Lecture 1: Introduction
|
|
- Corey Boone
- 5 years ago
- Views:
Transcription
1 Lecture 1: Introduction Fatih Guvenen University of Minnesota November 1, 2013 Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
2 What Kind of Paper to Write? Empirical analysis to: I I provide motivation for the paper test the implications of your model Your paper can answer a question, or explain: I I an existing empirical fact a new fact that you document in your paper Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
3 Model Specification: Partial Equilibrium Choices, choices: V (a, w) =max c,k 0 u(c,`)+ E(V (a 0, w 0 ) w) c + a 0 =(1 + r)a + w(1 `) w 0 f ( w) What functional form to choose for u(c,`)? How about if we also want to model home production? or household preferences? How to specify f ( w)? There is an entire literature on the choice of f (). How about if we have other shocks (health, rate-of-return, etc.)? Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
4 Model Specification: General Equilibrium max 1X t=0 t " C 1 t 1 + (1 N t) 1 1 # s.t. C t + K t+1 (1 ) K t apple F t (K t, N t ) ( t ) What changes between the two formulations? Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
5 Model Specification: General Equilibrium max 1X t=0 t apple (C t (1 N t ) 1 ) 1 1 s.t. C t + K t+1 (1 ) K t apple F t (K t, N t ) ( t ) What changes between the two formulations? Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
6 Model Specification: General Equilibrium max 1X t=0 t apple (C t (1 N t ) 1 ) 1 1 s.t. C t + (K t+1 (1 ) K t ) apple F t (K t, N t ) ( t ) What changes between the two formulations? Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
7 Model Specification: General ( ) X max E t u (c t,`t) t s.t. c t + x zt + x ht + x kt apple F (k t, z t, s t ) (1) z t apple M (n zt, h t, x zt ) (2) k t+1 apple (1 k) k t + x kt (3) h t+1 apple (1 h) h t + G (n ht, h t, x ht ) (4) `t + n ht + n zt apple 1 (5) h 0 and k 0 given Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
8 Risk Aversion What is the risk aversion when preferences are of the form: U(C) = C1 1 Risk aversion is not the curvature of some utility function. It is the answer to a specific question. Depending on what question we ask, the risk aversion we measure will be different. Sometimes it will have a simple relationship to the curvature, and sometimes it will not. Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
9 What is Risk Aversion? Start with a static gamble as studied by Pratt(1964, ECMA). Because the problem is static, there is no saving, so Pratt assumed the outcome of the gamble would be consumed immediately: I bet pays off c + i dollars in state i, realized w.p. p i. If the bet is declined, consumption is c minus the risk premium,. So: u(c ) = nx p i u(c + i ). i=1 Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
10 What is Risk Aversion? When the risk is small, use the Arrow-Pratt approximation. Basically, take the first-order Taylor approximation of the LHS, and the second-order approximation to the RHS (why?) to get: nx u(c) u 0 (c) = p i u(c)+ i u 0 (c)+ 1 2 i u 00 (c) 2 i=1 = u(c) nx i=1 p i {z } =1 + u 0 (c) nx i=1 u 0 (c) = 1 2 u00 (c) var( i ) ) p i i {z } = u00 (c) nx i=1 p i {z } =var( i ) 2 i = u 00 (c) u 0 (c) {z } Absolute risk aversion 1 2 var( i). {z } Amount of risk (6) Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
11 What is Risk Aversion? If the gamble is in fixed monetary units, we are talking about absolute risk aversion. If it is indexed to the average level of the bet, then we are talking about relative risk aversion: u(c(1 r )) = nx p i u(c(1 + i )). i=1 The coefficient of relative risk aversion: RRA(c) = c u00 (c) u 0 (c) (7) Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
12 What is Risk Aversion? In a dynamic model, risk aversion can be as simple as what we have seen so far or it can be as complex as you can imagine. Why? Because in a dynamic context it does not usually make sense to assume that you have to consume the outcome of the bet immediately. For example, a worker who loses his job will usually have the option to borrow to smooth consumption. Or somebody who has a windfall gain from an inheritance, does not have to spend all of it in the current period. And so on. So, in general, risk aversion will depend on the market structure and the type of gamble that is offered, so it can mean different things. Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
