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Real Macro Eco Book

Real Macro Eco Book

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Published by Arvind1108
a book for Commerce Students
a book for Commerce Students

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Published by: Arvind1108 on Feb 01, 2010
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Real Macroeconomic Theory
May, 2007
Per Krusell
Please do NOT distribute without permission!
Comments and suggestions are welcome.1
 
2
 
Contents
1 Introduction 72 Motivation: Solows growth model 9
2.1 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2.1 Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2.2 Business Cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.2.3 Other topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132.3 Where next? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Dynamic optimization 15
3.1 Sequential methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.1.1 A nite horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.1.2 Innite horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223.2 Dynamic programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293.3 The functional Euler equation . . . . . . . . . . . . . . . . . . . . . . . . 373.4 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4 Steady states and dynamics under optimal growth 41
4.1 Properties of the capital accumulation function . . . . . . . . . . . . . . 434.2 Global convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464.3 Dynamics: the speed of convergence . . . . . . . . . . . . . . . . . . . . . 474.3.1 Linearization for a general dynamic system . . . . . . . . . . . . . 494.3.2 Solving for the speed of convergence . . . . . . . . . . . . . . . . 504.3.3 Alternative solution to the speed of convergence . . . . . . . . . . 54
5 Competitive Equilibrium in Dynamic Models 57
5.1 Sequential competitive equilibrium . . . . . . . . . . . . . . . . . . . . . 585.1.1 An endowment economy with date-0 trade . . . . . . . . . . . . . 595.1.2 The same endowment economy with sequential trade . . . . . . . 615.1.3 The neoclassical growth model with date-0 trade . . . . . . . . . . 625.1.4 The neoclassical growth model with sequential trade . . . . . . . 645.2 Recursive competitive equilibrium . . . . . . . . . . . . . . . . . . . . . . 665.2.1 The neoclassical growth model . . . . . . . . . . . . . . . . . . . . 665.2.2 The endowment economy with one agent . . . . . . . . . . . . . . 695.2.3 An endowment economy with two agents . . . . . . . . . . . . . . 705.2.4 Neoclassical production again, with capital accumulation by firms 713

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