Macroeconomic Theory

by Sargent, Thomas J.

• ISBN13: 9780126197518
• ISBN10: 0126197512
• Edition: 2nd
• Format: Hardcover
• Copyright: 1987-12-01
• Publisher: Emerald Group Pub Ltd

Summary

Macroeconomic Theory, in its first edition, was widely adopted for use as a graduate text; this updated and expanded version should find even greater popularity as a text and as a research reference. It has been substantially revised to include three entirely new chapters: The Consumption Function, Government Debt and Taxes, and Dynamic Optimal Taxation. Significant additions have been made to three of the original chapters dealing with difference equations, stochastic difference equations, and investment under uncertainty.

Table of Contents

Preface to the Second Edition	xiii
Preface to the First Edition	xv
Introduction to the Second Edition	xvii
PART I NONSTOCHASTIC MACROECONOMICS
Introduction	1	(6)
The ``Classical'' Model	7	(43)
Firms	7	(4)
Assets Owned by Households	11	(5)
The Government	16	(1)
Households	17	(2)
Labor Supply	19	(1)
The Complete Model	19	(10)
Stability	29	(3)
The Model with M + B ≠ 0	32	(2)
The Model with π = p/p	34	(7)
An Alternative Definition of Disposable Income	41	(4)
Neutrality	45	(1)
Dichotomy	46	(2)
Conclusions	48	(2)
References	48	(2)
The Keynesian Model	50	(28)
General Analysis	50	(8)
Stability	58	(3)
Analysis of ``Cost-Push'' and ``Demand-Pull'' Inflation	61	(3)
The Model with (M + B)π ≠ 0	64	(1)
The Classical Model again	65	(4)
A Digression on Wealth, Saving, and the Rate of Interest in the Classical Model	69	(2)
Keynesian Economics and Walras's Law	71	(7)
Exercises	74	(3)
References	77	(1)
Tobin's Dynamic Aggregative Model	78	(18)
The Firm's Optimization Problem	78	(9)
Interpretation as a Special Two-Sector Model	87	(5)
Investment and Saving	92	(4)
Exercises	94	(1)
References	95	(1)
Miscellaneous Topics	96	(21)
The ``Real Bills'' Doctrine	96	(4)
``Inside'' and ``Outside'' Money	100	(4)
Unions and Real Wages	104	(3)
Lange's Critique of the Classical Dichotomy	107	(3)
The Loanable Funds Equation	110	(2)
In Defense of Keynesian Analyses that ``Ignore'' the Government's Budget Constraint	112	(5)
References	116	(1)
Dynamic Analysis of a Keynesian Model	117	(15)
The Model with Adaptive Expectations	118	(7)
Perfect Foresight (π = Dp/p)	125	(7)
Exercises	130	(1)
References	131	(1)
The Investment Schedule	132	(9)
The Cost-of-Change Model	132	(6)
An Alternative Representation	138	(3)
References	140	(1)
PART II INTRODUCTION TO STOCHASTIC MACROECONOMICS
Behavior Under Uncertainty	141	(24)
The State Preference Model	141	(9)
Liquidity Preference as Behavior toward Risk	150	(7)
The Modigliani-Miller Theorem	157	(5)
Effects of a Corporate Income Tax	162	(3)
References	163	(2)
Implicit Labor Contracts and Sticky Wages	165	(11)
Introduction	165	(1)
Emergence of State-Independent Wages	165	(5)
Existence of Layoffs	170	(2)
Incentives for ``Unemployment Compensation''	172	(2)
Conclusions	174	(2)
Exercise	175	(1)
References	175	(1)
Difference Equations and Lag Operators	176	(47)
Lag Operators	176	(7)
Second-Order Difference Equations	183	(8)
Second-Order Difference Equations (Equal Roots)	191	(1)
Nth-Order Difference Equations (Distinct Roots)	192	(2)
Nth-Order Difference Equations (N Equal Roots)	194	(1)
An Example of a First-Order System	195	(2)
An Example of a Second-Order System	197	(2)
An Optimization Example: Solving a System of Euler Equations	199	(5)
A More General Univariate Optimization Problem	204	(3)
Introduction to Multivariate Dynamic Optimization	207	(4)
Another Example: Learning by Doing	211	(2)
A Consumption Example	213	(3)
Nonanticipative Representations and Lucas's Critique	216	(7)
Exercises	217	(4)
References	221	(2)
Linear Least Squares Projections (Regressions)	223	(16)
Linear Least Squares Regression: The Orthogonality Condition	223	(3)
Recursive Projection	226	(2)
The Law of Iterated Projections	228	(1)
The Signal-Extraction Problem	229	(1)
Signal Extraction with Dynamics	230	(2)
