| LEC # | TOPICS | READINGS |
|---|---|---|
| 1 | Intertemporal Preferences and Welfare Costs of Uncertainty | Backus, David, Bryan Routledge, and Stanley Zin. "Exotic Preferences for Macroeconomists." NBER Working Paper No. 10597, June 2004. Essential Deaton. Chapter 1.
Further Readings Epstein, Larry G., and Stanley E. Zin. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework." Econometrica 57, no. 4 (1989): 937-969. Lucas, Robert E., Jr. "Macroeconomic Priorities." A. E. A. Presidential Address in American Economic Review 93, no. 1 (2003). Weil, Philippe. "Non-expected Utility in Macroeconomics." Quarterly Journal of Economics 105, no. 1 (1990): 29-42. |
| 2-4 | Complete Markets and Pareto Optima |
Essential LS. Chapter 8. Townsend, Robert M. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies." Journal of Economic Perspectives 9, no. 3 (1995): 83-102. |
| 5-6 | Asset Pricing: Arbitrage and CCAPM | Essential LS. Chapters 8 and 13. Kocherlakota, Narayana R. "The Equity Premium Puzzle: It's Still a Puzzle." Journal of Economic Literature 34, no. 1 (1996): 42-71. Cochrane, John H., and Lars Peter Hansen. "Asset Pricing Explorations for Macroeconomics." NBER Macroeconomics Annual. Cambridge, MA: MIT Press, 1992, pp. 115-169. (NBER Working Paper No. 4088.) Further Readings Cochrane, John. "Where is the Market Going? Uncertain Facts and Novel Theories." Economic Perspectives XXI: 6 (1997). (NBER Working Paper No. 6207.) Alvarez, Fernando, and Urban Jermann. "Using Asset Returns to Estimate the Costs of Business Cycle Fluctuations." Journal of Political Economy 112, no. 6 (2004): 1223-1256. Barro, Robert J. "On the Welfare Costs of Consumption Uncertainty." NBER Working Paper No. 12763, December 2006. ———. "Rare Disasters and Asset Markets in the Twentieth Century." Quarterly Journal of Economics 121 (2006): 823-866. Mehra, Rajnish, and Edward C. Prescott. "The Equity Premium: A Puzzle." Journal of Monetary Economics 15, no. 2 (1985): 145-161. |
| 7-9 | Precautionary Savings / Income Fluctuations Problem | LS. Chapters 16 and 17. Krusell, Per, and Anthony A. Smith Jr. "Income and Wealth Heterogeneity in the Macroeconomy." Journal of Political Economy 106, no. 5 (1998): 867-896. Essential Deaton. Chapters 6 and 7. Aiyagari, S. Rao. "Uninsured Idiosyncratic Risk and Aggregate Savings." Quarterly Journal of Economics 109, no. 3 (1994): 659-84. (See appendix in working paper version.) Further Readings Caballero, Ricardo J. "Earnings Uncertainty and Aggregate Wealth Accumulation." American Economic Review 81, no. 4 (1991): 859-871. Castañeda, Ana, Javier Díaz-Giménez, and José-Victor Ríos-Rull. "Accounting for the U.S. Earnings and Wealth Inequality." Journal of Political Economy 111, no. 4 (2004): 818-857. Deaton, Angus, and Christina Paxson. "Intertemporal Choice and Inequality." Journal of Political Economy 102, no. 3 (1994): 437-467. Heathcote, Jonathan, Kjetil Storesletten, and Giovanni Violante. "The Macroeconomic Implications of Rising Wage Inequality in the U.S." CEPR Working Paper No. 4296, August 2004.
Krusell, Per, and Anthony A. Smith, Jr. "On the Welfare Effects of Eliminating Business Cycles." Review of Economic Dynamics 2, no. 1 (1999): 245-272. Laibson, David. "Golden Eggs and Hyperbolic Discounting." Quarterly Journal of Economics 112, no. 2 (1997): 443-477. Schechtman, Jack, and Vera L. Escudero. "Some Results on an Income Fluctuation Problem." Journal of Economic Theory 16, no. 2 (1997): 151-166. Weil, Philippe. "Precautionary Savings and the Permanent Income Hypothesis." Review of Economic Studies 60, no. 2 (1993): 367-383. Zeldes, Stephen P. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence." Quarterly Journal of Economics 104, no. 2 (1989): 275-298. |
| 10 | Empirical Evidence, Tests and Quantitative Models | BF. Section 6.2. Deaton. Chapters 2-5. Essential
Further Readings
Blundell, Richard, Luigi Pistaferri, and Ian Preston. "Consumption Inequality and partial insurance." IFS Working Papers W04/28, Institute for Fiscal Studies, 2004.
