__Class
Webpage for Macroeconomics II (Graduate)__

Spring
2006

TA:
Alejandro Badel

References:
K=Krueger, LS=Ljungqvist and Sargent, SL=Stokey and Lucas with

FINAL DATE: Wednesday May 10^{th},
9am

*What are we doing, class by class?*

Practice Questions for the Final

25. We
extended the previous discussion to a infinitely repeated version of the static
tax game, and talked a bit about some results by Abreu, Pearce and Stachetti
that allow one to characterize the set of values of **subgame perfect equilibria**

24. We
talked about optimal government policy, and defined **Ramsey problems** and **Nash
equilibria** in a one period model. We discussed **time consistency**, and speculated about what would happen in an
infinitely repeated version of the static economy (*LS Ch 22*) Alejandro’s solutions to HW 5

23. We
finished talking about linearization Homework 7

(here are some useful materials for the homework: (i)
Gauss HP filter code, (ii) my code for the non-stochastic version of the model that I put up in
class, (iii) short notes on filtering and computing percentage
standard deviations – see Cooley (1995) for a discussion of the HP filter)

22. We
talked about **linearization** as a **local solution method **with an
application to the stochastic growth model (*notes*)

21. We
talked about **Euler equation iteration**
as a numerical solution method for the income-fluctuations problem (*notes*)
Homework 6

20. We
discussed extensions to the Huggett (1993) economy by Aiyagari (1994) and
Aiyagari and McGrattan (1998) to add capital and debt.

19. We
described an economy with a continuum of agents, each subject to uninsurable
income risk. We discussed Huggett’s (1993) results on the existence of a
stationary equilibrium. (*Huggett 1993, JEDC, my
notes*)

18. We
characterized decision rules in the stochastic income-fluctuations problem. We
explored how to eliminate a state variable with iid shocks, and conditions
under which an upper bound on asset holdings does / does not exist. (*slides, K
Ch 10) *Homework 5 Partial solutions for HW4

17. We
reviewed, briefly, some theorems that allow one to characterize value function
and decision rules in non-stochastic dynamic models. We reconsidered the
non-stochastic income fluctuations problem (class 14) and made a few remarks
about the **natural borrowing constraint**,
and the **permanent income hypothesis **(*slides, SL
Ch 4, K Ch 10)*

16. We
discussed the equilibrium interest rate, and the **welfare cost of market incompleteness** in the HSV framework (*HSV welfare paper*)
Homework 4

15. As an
introduction to environments with **heterogeneous
agents** and **idiosyncratic risk **we
considered a framework in which allocations and cross-sectional moments have
closed-form solutions (*slides for HSV framework*)

14. We
discussed the performance on the midterm. We then moved to introduce **income fluctuation problems** in
environments with (idiosyncratic) labor income risk. Notes (*LS
Ch 16 and start of Ch 17*)

13. **Midterm Exam**: Questions and Suggested
Answers

12. We
described a recursive decentralization of the stochastic growth model in which
firms make investment decisions and households trade equities. (*Danthine and Donaldson 1994). *Partial
solutions for HW 3.

11. We
talked briefly about a Recursive Competitive Equilibrium in the growth model,
and then talked about **Calibration** (*Cooley Chapter 1*)

10. We
defined a Sequence of Markets equilibrium for the stochastic growth model,
including Arrow securities, and discussed how to price various assets. Homework 3 (*LS
Ch 12*)

9. We
compared the solution to the planner’s problem in the neoclassical growth
model, to the Arrow-Debreu competitive equilibrium, and argued the allocations
are the same. My code for HW2 (a) and (b) (*LS, Ch 12*)

8. We
introduced notation to deal with **Uncertainty**.
We revisited the example economy from Class 1, and then described the **Stochastic Neoclassical Growth Model**
(the workhorse for the **Real Business
Cycle** literature) (*K, Ch 6*)

7. We
stated the **Contraction Mapping Theorem**,
and proved the sufficiency of **Blackwell’s
Conditions **(*K, Ch 4, SL Ch 3)*.
Alejandro’s solutions for HW 1

6. We
discussed an **Euler Equation** approach
to approximating the solution to finite horizon and infinite horizon
optimization problems, and the role of the**
Transversality Condition** in the latter. We defined a competitive
equilibrium for the growth model, and discussed the Welfare Theorems for this
economy. (*K, end of Ch 3)*

5. We
talked about how to solve a special case of the growth model using a **Guess and Verify** approach, and about a
more generally applicable numerical approach that involved **Value Function Iteration **on a**
Discrete State Space**. Homework 2 (*K, middle of Chapter 3)*

4. We
moved to the **Neoclassical Growth Model**.
(*K, first part of Chapter 3)*. We
described the basic model ingredients, and the planner’s problem for this
economy. We talked about how the **Principle
of Optimality **allows us to switch from a sequential to a recursive
formulation of the planner’s problem (*K,
first part of Ch 5, and SL, first part of Ch 4 for more on the POO*)

3. We
defined a **Sequential Markets Equilibrium**,
and showed the equivalence between the Arrow Debreu and Sequential definitions.
We also defined a **Recursive Competitive
Equilibrium** Homework 1 (*LS Chapter 7 for more on RCE*)

2. We defined
a competitive **Arrow Debreu Equilibrium**
in our example, proved the **First Welfare
Theorem**, and discussed **Negishi’s**
method for solving for equilibria. (*K,
Chapter 2*)

1. We
outlined the class, and defined the Household’s Problem in a simple example economy
(*Prof. Krueger’s (K) notes, Chapter 2*)