13 What is Risk Aversion? In a dynamic model, individuals can typically use financial markets to smooth consumption relative to income, so we should think about wealth/income bets: V (!(1 r )) = nx p i V (!(1 + i )). i=1 r =! V 00 (!) V 0 (!) {z } Absolute risk aversion 1 2 var( i). {z } Amount of risk Result: If (i) preferences are separable over time, and (ii) the market structure is such that (i.e., markets are complete) the envelope condition is V 0 (!) =u then:! V 00 (!) V 0 (!) = c u00 (c) u 0 (c), where we used Euler s = c. Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16 (8)
14 Risk Aversion One can show that this is true even when the individual derives utility from leisure. So, for example, for preferences given by the specifications: or U(c,`)= c1 1 ` (9) c `1 1 U(c,`)=. (10) 1 relative risk aversion is even though preferences also include leisure. Homework: Prove this claim. Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
15 Risk Aversion This explanation also makes it clear that this result is more special and limited than it looks. Because we know that in many models the marginal utility of consumption is not equated across dates and states, most notably when markets are incomplete which is most of the models this book intends to cover! In such cases, immediately consuming the outcome of the bet cannot be any greater than finding the state with the highest marginal utility and consuming in that state. So wealth will have (weakly) higher marginal utility than current consumption yielding an inequality: w V 00 (w) V 0 (w) c u00 (c) u 0 (c) =. (11) Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
16 Risk Aversion A second case of interest is when preferences are time-non-separable, e.g., Epstein-Zin preferences or habit formation. In this case, even if markets are complete, risk aversion may differ (sometimes substantially) from the curvature of the utility function. With incomplete markets it is not clear what w should be. Wealth gambles are not too meaningful if most of your cash on hand comes from labor income. If it is literally financial wealth, risk aversion may be zero or negative as measured by (11), since w could be zero or negative. If we think that it should include wealth labor income, so it is cash-on-hand, then how do we discount future earnings? In general, the formula above is not very useful in incomplete markets models as a measure because of these difficulties.) Fatih Guvenen (2013) Lecture 1: Introduction November 1, / 16
Lecture 2: The Human Capital Model
Lecture 2: The Human Capital Model Fatih Guvenen University of Minnesota February 7, 2018 Fatih Guvenen (2018) Lecture 2: Ben Porath February 7, 2018 1 / 16 Why Study Wages? Labor income is 2/3 of GDP.
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 2: Balanced Growth
Lecture 2: Balanced Growth Fatih Guvenen September 21, 2015 Fatih Guvenen Balanced Growth September 21, 2015 1 / 12 Kaldor s Facts 1 Labor productivity has grown at a sustained rate. 2 Capital per worker
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 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 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 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 informationECON607 Fall 2010 University of Hawaii Professor Hui He TA: Xiaodong Sun Assignment 2
ECON607 Fall 200 University of Hawaii Professor Hui He TA: Xiaodong Sun Assignment 2 The due date for this assignment is Tuesday, October 2. ( Total points = 50). (Two-sector growth model) Consider the
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 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 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 informationEconomics 2010c: Lecture 3 The Classical Consumption Model
Economics 2010c: Lecture 3 The Classical Consumption Model David Laibson 9/9/2014 Outline: 1. Consumption: Basic model and early theories 2. Linearization of the Euler Equation 3. Empirical tests without
More informationECOM 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 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 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 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 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 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 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 informationUNIVERSITY OF WISCONSIN DEPARTMENT OF ECONOMICS MACROECONOMICS THEORY Preliminary Exam August 1, :00 am - 2:00 pm
UNIVERSITY OF WISCONSIN DEPARTMENT OF ECONOMICS MACROECONOMICS THEORY Preliminary Exam August 1, 2017 9:00 am - 2:00 pm INSTRUCTIONS Please place a completed label (from the label sheet provided) on the
