712 Econ - Models with Heterogeneous Agents
Fall 2010 Part 1 - Greg Kaplan
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General Information
Contact Details
Email: [e-mail]
Oce: 450 McNeil
Oce hours: Thursday 13:30-15:30, or by apppointment
Lecture times and location Monday 17:30-20:30, 309 McNeil
Course overview
Date
Sep 13
Sep 20
Sep 27
Oct 4
Oct 11
Oct 18
Oct 25
Nov 1
Nov 8
Nov 15
Nov 22
Nov 29
Dec 6
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Content
(GK) Lecture 1: Heterogneity Facts, Aggregation, Heterogenity with Complete Markets
(GK) Lecture 2: Consumptoin Insurance, Permanent Income Hypothesis
(GK) Lecture 3: Precautionary Savings, Neoclassical Growth Model with Incomplete Markets
(GK) Lecture 4: Incomplete Markets with Aggregate Shokcs
NO CLASS
(IM)
(GK, RB) Lecture 5: Firm Heterogeneity, Industry Equilibrium + PRESENTATIONS
PRESENTATIONS [REFEREE REPORTS 1 AND 2 DUE]
(IM)
(IM)
(IM)
(IM) half lectiure + PRESENTATIONS [REFEREE REPORTS 3 AND 4 DUE]
PRESENTATIONS [REFEREE REPORTS 3 AND 4 DUE]
Course Requirements
1. Attend classes and read papers before class. Each week there will be a small number
(2-3) of assigned readings. It is your responsibility to read these papers before class. At
the beginning of each class I will randomly choose one or two students to give a ve minute
presentation of one of the assigned readings.
2. Referee reports. Each week there will be a larger number (5-6) of additional readings.
Over the course of the semester you will submit four referee reports on papers chosen from
this set of papers. Two of these must be drawn from my half of the class, and two from
Iourris half. The two reports for the rst half of the class are due on November 1. The two
reports for the second half of the class are due on December 6
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3. Presentations. You will be required to give two 30 minute presentations of papers to the
class. One of these papers must be chosen from the rst half and one must be chosen from
the second half.
4. Problem Sets. Each week there will be a problem set. They will not be graded. It is your
responsibility to complete these. Some of the problems will ask you to complete material
that we did not have time to fully cover in class.
Useful Resources
The following are useful references that you are encouraged to look at and read over the course of
the semester.
1. Heathcote, Storesletten and Violante (2009), Quantitative Macroeconomics with Heterogeneous Households, Annual Review of Economics
2. Ljungvist and Sargent, Recursive Macroeconomic Theory, Chapters 16 and 17
3. Acemoglu, Introduction to Modern Economic Growth, Chapters 8, 16 and 17
4. Meghir and Pistaferri (2010), Earnings, Consumption and Lifecycle Choices
5. Krussel and Smith (2006), Quantitative Macroeconomic Models with Heterogeneous Agents,
in Blundell, R., Newey, W., and Persson, T. (eds). Advances in Economics and Econometrics:
Theory and Applications, Ninth World Congress, Econometric Society Monographs
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Syllabus
Lecture 1a: Facts on Heterogeneity
(Kaplan, 13 Sep 2010)
Required Reading
Heathcote, Perri and Violante (2010), Unequal We Stand: An Empirical Analysis of Economic
Inequality in the United States 1967-2006, Review of Economic Dynamics
Goldin and Katz (2007), Long Run Changes in teh Wage Structure: Narrowing, Widening, Polarizing, Brookings Papers on Economic Activity
Piketty and Saez (2003), Income Inequality in the United States, 1913-1998, Quarterly Journal of
Eocnomics [an updated version to 2008 is available on Saezs website]
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Lecture 1b: Heterogeneity with Complete Markets
(Kaplan, 13 Sep 2010)
Useful Readings
Chatterjee (1994), Transitional Dynamics and the Distribution of Wealth in a Neoclassical Growth
Model, Journal of Public Economics
Maliar and Maliar (2001), Heterogeneity in Capital and Skills in a Neoclassical Stochastic Growth
Model, Journal of Economic Dynamics and Control
Maliar and Maliar (2003), The Representative Consumer in the Neoclassical Growth Model with
Idiosyncratic Shocks, Review of Economic Dynamics
Optional Reading for Referee Reports and Presentations
Caselli and Ventura (2000), A Representative Consumer Theory of Distribution, American Economic Review
Lecture 2: Permanent Income Hypothesis and Partial Insurance
(Kaplan, 20 Sep 2010)
Required Reading
Mace (1991, Full Insurance in the Presence of Aggregate Uncertainty, Journal of Political Economy
Hall (1978), Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and
Evidence, Journal of Political Economy
Blundell and Preston (1998), Consumption Inequality and Income Uncertainty, Quarterly Journal
of Economics
Optional Reading for Referee Reports and Presentations
Attanasio and Davis (1996), Relative Wage Movements and the Distribution of Consumption,
Journal of Political Economy
Cochrane (1991), A Simple Test of Consumption Insurance, Journal of Political Economy
Schulhofer-Wohl (2008), Heterogeneous Risk Preferences and the Welfare Cost of Business Cycles,
Review of Economic Dynamics
Blundel, and Pistaferri Preston (2008), Consumption Inequality and Partial Insurance, American
Economic Review
Kaplan and Violante (2010), How Much Consumption Insurance Beyond Self-Insurance?, American
Economic Journals: Macroeconomics
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Hall and Mishkin (1982), The Sensitivity of Consumption to Transitory Income: Estimates from
Panel Data on Households, Econometrixa
Attanasio and Weber (1995), Is Consumption Growth Consistent with Intertemporal Optimization?
