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Unformatted text preview: Lecture notes for Macroeconomics I, 2004 Per Krusell Please do NOT distribute without permission! Comments and suggestions are welcome. 1 2 Chapter 1 Introduction These lecture notes cover a onesemester course. The overriding goal of the course is to begin provide methodological tools for advanced research in macroeconomics. The emphasis is on theory, although data guides the theoretical explorations. We build en tirely on models with microfoundations, i.e., models where behavior is derived from basic assumptions on consumers’ preferences, production technologies, information, and so on. Behavior is always assumed to be rational: given the restrictions imposed by the primi tives, all actors in the economic models are assumed to maximize their objectives. Macroeconomic studies emphasize decisions with a time dimension, such as various forms of investments. Moreover, it is often useful to assume that the time horizon is infinite. This makes dynamic optimization a necessary part of the tools we need to cover, and the first significant fraction of the course goes through, in turn, sequential maximization and dynamic programming. We assume throughout that time is discrete, since it leads to simpler and more intuitive mathematics. The baseline macroeconomic model we use is based on the assumption of perfect com petition. Current research often departs from this assumption in various ways, but it is important to understand the baseline in order to fully understand the extensions. There fore, we also spend significant time on the concepts of dynamic competitive equilibrium, both expressed in the sequence form and recursively (using dynamic programming). In this context, the welfare properties of our dynamic equilibria are studied. Infinitehorizon models can employ different assumptions about the time horizon of each economic actor. We study two extreme cases: (i) all consumers (really, dynasties) live forever  the infinitelylived agent model  and (ii) consumers have finite and deterministic lifetimes but there are consumers of different generations living at any point in time  the overlappinggenerations model. These two cases share many features but also have important differences. Most of the course material is built on infinitelylived agents, but we also study the overlappinggenerations model in some depth. Finally, many macroeconomic issues involve uncertainty. Therefore, we spend some time on how to introduce it into our models, both mathematically and in terms of eco nomic concepts. The second part of the course notes goes over some important macroeconomic topics. These involve growth and business cycle analysis, asset pricing, fiscal policy, monetary economics, unemployment, and inequality. Here, few new tools are introduced; we instead simply apply the tools from the first part of the course....
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This note was uploaded on 04/20/2008 for the course ECON 800 taught by Professor Krueger during the Spring '02 term at Stanford.
 Spring '02
 Krueger
 Macroeconomics, The Land

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