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 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 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 informationNotes on Winnie Choi s Paper (Draft: November 4, 2004; Revised: November 9, 2004)
Dave Backus / NYU Notes on Winnie Choi s Paper (Draft: November 4, 004; Revised: November 9, 004) The paper: Real exchange rates, international trade, and macroeconomic fundamentals, version dated October
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 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 informationHigh-dimensional Problems in Finance and Economics. Thomas M. Mertens
High-dimensional Problems in Finance and Economics Thomas M. Mertens NYU Stern Risk Economics Lab April 17, 2012 1 / 78 Motivation Many problems in finance and economics are high dimensional. Dynamic Optimization:
More informationLecture Notes - Dynamic Moral Hazard
Lecture Notes - Dynamic Moral Hazard Simon Board and Moritz Meyer-ter-Vehn October 27, 2011 1 Marginal Cost of Providing Utility is Martingale (Rogerson 85) 1.1 Setup Two periods, no discounting Actions
More informationLecture 1: Dynamic Programming
Lecture 1: Dynamic Programming Fatih Guvenen November 2, 2016 Fatih Guvenen Lecture 1: Dynamic Programming November 2, 2016 1 / 32 Goal Solve V (k, z) =max c,k 0 u(c)+ E(V (k 0, z 0 ) z) c + k 0 =(1 +
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 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 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 informationCompetitive Equilibrium and the Welfare Theorems
Competitive Equilibrium and the Welfare Theorems Craig Burnside Duke University September 2010 Craig Burnside (Duke University) Competitive Equilibrium September 2010 1 / 32 Competitive Equilibrium and
More information2. What is the fraction of aggregate savings due to the precautionary motive? (These two questions are analyzed in the paper by Ayiagari)
University of Minnesota 8107 Macroeconomic Theory, Spring 2012, Mini 1 Fabrizio Perri Stationary equilibria in economies with Idiosyncratic Risk and Incomplete Markets We are now at the point in which
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 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 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 informationECON4510 Finance Theory Lecture 1
ECON4510 Finance Theory Lecture 1 Diderik Lund Department of Economics University of Oslo 18 January 2016 Diderik Lund, Dept. of Economics, UiO ECON4510 Lecture 1 18 January 2016 1 / 38 Administrative
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 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 informationEconomic Growth: Lecture 8, Overlapping Generations
14.452 Economic Growth: Lecture 8, Overlapping Generations Daron Acemoglu MIT November 20, 2018 Daron Acemoglu (MIT) Economic Growth Lecture 8 November 20, 2018 1 / 46 Growth with Overlapping Generations
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 information1 Basic Analysis of Forward-Looking Decision Making
1 Basic Analysis of Forward-Looking Decision Making Individuals and families make the key decisions that determine the future of the economy. The decisions involve balancing current sacrifice against future
More informationIndeterminacy and Sunspots in Macroeconomics
Indeterminacy and Sunspots in Macroeconomics Wednesday September 6 th : Lecture 5 Gerzensee, September 2017 Roger E. A. Farmer Warwick University and NIESR Topics for Lecture 5 Sunspots (Cass-Shell paper)
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 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 informationConsumption. Consider a consumer with utility. v(c τ )e ρ(τ t) dτ.
Consumption Consider a consumer with utility v(c τ )e ρ(τ t) dτ. t He acts to maximize expected utility. Utility is increasing in consumption, v > 0, and concave, v < 0. 1 The utility from consumption
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 informationLecture 4: Dynamic Programming
Lecture 4: Dynamic Programming Fatih Guvenen January 10, 2016 Fatih Guvenen Lecture 4: Dynamic Programming January 10, 2016 1 / 30 Goal Solve V (k, z) =max c,k 0 u(c)+ E(V (k 0, z 0 ) z) c + k 0 =(1 +
More informationLecture 7: Stochastic Dynamic Programing and Markov Processes
Lecture 7: Stochastic Dynamic Programing and Markov Processes Florian Scheuer References: SLP chapters 9, 10, 11; LS chapters 2 and 6 1 Examples 1.1 Neoclassical Growth Model with Stochastic Technology
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 informationOptimal Insurance of Search Risk
