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Description :
Summary
A concise but rigorous and thorough introduction to modern macroeconomic theory.
This book offers an introduction to modern macroeconomic theory. It is concise but rigorous and broad, covering all major areas in mainstream macroeconomics today and showing how macroeconomic models build on and relate to each other. The self-contained text begins with models of individual decision makers, proceeds to models of general equilibrium without and with friction, and, finally, presents positive and normative theories of economic policy.
After a review of the microeconomic foundations of macroeconomics, the book analyzes the household optimization problem, the representative household model, and the overlapping generations model. It examines risk and the implications for household choices and macroeconomic outcomes; equilibrium asset returns, prices, and bubbles; labor supply, growth, and business cycles; and open economy issues. It introduces frictions and analyzes their consequences in the labor market, financial markets, and for investment; studies money as a unit of account, store of value, and medium of exchange; and analyzes price setting in general equilibrium. Turning to government and economic policy, the book covers taxation, debt, social security, and monetary policy; optimal fiscal and monetary policies; and sequential policy choice, with applications in capital income taxation, sovereign debt and default, politically motivated redistribution, and monetary policy biases. Macroeconomic Analysis can be used by first-year graduate students in economics and students in master's programs, and as a supplemental text for advanced courses.
Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern.
Content :
List of Figures xv
List of Tables xvii
Preface xix
1. Microeconomic Foundations 1
1.1 Microeconomics
1.1.1 Allocation, Feasibility, Optimality
1.1.2 Competitive Equilibrium
1.1.3 Walras’s Law
1.1.4 Fundamental Theorems of Welfare Economics
1.2 Primitives
1.2.1 Event Tree
1.2.2 Preferences
1.2.3 Technology
1.3 Bibliographic Notes
2. Consumption and Saving 11
2.1 Consumption Smoothing
2.1.1 Two Periods
2.1.2 More Periods
2.1.3 Infinite Horizon
2.2 Extensions
2.2.1 Borrowing Constraint
2.2.2 Nongeometric Discounting and Time Consistency
2.2.3 Multiple Goods
2.3 Bibliographic Notes
3. Dynamic Competitive Equilibrium 25
3.1 Representative Agent and Capital Accumulation
3.1.1 Economy
3.1.2 Firms
3.1.3 Households
3.1.4 Market Clearing
3.1.5 General Equilibrium
3.1.6 Social Planner Allocation and Pareto Optimality
3.1.7 Analysis
3.1.8 Population Growth
3.2 Overlapping Generations and Capital Accumulation
3.2.1 Economy
3.2.2 Firms
3.2.3 Households
3.2.4 Market Clearing
3.2.5 General Equilibrium
3.2.6 Analysis
3.2.7 Pareto Optimality
3.2.8 Population Growth
3.3 Bibliographic Notes
4. Risk 39
4.1 Consumption, Saving, and Insurance
4.1.1 Incomplete Markets
4.1.2 Complete Markets
4.1.3 General Case
4.2 Risk Sharing
4.2.1 Borch’s Rule
4.2.2 Aggregate and Idiosyncratic Risk
4.3 Uninsurable Labor Income Risk and Capital Accumulation
4.3.1 Economy
4.3.2 Households
4.3.3 General Equilibrium
4.4 Bibliographic Notes
5. Asset Returns and Asset Prices 55
5.1 Euler Equation
5.2 Excess Returns
5.2.1 C-CAPM
5.2.2 CAPM
5.3 Asset Prices
5.3.1 Fundamental Value
5.3.2 Bubble
5.4 Term Structure of Interest Rates
5.5 Equilibrium Asset Prices in an Endowment Economy
5.5.1 Economy
5.5.2 General Equilibrium
5.6 Bibliographic Notes
6. Labor Supply, Growth, and Business Cycles 65
6.1 Goods versus Leisure Consumption
6.1.1 One Period
6.1.2 More Periods
6.1.3 Wage Inequality and Risk Sharing
6.2 Growth
6.2.1 Exogenous Growth
6.2.2 Endogenous Growth
6.3 Business Cycles
6.3.1 Real Business Cycles
6.3.2 Sunspot-Driven Business Cycles
6.4 Bibliographic Notes
7. The Open Economy 89
7.1 Current Account and Net Foreign Assets
