Macroeconomics 411-2

Macroeconomics 411-2 - Notes for Macroeconomics, ECO 411-2...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Notes for Macroeconomics, ECO 411-2 (Martin Eichenbaum, Winter 2009) Matthew Masten Northwestern University mattmasten@northwestern.edu 24-Jul-2009 v Contents Notes for Macroeconomics, ECO 411-2 (Martin Eichenbaum, Winter 2009) . . . . . . . . . . . . . . v Matthew Masten 1 Asset pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 The basic asset pricing equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Splitting up the basic asset-pricing formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Prices, payoffs, and notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 Intuition, implications, and classic issues in finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Risk corrections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.3 Risk corrections to expected returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.4 Idiosyncratic risk does not affect prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.5 The Beta pricing model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.6 The mean-variance frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.7 Slope of the mean-variance frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.8 The equity premium puzzle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2 Pure exchange with complete markets and uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5 Quick overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.1 Luck wont affect the equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6 The physical setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.1 The states and history of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.2 The agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7 The efficient allocations in this structure: the Pareto problem . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Solving the Pareto problem...
View Full Document

This note was uploaded on 05/19/2011 for the course EML 2005 taught by Professor Arakere during the Spring '05 term at University of Florida.

Page1 / 171

Macroeconomics 411-2 - Notes for Macroeconomics, ECO 411-2...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online