Macro II (Econ 606)

Jonathan
Heathcote

Tuesday
/ Thursday 4.15-5.30, ICC 116

Office
Hours: ICC 553, Weds 2-3pm and by appointment

Email:
jhh9@georgetown.edu

Web:
www.jonathanheathcote.com

TA:
Alejandro Badel

Email:
ab377@georgetown.edu

**Course Description**: This will be a
pretty standard first-year macro course. In teaching first-year macro, some
people focus more on theory, others more on calibration and measurement, others
on numerical solution methods. A typical macroeconomic research paper has to
address each element satisfactorily in order to be publishable, and I will
therefore spend some time on each.

**Goals**: By the end of the
class, you should understand:

- How to define a
competitive equilibrium in a range of environments following three
alternative approaches:
- Arrow-Debreu Equilibrium
- Sequential
Markets Equilibrium
- Recursive
Competitive Equilibrium
- The relationship
between Pareto Optimal Allocations and Competitive Equilibria
(Welfare Theorems)
- The relationship
between Sequential Problems and Recursive Problems
- How (in
principle) to solve Recursive Problems (Contraction Mapping Theorem etc)
- How to describe
economies with aggregate risk, and when equilibria
can still be defined recursively
- What calibration
is, and how to do it
- Some basic numerical
solution methods for stochastic dynamic models, and how to apply them
using Gauss, Matlab or Fortran
- How to price
assets within versions of the stochastic growth model
- How to describe
economies with idiosyncratic risk and incomplete insurance markets
- The basic
economic intuition underlying equilibrium consumption, savings and labor
supply behavior
- How to describe
over-lapping-generations economies, and some of their basic properties

We
will almost exclusively focus on economies in which agents are infinitely-lived
and time is discrete. I won’t say much about economic growth or monetary and
fiscal policy (you discussed these topics to some extent with Prof. Diba) and I won’t say much about a range of potentially
important frictions, such price stickiness, limited information, or enforcement
constraints

**References:**

Recursive
Macroeconomic Theory, 2^{nd} Edition, Ljungqvist
and Sargent

Recursive
Methods in Economic Dynamics, Stokey and Lucas with

Frontiers
of Business Cycle Research, Cooley ed.

Macroeconomic
Theory, (notes), Dirk Krueger,

Hetoergeneity in Macroeconomics, (notes),

Various
articles, to be determined