Optimal Insurance of Search Risk Mikhail Golosov Yale University and NBER Pricila Maziero University of Pennsylvania Guido Menzio University of Pennsylvania and NBER November 2011 Introduction Search and
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 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 informationMacroeconomics Qualifying Examination
Macroeconomics Qualifying Examination January 2016 Department of Economics UNC Chapel Hill Instructions: This examination consists of 3 questions. Answer all questions. If you believe a question is ambiguously
More informationIncomplete Markets, Heterogeneity and Macroeconomic Dynamics
Incomplete Markets, Heterogeneity and Macroeconomic Dynamics Bruce Preston and Mauro Roca Presented by Yuki Ikeda February 2009 Preston and Roca (presenter: Yuki Ikeda) 02/03 1 / 20 Introduction Stochastic
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 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 informationEquilibrium in a Production Economy
Equilibrium in a Production Economy Prof. Eric Sims University of Notre Dame Fall 2012 Sims (ND) Equilibrium in a Production Economy Fall 2012 1 / 23 Production Economy Last time: studied equilibrium in
More informationWhen Inequality Matters for Macro and Macro Matters for Inequality
When Inequality Matters for Macro and Macro Matters for Inequality SeHyoun Ahn Princeton Benjamin Moll Princeton Greg Kaplan Chicago Tom Winberry Chicago Christian Wolf Princeton New York Fed, 29 November
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 informationLecture 5: Competitive Equilibrium in the Growth Model
Lecture 5: Competitive Equilibrium in the Growth Model ECO 503: Macroeconomic Theory I Benjamin Moll Princeton University Fall 2014 1/17 Competitive Eqm in the Growth Model Recall two issues we are interested
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 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 informationWhen Inequality Matters for Macro and Macro Matters for Inequality
When Inequality Matters for Macro and Macro Matters for Inequality SeHyoun Ahn Princeton Benjamin Moll Princeton Greg Kaplan Chicago Tom Winberry Chicago Christian Wolf Princeton STLAR Conference, 21 April
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 informationMacroeconomic Theory and Analysis Suggested Solution for Midterm 1
Macroeconomic Theory and Analysis Suggested Solution for Midterm February 25, 2007 Problem : Pareto Optimality The planner solves the following problem: u(c ) + u(c 2 ) + v(l ) + v(l 2 ) () {c,c 2,l,l
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 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 informationAdverse Selection, Risk Sharing and Business Cycles
Discussion of Veracierto s Adverse Selection, Risk Sharing and Business Cycles V. V. Chari & Keyvan Eslami University of Minnesota & Federal Reserve Bank of Minneapolis August 2016 Point of Paper Theoretical
More informationCointegration and the Ramsey Model
RamseyCointegration, March 1, 2004 Cointegration and the Ramsey Model This handout examines implications of the Ramsey model for cointegration between consumption, income, and capital. Consider the following
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 informationRecitation 7: Uncertainty. Xincheng Qiu
Econ 701A Fall 2018 University of Pennsylvania Recitation 7: Uncertainty Xincheng Qiu (qiux@sas.upenn.edu 1 Expected Utility Remark 1. Primitives: in the basic consumer theory, a preference relation is
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 informationLecture Notes - Dynamic Moral Hazard
Lecture Notes - Dynamic Moral Hazard Simon Board and Moritz Meyer-ter-Vehn October 23, 2012 1 Dynamic Moral Hazard E ects Consumption smoothing Statistical inference More strategies Renegotiation Non-separable
More informationLecture 7: Numerical Tools
Lecture 7: Numerical Tools Fatih Guvenen January 10, 2016 Fatih Guvenen Lecture 7: Numerical Tools January 10, 2016 1 / 18 Overview Three Steps: V (k, z) =max c,k 0 apple u(c)+ Z c + k 0 =(1 + r)k + z
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 informationNotes on Recursive Utility. Consider the setting of consumption in infinite time under uncertainty as in
Notes on Recursive Utility Consider the setting of consumption in infinite time under uncertainty as in Section 1 (or Chapter 29, LeRoy & Werner, 2nd Ed.) Let u st be the continuation utility at s t. That
More informationu(c t, x t+1 ) = c α t + x α t+1