7.2 Real Exchange Rate
7.3 Gains From Trade
7.4 International Risk Sharing
7.5 Bibliographic Notes
8. Frictions 97
8.1 Capital Adjustment Frictions
8.1.1 Convex Adjustment Costs and Tobin’s q
8.1.2 Nonconvex Adjustment Costs
8.1.3 Irreversibility and the Option Value of Waiting
8.2 Labor Market Frictions
8.2.1 Economy
8.2.2 Firms
8.2.3 Households
8.2.4 Market Clearing and Wage Determination
8.2.5 Equilibrium
8.2.6 Constrained Pareto Optimality
8.2.7 The Case without Capital
8.2.8 A Model without Capital and Leisure
8.3 Financial Frictions
8.3.1 Net Worth and External Finance Premium
8.3.2 Collateral and Asset Prices
8.3.3 Pecuniary Externalities and Constrained Inefficiency
8.4 Bibliographic Notes
9. Money 129
9.1 Unit of Account
9.1.1 Fisher Equation
9.1.2 Interest Parity and Nominal Exchange Rate
9.2 Store of Value
9.2.1 Overlapping Generations
9.2.2 Borrowing Constrained, Infinitely Lived Households
9.3 Medium of Exchange
9.3.1 Matching Frictions
9.3.2 Money in the Utility Function
9.3.3 Cash-in-Advance Constraint
9.4 The Price of Money
9.5 Bibliographic Notes
10. Price Setting and Price Rigidity 147
10.1 Price Setting
10.2 Staggered Price Setting
10.3 Price Rigidity in General Equilibrium
10.3.1 Firms
10.3.2 Households
10.3.3 Market Clearing
10.3.4 General Equilibrium
10.3.5 Analysis
10.4 Bibliographic Notes
11 The Government 161
11.1 Taxation and Government Consumption
11.2 Government Debt and Social Security
11.2.1 Government Debt with a Representative Agent
11.2.2 Government Debt with Overlapping Generations
11.2.3 Pay-as-You-Go Social Security
11.3 Equivalence of Policies
11.3.1 General Equivalence Result
11.3.2 Applications
11.4 Fiscal-Monetary Policy Interaction
11.4.1 Consolidated Government Budget Constraint
11.4.2 Seignorage Needs as Driver of Inflation
11.4.3 Inflation Effects of Government Financing
11.4.4 Game of Chicken
11.4.5 Fiscal Theory of the Price Level
11.4.6 Stability under Policy Rules
11.5 Determinate Inflation and Output
11.5.1 Flexible Prices
11.5.2 Rigid Prices
11.6 Real Effects of Monetary Policy
11.6.1 Flexible Prices
11.6.2 Rigid Prices
11.7 Bibliographic Notes
12. Optimal Policy 191
12.1 Tax Smoothing
12.1.1 Complete Markets
12.1.2 Incomplete Markets
12.1.3 Capital Income Taxation
12.1.4 Heterogeneous Households
12.2 Social Insurance and Saving Taxation
12.3 Monetary Policy
12.3.1 Friedman Rule
12.3.2 Dealing with Price Rigidity
12.4 Bibliographic Notes
13. Time Consistent Policy 215
13.1 Time Consistency and the Role of State Variables
13.2 Credible Tax Policy
13.3 Capital Income Taxation
13.3.1 Commitment Benchmark
13.3.2 No Commitment
13.4 Sovereign Debt and Default
13.4.1 Insurance
13.4.2 Borrowing with Contingent Debt
13.4.3 Borrowing with Noncontingent Debt
13.4.4 Loan Size Determinants
13.4.5 Debt Laffer Curve and Debt Overhang
13.4.6 Multiple Equilibria
13.4.7 Financial Autarky as Deterrent
13.5 Redistribution in Politico-Economic Equilibrium
13.5.1 Probabilistic Voting
13.5.2 Politico-Economic Equilibrium
13.5.3 Support for Redistribution
13.6 Monetary Policy
13.6.1 Stabilization Bias
13.6.2 Inflation Bias
13.7 Bibliographic Notes
A. Mathematical Tools 241
A.1 Constrained Optimization
A.2 Infinite-Horizon Dynamic Programming
A.2.1 Principle of Optimality
A.2.2 Uniqueness of V
A.2.3 Properties of V
A.3 Systems of Linear Difference Equations
A.4 Bibliographic Notes
B. Technical Discussions 245
B.1 Transversality Condition in InfiniteHorizon Saving Problem
B.2 Representative Household
B.3 Transversality Condition in InfiniteHorizon Planner Problem
B.4 Nonexpected Utility
B.5 Linear Rational Expectations Models
B.5.1 Single Equation Model
B.5.2 Multiple Equation Model
B.6 Ramsey Taxation
B.6.1 Primal Approach
B.6.2 Dual Approach
B.7 Probabilistic Voting
B.8 Bibliographic Notes
Bibliography 261
Author Index 283
Subject Index 289
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