set 1 Solutions
Dynamic Problem Set 1 Solutions Jonathan Kreamer July 15, 2011 Question 1 Consider the following multi-period optimal storage problem: An economic agent imizes: c t} T β t u(c t ) (1) subject to the period-by-period
More informationUsing Theory to Identify Transitory and Permanent Income Shocks: A Review of the Blundell-Preston Approach
Using Theory to Identify Transitory and Permanent Income Shocks: A Review of the Blundell-Preston Approach October 12, 2004 1 Introduction Statements on changes in income inequality based on the cross-sectional
More information1 Two elementary results on aggregation of technologies and preferences
1 Two elementary results on aggregation of technologies and preferences In what follows we ll discuss aggregation. What do we mean with this term? We say that an economy admits aggregation if the behavior
More informationCaballero Meets Bewley: The Permanent-Income Hypothesis in General Equilibrium
Caballero Meets Bewley: The Permanent-Income Hypothesis in General Equilibrium By NENG WANG* * William E. Simon School of Business Administration, University of Rochester, Rochester, NY 4627 (e-mail: wang@simon.rochester.edu).
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 informationEconomic Growth: Lecture 13, Stochastic Growth
14.452 Economic Growth: Lecture 13, Stochastic Growth Daron Acemoglu MIT December 10, 2013. Daron Acemoglu (MIT) Economic Growth Lecture 13 December 10, 2013. 1 / 52 Stochastic Growth Models Stochastic
More informationMonetary Economics: Solutions Problem Set 1
Monetary Economics: Solutions Problem Set 1 December 14, 2006 Exercise 1 A Households Households maximise their intertemporal utility function by optimally choosing consumption, savings, and the mix of
More informationEconomics 210B Due: September 16, Problem Set 10. s.t. k t+1 = R(k t c t ) for all t 0, and k 0 given, lim. and
Economics 210B Due: September 16, 2010 Problem 1: Constant returns to saving Consider the following problem. c0,k1,c1,k2,... β t Problem Set 10 1 α c1 α t s.t. k t+1 = R(k t c t ) for all t 0, and k 0
More informationSimple Consumption / Savings Problems (based on Ljungqvist & Sargent, Ch 16, 17) Jonathan Heathcote. updated, March The household s problem X
Simple Consumption / Savings Problems (based on Ljungqvist & Sargent, Ch 16, 17) subject to for all t Jonathan Heathcote updated, March 2006 1. The household s problem max E β t u (c t ) t=0 c t + a t+1
More informationINCOME RISK AND CONSUMPTION INEQUALITY: A SIMULATION STUDY
INCOME RISK AND CONSUMPTION INEQUALITY: A SIMULATION STUDY Richard Blundell Hamish Low Ian Preston THE INSTITUTE FOR FISCAL STUDIES WP04/26 Income and Consumption Inequality: Decomposing Income Risk Richard
More informationComprehensive Exam. Macro Spring 2014 Retake. August 22, 2014
Comprehensive Exam Macro Spring 2014 Retake August 22, 2014 You have a total of 180 minutes to complete the exam. If a question seems ambiguous, state why, sharpen it up and answer the sharpened-up question.
More informationA Simple Direct Estimate of Rule-of-Thumb Consumption Using the Method of Simulated Quantiles & Cross Validation
A Simple Direct Estimate of Rule-of-Thumb Consumption Using the Method of Simulated Quantiles & Cross Validation Nathan M. Palmer The Office of Financial Research George Mason University Department of
More informationConsumption / Savings Decisions
Consumption / Savings Decisions 1 The Permanent Income Hpothesis (This is mostl repeated from the first class) Household consumption decisions characterized b 1. Euler equation: u (c t ) = β p t p t+1
More informationLecture 6: Recursive Preferences
Lecture 6: Recursive Preferences Simon Gilchrist Boston Univerity and NBER EC 745 Fall, 2013 Basics Epstein and Zin (1989 JPE, 1991 Ecta) following work by Kreps and Porteus introduced a class of preferences
More informationLecture notes on modern growth theory
Lecture notes on modern growth theory Part 2 Mario Tirelli Very preliminary material Not to be circulated without the permission of the author October 25, 2017 Contents 1. Introduction 1 2. Optimal economic
More informationECON4515 Finance theory 1 Diderik Lund, 5 May Perold: The CAPM
Perold: The CAPM Perold starts with a historical background, the development of portfolio theory and the CAPM. Points out that until 1950 there was no theory to describe the equilibrium determination of
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 informationSTRUCTURE Of ECONOMICS A MATHEMATICAL ANALYSIS
THIRD EDITION STRUCTURE Of ECONOMICS A MATHEMATICAL ANALYSIS Eugene Silberberg University of Washington Wing Suen University of Hong Kong I Us Irwin McGraw-Hill Boston Burr Ridge, IL Dubuque, IA Madison,