Review Questions: Overlapping Generations Econ720. Fall 2017. Prof. Lutz Hendricks 1 A Savings Function Consider the standard two-period household problem. The household receives a wage w t when young
More informationNew Keynesian DSGE Models: Building Blocks
New Keynesian DSGE Models: Building Blocks Satya P. Das @ NIPFP Satya P. Das (@ NIPFP) New Keynesian DSGE Models: Building Blocks 1 / 20 1 Blanchard-Kiyotaki Model 2 New Keynesian Phillips Curve 3 Utility
More informationSTATIONARY EQUILIBRIA OF ECONOMIES WITH A CONTINUUM OF HETEROGENEOUS CONSUMERS
STATIONARY EQUILIBRIA OF ECONOMIES WITH A CONTINUUM OF HETEROGENEOUS CONSUMERS JIANJUN MIAO March 2002 Abstract This paper studies stationary equilibria of a production economy with a continuum of heterogeneous
More informationMacroeconomics I. University of Tokyo. Lecture 13
Macroeconomics I University of Tokyo Lecture 13 The Neo-Classical Growth Model II: Distortionary Taxes LS Chapter 11. Julen Esteban-Pretel National Graduate Institute for Policy Studies Environment! Time
More informationStagnation Traps. Gianluca Benigno and Luca Fornaro
Stagnation Traps Gianluca Benigno and Luca Fornaro May 2015 Research question and motivation Can insu cient aggregate demand lead to economic stagnation? This question goes back, at least, to the Great
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 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 informationHeterogeneous Agent Models: I
Heterogeneous Agent Models: I Mark Huggett 2 2 Georgetown September, 2017 Introduction Early heterogeneous-agent models integrated the income-fluctuation problem into general equilibrium models. A key
More informationJoint-Search Theory. Bulent Guler 1 Fatih Guvenen 2 Gianluca Violante 3. Indiana University
Joint-Search Theory Bulent Guler 1 Fatih Guvenen 2 Gianluca Violante 3 1 Indiana University 2 University of Minnesota 3 New York University Indiana University GGV (UT-Austin, NYU) Joint-Search Theory IUB
More informationMicroeconomic Theory. Microeconomic Theory. Everyday Economics. The Course:
The Course: Microeconomic Theory This is the first rigorous course in microeconomic theory This is a course on economic methodology. The main goal is to teach analytical tools that will be useful in other
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 informationHOMEWORK #3 This homework assignment is due at NOON on Friday, November 17 in Marnix Amand s mailbox.
Econ 50a second half) Yale University Fall 2006 Prof. Tony Smith HOMEWORK #3 This homework assignment is due at NOON on Friday, November 7 in Marnix Amand s mailbox.. This problem introduces wealth inequality
More informationx 1 1 and p 1 1 Two points if you just talk about monotonicity (u (c) > 0).
. (a) (8 points) What does it mean for observations x and p... x T and p T to be rationalized by a monotone utility function? Notice that this is a one good economy. For all t, p t x t function. p t x
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 informationRice University. Answer Key to Mid-Semester Examination Fall ECON 501: Advanced Microeconomic Theory. Part A
Rice University Answer Key to Mid-Semester Examination Fall 006 ECON 50: Advanced Microeconomic Theory Part A. Consider the following expenditure function. e (p ; p ; p 3 ; u) = (p + p ) u + p 3 State
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 informationTHE UTILITY PREMIUM. Louis Eeckhoudt, Catholic Universities of Mons and Lille Research Associate CORE
THE UTILITY PREMIUM Louis Eeckhoudt, Catholic Universities of Mons and Lille Research Associate CORE Harris Schlesinger, University of Alabama, CoFE Konstanz Research Fellow CESifo * Beatrice Rey, Institute
More informationComments on Anomalies by Lu Zhang
Comments on Anomalies by Lu Zhang John H. Cochrane University of Chicago November 2, 2004 Q reminder X X V (K 0, {I t }) = E 0 M t D t = E 0 M t (θ t f( ) t=0 t=0 " 1+ α 2 Ã It!# I t ) s.t. +1 = (1 δ)
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 informationECO 317 Economics of Uncertainty Fall Term 2009 Notes for lectures 3. Risk Aversion
Reminders ECO 317 Economics of Uncertainty Fall Term 009 Notes for lectures 3. Risk Aversion On the space of lotteries L that offer a finite number of consequences (C 1, C,... C n ) with probabilities
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 informationWhat Accounts for the Growing Fluctuations in FamilyOECD Income March in the US? / 32
What Accounts for the Growing Fluctuations in Family Income in the US? Peter Gottschalk and Sisi Zhang OECD March 2 2011 What Accounts for the Growing Fluctuations in FamilyOECD Income March in the US?
More information