Guvenen, Fatih. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?" American Economic Review. (Forthcoming) Huggett, Mark, Gustavo Ventura, and Amir Yaron. "Sources of Lifetime Inequality." Mimeo, 2006. Gourinchas, Pierre-Olivier, and Jonathan Parker. "Consumption over the Life Cycle." Econometrica 70, no. 1 (2002): 47-89. Heathcote, Jonathan, Kjetil Storesletten, and Giovanni L. Violante. "Two Views of Inequality Over the Life-Cycle." Journal of the European Economic Association 3, nos. 2-3 (2005): 765-775. Storesletten, Kjetil, Chris Telmer, and Amir Yaron. "Consumption and Risk Sharing over the Life Cycle." Journal of Monetary Economics 51, no. 3 (2004): 609-663. Hall, Robert. "Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence." Journal of Political Economy 86, no. 6 (1978): 971-987. |
| 11 | Empirical Evidence, Tests and Quantitative Models (cont.) Imperfect Insurance with Frictions | Kocherlakota, Narayana R. "Implications of Efficient Risk Sharing without Commitment." Review of Economic Studies 63, no. 4 (1996): 595-609.
———. "Risk and Insurance in Village India." Econometrica 62, no. 3 (1994): 539-591. Essential LS. Chapters 19, 20, and 21. Lucas, Robert E., Jr. "On Efficiency and Distribution." Economic Journal 102, no. 411 (1992): 233-247. Further Readings Alvarez, Fernando, and Urban J. Jermann. "Quantitative Asset Pricing Implications of Endogenous Solvency Constraints." Review of Financial Studies 14, no. 4 (2001). Especially sections 2, 4, and 5.1. Atkeson, Andrew, and Robert E. Lucas, Jr. "On Efficient Distribution with Private Information." Review of Economic Studies 59, no. 3 (1992): 427-453. |
| 12 | Imperfect Insurance with Frictions (cont.) | |
| 13 | Investment with Convex Adjustment Costs / Q-Theory |
Essential BF. Section 6.3. Hayashi, Fumio. "Tobin's Marginal q and Average q: A Neoclassical Interpretation." Econometrica 50, no. 1 (1982): 213-224. |
| 14 | Irreversibility, Fixed-Costs and (S, s) Rules |
Essential Bentolila, Samuel, and Giuseppe Bertola. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?" Review of Economic Studies 57, no. 3 (1990): 381-402.
Hopenhayn, Hugo, and Richard Rogerson. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis." Journal of Political Economy 101, no. 5 (1993): 915-938. Further Readings Abel, Andrew B., and Janice C. Eberly. "Optimal Investment with Costly Reversibility." Review of Economic Studies 63, no. 4 (1996): 581-593. Bachmann, Ruediger, Ricardo J. Caballero, and Eduardo M. R. A. Engel. "Lumpy Investment in Dynamic General Equilibrium." NBER Working Paper No. 12336, 2006. Caballero, Ricardo J., and Eduardo M. R. A. Engle. "Explaining Investment Dynamics In U.S. Manufacturing: A Generalized (S,s) Approach." Econometrica 67, no. 4 (1999): 783-826. Caballero, Ricardo J., and John V. Leahy. "Fixed Costs: The Demise of Marginal q." NBER Working Paper No. 5508, 1996. Thomas, Julia K. "Is Lumpy Investment Relevant for the Business Cycle?" Journal of Political Economy 110, no. 3 (2002): 508-534. Veracierto, Marcelo L. "Plant-Level Irreversible Investment and Equilibrium Business Cycles." American Economic Review 92, no. 1 (2002): 181-197. |
Table of Contents
Study Materials
Readings
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While there is no required textbook, the course does make frequent use of the following books:
BF = Blanchard, Olivier J., and Stanley Fisher. Lectures on Macroeconomics. Cambridge, MA: MIT Press, 1989, ISBN: 0262022834.
Deaton = Deaton, Angus. Understanding Consumption. New York, NY: Oxford University Press, 1992, ISBN: 0198288247.
LS = Ljungqvist, Lars, and Thomas J. Sargent. Recursive Macroeconomic Theory. 2nd ed. Cambridge, MA: MIT Press, 2004, ISBN: 026212274X.
Readings by Session