Evidence from the Consumer Expenditure Survey, Journal of Political Economy
Heathcote, Storesletten and Violante (2009), Consumption and Labor Supply with Partial Insurance: An Analytical Framework, Minneapolis Fed Working Paper
Other Useful Readings
Meghir and Pistaferri (2010), Earnings, Consumption and Lifecycle Choices (Section 2)
Ljungvist and Sargent, Recursive Macroeconomic Theory (Chapter 16)
Lecture 3: Precautionary Savings and the Neoclassical Growth Model with
Incomplete Markets
(Kaplan, 27 September 2010)
Required Reading
Huggett (1993), The Risk-Free Rate in Heterogeneous-Agent Incomplete-Insurance Economies,
Journal of Economic Dynamics and Control
Aiyagari (1994), Uninsured Idiosyncratic Risk and Savings, Quarterly Journal of Economics
Davilla, Hong, Krussel and Rios-Rull (2007), Constrained Eciency in the Neoclassical Growth
Model with Uninsurable Idiosyncratic Shocks, PIER Working paper
Optional Reading for Referee Reports and Presentations
Chamberlain and Wilson (2000), Optimal Intertemporal Consumption Under Uncertainty, Review
of Economic Dynamics
Huggett and Ospina (2001), On Aggregate Precautionary Saving: When is the Third Derivative
Irrelevant?, Journal of Monetary Economics
Gourinchas and Parker (2002), Consumption Over the Life Cycle, Econometrica
Aiyagari and McGratten (1998), The Optimum Quantity of Debt, Journal of Monetary Economics
Castaneda, Diaz-Gimenez and Rios-Rull (2003), Accounting fo the US Earnings and Wealth Inequality, Journal of Political Economy
Quadrini (2000), Entrepreneurhsip, Saving and Social Mobility, Review of Economic Dynamics
Kitao (2004), Entrepreneurship, Taxation and Capital Investment, Review of Economic Dynamics
Other Useful Readings
Ljungvist and Sargent, Recursive Macroeconomic Theory (Chapter 16)
Acemoglu, Introduction to Modern Economic Growth, (Chapters 16 and 17)
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Lecture 4: Incomplete Markets with Aggregate Shocks
(Kaplan, 4 October, 2010)
Required Reading
Krussel and Smith (1998), Income and Wealth Heterogeneity in the Macroeconomy, Journal of
Political Economy
Krussel, Mukoyama, Sahin and Smith (2009), Revisiting the Welfare Eects of Eliminating Business
Cycles, Review of Economic Dynamics
Optional Reading for Referee Reports and Presentations
Miao (2006), Competitive Equilibria of Economies with a Continuum of Consumers and Aggregate
Shocks, Journal of Economic Theory
Levine and Zame (2002), Does Market Incompleteness Matter?, Econometrica
Heathcote (2005), Fiscal Policy with Heterogeneous Agents and Incomplete Markets, Review of
Economic Studies
Krussel, Mukoyama and Sahin (2009), Labor-Market Matching with Precuationary Savings and
Aggregate Fluctuations, Working Paper?
Chang and Kim (2006), From Individual to Aggregate Labor Supply: A Quantitative Analysis
Baed on a Heterogeneous Agent Macroeconomy, International Economic Review
Storesletten, Telmer and Yaron (2007), Asset Pricing with Idiosyncratic Risk and Overlapping
Generations, Review of Economic Dynamics
Other Useful Readings
Krussel and Smith (2006), Quantitative Macroeconomic Models with Heterogeneous Agents, in:
Advances in Economics and Econometrics: Theory and Applicaions, Ninth World Congress, 2006
Journal of Economic Dynamics and Control, Volume 34, Issue 1: Special issue on Computational
Suite of Models with Heterogeneous Agents: Incomplete Markets and Aggregate Uncertainty
Barlevy (2005), The Cost of Business Cycles and the Benets of Stabilization, Economic Perspectives
Lecture 5: Firm Heterogeneity and Industry Equilibrium
(Bachman/Kaplan, 25 October, 2010)
Required Reading
Hopenhayn and Rogerson (1993), Job Turnover and Policy Evaluation: A General Equilibrium
Analysis
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Kahn and Thomas (2008), Idiosyncratic Shocks and the Role of Nonconvexities in Plant and
Aggregate Investment Dynamics, Econometrica
Optional Reading for Referee Reports and Presentations
Bloom (2009), The Impact of Uncertainty Shocks, Econometrica
Jovanovic (1982), Selection and Evolution of Industry, Econometrica
Bachman and Bayer (2009), Firm-specic Productivity Risk over the Business Cycle: Facts and
Aggregate Implications, Working Paper
Davis and Haltiwanger (1992), Gross Job Creation, Gross Job Destruction and Employment Reallocation, Quarterly Journal of Economics
Caballero and Engel (1999), Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach, Econometrica
Clementi and Palazzo (2010), Entry, Exit, Firm Dynamics and Aggregate Fluctuations, Working
Paper
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