More informationMacroeconomics Field Exam. August 2007
Macroeconomics Field Exam August 2007 Answer all questions in the exam. Suggested times correspond to the questions weights in the exam grade. Make your answers as precise as possible, using graphs, equations,
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 informationNotes on Alvarez and Jermann, "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica 2000
Notes on Alvarez Jermann, "Efficiency, Equilibrium, Asset Pricing with Risk of Default," Econometrica 2000 Jonathan Heathcote November 1st 2005 1 Model Consider a pure exchange economy with I agents one
More informationUniversity of Warwick, EC9A0 Maths for Economists Lecture Notes 10: Dynamic Programming
University of Warwick, EC9A0 Maths for Economists 1 of 63 University of Warwick, EC9A0 Maths for Economists Lecture Notes 10: Dynamic Programming Peter J. Hammond Autumn 2013, revised 2014 University of
More informationWhat We Don t Know Doesn t Hurt Us: Rational Inattention and the. Permanent Income Hypothesis in General Equilibrium
What We Don t Know Doesn t Hurt Us: ational Inattention and the Permanent Income Hypothesis in General Equilibrium Yulei Luo The University of Hong Kong Gaowang Wang Central University of Finance and Economics
More informationFluctuations. Shocks, Uncertainty, and the Consumption/Saving Choice
Fluctuations. Shocks, Uncertainty, and the Consumption/Saving Choice Olivier Blanchard April 2002 14.452. Spring 2002. Topic 2. 14.452. Spring, 2002 2 Want to start with a model with two ingredients: ²
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 informationHow to Model Household Decisions?
How to Model? Based on Chiappori and Mazzocco (2017) Universidad Carlos III de Madrid March, 20 1/17 Plan 1 2 3 4 5 2/17 : decisions Browning et al. (2014) and Mazzocco et al. (2017) Static models 1 Unitary
More informationOnline Appendix for Slow Information Diffusion and the Inertial Behavior of Durable Consumption
Online Appendix for Slow Information Diffusion and the Inertial Behavior of Durable Consumption Yulei Luo The University of Hong Kong Jun Nie Federal Reserve Bank of Kansas City Eric R. Young University
More informationLecture 4 The Centralized Economy: Extensions
Lecture 4 The Centralized Economy: Extensions Leopold von Thadden University of Mainz and ECB (on leave) Advanced Macroeconomics, Winter Term 2013 1 / 36 I Motivation This Lecture considers some applications
More informationFoundations of Modern Macroeconomics Second Edition
Foundations of Modern Macroeconomics Second Edition Chapter 5: The government budget deficit Ben J. Heijdra Department of Economics & Econometrics University of Groningen 1 September 2009 Foundations of
More informationDynamic stochastic general equilibrium models. December 4, 2007
Dynamic stochastic general equilibrium models December 4, 2007 Dynamic stochastic general equilibrium models Random shocks to generate trajectories that look like the observed national accounts. Rational
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 informationProper Welfare Weights for Social Optimization Problems
Proper Welfare Weights for Social Optimization Problems Alexis Anagnostopoulos (Stony Brook University) Eva Cárceles-Poveda (Stony Brook University) Yair Tauman (IDC and Stony Brook University) June 24th
More informationRice University. Fall Semester Final Examination ECON501 Advanced Microeconomic Theory. Writing Period: Three Hours
Rice University Fall Semester Final Examination 007 ECON50 Advanced Microeconomic Theory Writing Period: Three Hours Permitted Materials: English/Foreign Language Dictionaries and non-programmable calculators
More informationArea I: Contract Theory Question (Econ 206)
Theory Field Exam Summer 2011 Instructions You must complete two of the four areas (the areas being (I) contract theory, (II) game theory A, (III) game theory B, and (IV) psychology & economics). Be sure
More information1. Money in the utility function (start)
Monetary Economics: Macro Aspects, 1/3 2012 Henrik Jensen Department of Economics University of Copenhagen 1. Money in the utility function (start) a. The basic money-in-the-utility function model b. Optimal
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 informationLecture 8: Consumption-Savings Decisions
Lecture 8: Consumption-Savings Decisions Florian Scheuer 1 Plan 1. A little historical background on models of consumption 2. Some evidence (!) 3. Studing the incomplete markets consumption model (which
More informationNBER WORKING PAPER SERIES RISK SHARING IN PRIVATE INFORMATION MODELS WITH ASSET ACCUMULATION: EXPLAINING THE EXCESS SMOOTHNESS OF CONSUMPTION
