ECOS3021
1
Tutorial 3 (Answer)
(9th September)
Tutorial problems
1. Consider the following ad that appeared in the Wall Street Journal provided data on Franklin
Income Fund and some other popular portfolios. The returns over the past 15 years were
After c
ECOS3021
1
Lecture 7
Asset Prices, Consumption
and the Business Cycle: Part II
In sum, the program of understanding the real, macroeconomic
risks that drive asset prices (or the proof that they do not do so
at all) is not some weird branch of finance; it
ECOS3021
1
Tutorial 1 (August 12)
1. Refer to the following table (taken from Kim et al. (1994) Key features of New Zealand
business cycles, Economic Record).
Note that the numbers in parentheses are standard errors of the estimates.
Which variables are p
ECOS3021
1
Tutorial 2
(26th August)
1. Consider the following empirical model for testing the effects of money and government
spending on real output.
yt = + 0 mt + 1mt 1 + 2 mt 2 + 0 gt + 1gt 1 + 2 gt 2 + et
where y is the change in log of real GDP, m is
ECOS3021
Lecture 6
Asset Prices, Consumption & the Business
Cycle: Part I
Aim:
Provide a theory of macro asset pricing that relates asset
returns to the business cycle and examine empirical issues
Consider a simple setup:
(a) Payoff xt+1 tomorrow.
(b) xt
ECOS3021, 2013
Lecture 2
Theories of the Business Cycle
(1) Equilibrium Business Cycle
Provides foundation for the Real Business Cycle
hypothesis, due to Kydland and Prescott (1982).
Key features:
Optimizing, rational agents, who make
intertemporal decis
ECOS3021, 2013
1
Lecture 4
Theories of the Business Cycle
(3) Political Business Cycle, Expectations and New
Keynesian Models
Political Business Cycles
Can rational and maximizing policy-makers (governments)
be responsible for macroeconomic fluctuations?
ECOS3021
1
Lecture 8
Credit Market Imperfections
&
the Business Cycle
Aim:
Understand the role of credit and financial intermediation
in understanding business cycles by study theoretical
models relating the credit market to the business cycle
Understan
Lecture 10
Global Financial Crisis and International
Business Cycle
What explains international (cross-country) business
cycles?
Conventional hypotheses include:
- Trade linkages?
- Geographical proximity or gravity theory? (e.g. Aus
and NZ, US and Canada
Lecture 11
Empirical Evidence, Analysis and Prediction1
Aim:
Understand how leading financial indicators can be
used to help predict economic activity
Understand the theory and methods behind
1. Yield Spread
Bonds of different maturities (for a given de
Assessment
More details to be on Blackboard.
1
TextandKeyReferences
No single textbook but many references. No need to
purchase any. Fisher Closed Reserve.
Key references
See
2
Course Contents
In this Course,
We will study
Various models of the business c
ECOS3021
1
Lecture 9
Housing & Business Cycle
Aim:
Understand the theoretical and empirical relations between
housing market and business cycles.
Understand the housing cycle property that can help
formulate government policy.
Why housing is important?
ECOS3021
1
Lecture 5
Introduction to Asset Prices Concepts,
Measurements, Issues and Historical Developments
Definitions and Conventions
The simple net return Rt, on the asset between dates t 1 and t is
Pt
1
Rt =
Pt 1
The simple gross return is
1 + Rt
The
ECOS302I, 2013
9 O< 0L <1, 7 < O.- %
W i} ) :
i: Vith iv; s it E é
Natural rate: 05) _ )3 f
expectations
é
,7 i
i3 :n J?
6
7:1_1+/l(7z:1§i;1)
,O<§t<li '
Av
Implications Fi w»
j 0 Every gdvernment follows the same policy
ECOS3021, 2013
Lecture 3
Theories of the Business Cycle
(2) Keynesian and Monetary Business Cycles
1) Keynesian and Monetary Models
IS/LM or AD/AS models
Explicit focus was not the business cycle but on
ensuring that aggregate demand was sufficient to kee
Tutorial 6 (answer)
Tutorial problems
1. Consider the model of the determinants of house prices in Australia, studied by Otto (2007).
(a) Why is the following equation an equilibrium relation between purchasing and renting a
house?
This is an equilibrium
ECOS3021
1
Tutorial 2
(26th August)
1. Consider the following empirical model for testing the effects of money and government
spending on real output.
yt = + 0 mt + 1mt 1 + 2 mt 2 + 0 gt + 1gt 1 + 2 gt 2 + et
where y is the change in log of real GDP, m is
ECOS3021
1
Tutorial 5
(14th Oct)
1. Suppose that the long-run estimated relation among consumption, income and wealth is
given by the equation:
(a) Describe and interpret this relation and what the estimated variable cayt implies.
If the consumption funct
ECOS3021
1
Tutorial 4 (Sep 23)
Tutorial exercise problems
1. Consider the following utility function, where X is external habit stock.
U=
(Ct + j X t + j )1 1
1
(a) Determine the coefficient of relative risk aversion (RRA).
(b) Show that the stochastic d
ECOS3021
1
Tutorial 6
Tutorial problems
1. Consider the model of the determinants of house prices in Australia, studied by Otto
(2007).
(a) Why is the following equation an equilibrium relation between purchasing and
renting a house?
(b) How do you interp
ECOS3021
1
Tutorial 4 (Sep 23)
Answer
Tutorial exercise problems
1. Consider the following utility function, where X is external habit stock.
U=
(Ct + j X t + j )1 1
1
(a) Determine the coefficient of relative risk aversion.
Let the surplus consumption r
ECOS3021
1
Tutorial 5
(14th Oct)
1. Suppose that the long-run estimated relation among consumption, income and wealth is
given by the equation:
(a) Describe and interpret this relation and what the estimated variable cayt implies.
Suppose that the estimat
ECOS3021
1
Tutorial 3
(9 September)
th
Tutorial problems
1. Consider the following ad that appeared in the Wall Street Journal provided data on Franklin
Income Fund and some other popular portfolios. The returns over the past 15 years were
After convertin
ECOS3021
1
Tutorial 1 (August 12)
1. Refer to the following table (taken from Kim et al. (1994) Key features of New Zealand
business cycles, Economic Record).
Note that the numbers in parentheses are standard errors of the estimates.
Which variables are p