Lecture%2011%20-%20Intertemporal%20Consumption%20and%20Capital%20Markets

Lecture%2011%20-%20Intertemporal%20Consumption%20and%20Capital%20Markets

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1 Fin 501 Financial Economics Session 11: Intertemporal Choice and  Capital Markets Professor Nolan Miller
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2 Announcements Problem Set #4 is due Thursday, October 7, 2010. NM Office hours this week, Wednesday 2 – 4 pm. Final exam still hasn’t been scheduled.  Hopefully by the end of the  month.
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3 The next group of lectures First, brief discussion of “general equilibrium:” situation where there is  more than one market. Focus on applying what we’ve done in contexts relevant to finance. First, we look at intertemporal models. Second, we look at uncertainty.
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4 Intertemporal models: Readings The following readings may be helpful references for material from the  next two lectures: Microeconomic Theory, Chapter 17. Intermediate Microeconomics, Chapter 16. Another excellent source for this material is: Silberberg, E. and W. Suen  The Structure of Economics: A Mathematical  Analysis, 3e.  McGraw-Hill,  2001.  Chapter 12.  Older editions are also fine. I sent out an email earlier this month and again yesterday with instructions  on how to purchase an e-book version of two chapters of this book.
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5 Multiple Markets & General Equilibrium Up until now, we have focused on a single market at a time. But economy is made up of many markets “General Equilibrium” considers all markets together – and how change  in one market effects changes in other markets Change in price of oil influences prices in many markets due to  transportation of goods But, many insights of the single-market, “partial equilibrium” approach  continue to apply in GE model. GE is particularly important in finance. Equilibrium models of asset pricing are GE models. The goal of the next few minutes is to give you a sense of GE.
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6 GE: The very big picture Suppose that there are many goods in the economy. In the beginning, consumers own some of the goods. Firms have production techniques that turn some goods into others. If a firm wants to use a particular good as an input, it must buy it from the consumer. If a consumer wants to consume a good, it must buy it from a firm. Each good has a single price. If the good is an input, this is the price at which consumers sell it to firms. If the good is an output, this is the price at which firms sell to consumers. Or both … Let p = (p 1 ,…,p N ) denote the vector of prices of these goods.
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7 GE: The very big picture Let “i” be an index of the goods, “j” index the firms, and “k” index the  consumers.
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This note was uploaded on 01/18/2011 for the course FIN fin580 taught by Professor Miller during the Spring '10 term at University of Illinois, Urbana Champaign.

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Lecture%2011%20-%20Intertemporal%20Consumption%20and%20Capital%20Markets

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