NBER WORKING PAPER SERIES RISK SHARING IN PRIVATE INFORMATION MODELS WITH ASSET ACCUMULATION: EXPLAINING THE EXCESS SMOOTHNESS OF CONSUMPTION Orazio Attanasio Nicola Pavoni Working Paper 12994 http://www.nber.org/papers/w12994
More informationNBER WORKING PAPER SERIES ESTIMATING DISCOUNT FUNCTIONS WITH CONSUMPTION CHOICES OVER THE LIFECYCLE. David Laibson Andrea Repetto Jeremy Tobacman
NBER WORKING PAPER SERIES ESTIMATING DISCOUNT FUNCTIONS WITH CONSUMPTION CHOICES OVER THE LIFECYCLE David Laibson Andrea Repetto Jeremy Tobacman Working Paper 13314 http://www.nber.org/papers/w13314 NATIONAL
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 information14.461: Technological Change, Lecture 4 Technology and the Labor Market
14.461: Technological Change, Lecture 4 Technology and the Labor Market Daron Acemoglu MIT September 20, 2016. Daron Acemoglu (MIT) Technology and the Labor Market September 20, 2016. 1 / 51 Technology
More informationGetting to page 31 in Galí (2008)
Getting to page 31 in Galí 2008) H J Department of Economics University of Copenhagen December 4 2012 Abstract This note shows in detail how to compute the solutions for output inflation and the nominal
More informationFoundations of Modern Macroeconomics B. J. Heijdra & F. van der Ploeg Chapter 6: The Government Budget Deficit
Foundations of Modern Macroeconomics: Chapter 6 1 Foundations of Modern Macroeconomics B. J. Heijdra & F. van der Ploeg Chapter 6: The Government Budget Deficit Foundations of Modern Macroeconomics: Chapter
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 information"0". Doing the stuff on SVARs from the February 28 slides
Monetary Policy, 7/3 2018 Henrik Jensen Department of Economics University of Copenhagen "0". Doing the stuff on SVARs from the February 28 slides 1. Money in the utility function (start) a. The basic
More informationLecture Notes 10: Dynamic Programming
University of Warwick, EC9A0 Maths for Economists Peter J. Hammond 1 of 81 Lecture Notes 10: Dynamic Programming Peter J. Hammond 2018 September 28th University of Warwick, EC9A0 Maths for Economists Peter
More informationECON FINANCIAL ECONOMICS
ECON 337901 FINANCIAL ECONOMICS Peter Ireland Boston College Spring 2018 These lecture notes by Peter Ireland are licensed under a Creative Commons Attribution-NonCommerical-ShareAlike 4.0 International
More informationIntroduction to Algorithmic Trading Strategies Lecture 3
Introduction to Algorithmic Trading Strategies Lecture 3 Pairs Trading by Cointegration Haksun Li haksun.li@numericalmethod.com www.numericalmethod.com Outline Distance method Cointegration Stationarity
More informationLecture 2 The Centralized Economy
Lecture 2 The Centralized Economy Economics 5118 Macroeconomic Theory Kam Yu Winter 2013 Outline 1 Introduction 2 The Basic DGE Closed Economy 3 Golden Rule Solution 4 Optimal Solution The Euler Equation
More informationTopic 2. Consumption/Saving and Productivity shocks
14.452. Topic 2. Consumption/Saving and Productivity shocks Olivier Blanchard April 2006 Nr. 1 1. What starting point? Want to start with a model with at least two ingredients: Shocks, so uncertainty.
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 informationMacro 1: Dynamic Programming 2
Macro 1: Dynamic Programming 2 Mark Huggett 2 2 Georgetown September, 2016 DP Problems with Risk Strategy: Consider three classic problems: income fluctuation, optimal (stochastic) growth and search. Learn
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 informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Preliminary Examination: Macroeconomics Fall, Partial Answer Key
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Preliminary Examination: Macroeconomics Fall, 2008 Partial Answer Key Section. (Suggested Time: 45 Minutes) For 3 of the following
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 informationTaylor Rules and Technology Shocks
Taylor Rules and Technology Shocks Eric R. Sims University of Notre Dame and NBER January 17, 2012 Abstract In a standard New Keynesian model, a Taylor-type interest rate rule moves the equilibrium real
More informationVolume 30, Issue 1. Measuring the Intertemporal Elasticity of Substitution for Consumption: Some Evidence from Japan
Volume 30, Issue 1 Measuring the Intertemporal Elasticity of Substitution for Consumption: Some Evidence from Japan Akihiko Noda Graduate School of Business and Commerce, Keio University Shunsuke Sugiyama
More informationECON4510 Finance Theory Lecture 2
ECON4510 Finance Theory Lecture 2 Diderik Lund Department of Economics University of Oslo 26 August 2013 Diderik Lund, Dept. of Economics, UiO ECON4510 Lecture 2 26 August 2013 1 / 31 Risk aversion and
More information