Models for Dynamic Macroeconomics

Models for Dynamic Macroeconomics

Models for Dynamic Macroeconomics

Models for Dynamic Macroeconomics

Synopsis

Dynamic Approaches to Macroeconomics provides the advanced student with key methodological tools for the dynamic analysis of a core selection of macroeconomic phenomena, including consumption and investment choices, employment and unemployment outcomes, and economic growth. The technical treatment of these tools will enable the student to handle current journal literature, while not assuming any particular familiarity with advanced analytical tools or mathematical notions. As these tools are introduced, they are related to particular applications to illustrate theiruse. Chapters are linked by various formal and substantive threads. Discrete-time optimization under uncertainty, introduced in Chapter 1, is motivated and discussed by applications to consumption theory, with particular attention to empirical implementation. Chapter 2 focuses on continuous-timeoptimization techniques, and discusses the relevant insights in the context of partial-equilibrium investment models. Chapter 3 revisits many of the previous chapters' formal derivations with applications to dynamic labour demand, in comparison to optimal investment models, and characterizes labormarket equilibrium when not only individual firms' labor demand, but also individual labor supply by workers, is subject to adjustment costs. Chapter 4 proposes broader applications of methods introduced in the previous chapters and studies continuous-time equilibrium dynamics of representativeagent economies, featuring both consumption and investment choices, with applications to long-run growth frameworks of analysis. Chapter 5 illustrates the role of decentralized trading in determining aggregate equilibria, and characterizes aggregate labor market dynamics in the presence offrictional unemployment. Chapters 4 and 5 pay particular attention to strategic interactions and externalities: even when each agent correctly solves his or her individual dynamic problem, modern microfounded macroeconomic models recognize that macroeconomic equilibrium need not have unambiguouslydesirable properties. By bridging the gap between undergraduate economics and modern microfounded macroeconomic research, this book will be of interest to graduate students in economics, and as a technical reference for economic researchers.

Excerpt

This book introduces methodological tools for dynamic analysis of macroeconomic phenomena: consumption and investment choices, employment and unemployment outcomes, and economic growth. It is not meant to cover the latest techniques, nor can it offer a definitive survey of the wide-ranging, complex, and evolving issues it deals with. It simply intends to bridge the gap between good undergraduate training and modern micro-founded macroeconomic research, and to allow readers to approach current scientific research.

The treatment is technical, but it is motivated as a natural sequel to the intuitive arguments of standard undergraduate textbooks, and does not require analytical tools beyond those covered by an introductory undergraduate mathematics course. the reader is not assumed to be familiar with advanced mathematical notions; integrals and random variables are introduced in the context of economic arguments. Formal derivations are immediately applied to practical issues, paying particular attention to development of economic intuition, and they stop short of addressing especially deep and subtle aspects.

The material is suitable for advanced undergraduate and basic graduate macroeconomics courses of about sixty lecture hours. When complemented by recent journal articles, the individual chapters—which differ slightly in the relative emphasis given to analytical techniques and empirical perspective—can also be used in specialized topics courses. the last section of each chapter often sketches more advanced material and may be omitted without breaking the book's train of thought, while the chapters' appendices introduce technical tools and are essential for typical readers. Some exercises are found within the chapters and propose extensions of the model discussed in the text. Other exercises are found at the ends of chapters and should be used to review the material. Many technical terms are collected in the index, which can be used to track down definitions and sample applications of possibly unfamiliar concepts.

The chapters are linked by various formal and substantive threads. Discrete-time optimization under uncertainty, introduced in Chapter 1 , is motivated and discussed by applications to consumption theory, with particular

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