The Term Structure of Interest Rates	232	(3)
Application of the Law of Iterated Projections	235	(1)
Conclusions	235	(4)
Exercises	236	(2)
References	238	(1)
Linear Stochastic Difference Equations	239	(123)
Introduction	239	(3)
Preliminary Concepts	242	(5)
The Cross Covariagram	247	(2)
A Mathematical Digression on Fourier Transforms and z Transforms	249	(4)
Evaluating the Inverse z Transform	253	(3)
The Spectrum	256	(9)
The Cross Spectrum	265	(6)
A Digression on Leading Indicators	271	(2)
Analysis of Some Filters: The Slutsky Effect and Kuznets's Transformations	273	(3)
A Small Kit of h(e-iω)'s	276	(3)
Alternative Definitions of the Business Cycle	279	(4)
Index Models	283	(2)
Representation Theory	285	(5)
Linear Least Squares Prediction	290	(4)
Deriving a Moving Average Representation	294	(3)
Finding a Wold Representation: mth Order Moving Average	297	(2)
Finding a Wold Representation: An mth Order Moving Average, nth Order Autoregression	299	(1)
Signal Extraction Problems	300	(3)
Predicting Geometric Distributed Leads	303	(2)
The Chain Rule of Forecasting	305	(1)
Some Applications to Rational Expectations Models	305	(3)
Vector Stochastic Difference Equations	308	(4)
Optimal Filtering Formula	312	(2)
The Relationship Between Wiener-Granger Causality and Econometric Exogeneity	314	(10)
Sims's Application to Money and Income	324	(3)
Multivariate Prediction Formulas	327	(2)
The Effects of Filtering on One-Sided and Two-Sided Projections	329	(3)
Preservation of Orthogonality Conditions under Filtering	332	(2)
Theories Restricting One-Sided Projections	334	(2)
Seasonal Adjustment and Forecasting Geometric Distributed Leads	336	(6)
Aggregation over Time	342	(4)
Effects of Errors in Variables	346	(2)
Bubbles	348	(14)
Exercises	349	(10)
References	359	(3)
The Consumption Function	362	(18)
Introduction	362	(1)
The Consumer's Choice Problem	363	(3)
The Projection of Consumption on Labor Income	366	(2)
Muth's Special Case	368	(1)
Analyzing Tax Changes	369	(1)
The Projection of Consumption on Total Income: Friedman's Model	370	(3)
Projections on Labor Income and Current Assets	373	(1)
Transitory Consumption	374	(2)
Consumption, Permanent Income, and the Investment Accelerator: A Stochastic Growth Interpretation	376	(2)
Conclusions	378	(2)
References	378	(2)
Government Debt and Taxes	380	(11)
Introduction	380	(1)
Observable Implications of Present Value Balanced Budgets	381	(4)
Tax Smoothing	385	(3)
A Note on Government Expenditures on Capital Account	388	(2)
Conclusions	390	(1)
References	390	(1)
Investment Under Uncertainty	391	(28)
Optimum Decision Rules under a Quadratic Objective	391	(5)
Optimal Linear Policies	396	(1)
Lucas's Critique	397	(2)
Investment	399	(2)
A Digression on the Relation Between Equilibrium and Optimality	401	(1)
Investment under Uncertainty	402	(2)
Supply, Demand and Identification	404	(3)
Investment under Uncertainty and an Externality	407	(4)
Conclusions	411	(8)
Exercises	412	(5)
References	417	(2)
Dynamic Optimal Taxation	419	(19)
Introduction	419	(1)
Equilibrium with the Government as Dominant Player and No Taxation of Initial Capital	420	(8)
Equilibrium with the Government as Dominant Player and Taxation of Initial Capital	428	(1)
Equilibrium with Limited Taxation of Initial Capital	429	(3)
A Game with a Sequence of ``Administrations''	432	(3)
Conclusions	435	(3)
Exercises	436	(1)
References	437	(1)
The Phillips Curve	438	(9)
Lucas's Model	439	(5)
Serial Correlation in Output	444	(3)
Exercise	446	(1)
References	446	(1)
Optimal Monetary Policy	447	(21)
Optimal Control with Fixed Expectations	448	(6)
The Information Variable Problem	454	(3)
Optimal Control under Rational Expectations	457	(2)
Which View Does the Evidence Favor?	459	(1)
Should the Monetary Authority Use Interest or Money as Its Instrument?	460	(8)
Exercises	463	(2)
References	465	(3)
Aspects of the New Classical Macroeconomics	468	(31)
Introduction	468	(1)
The Classical Theory of Labor Supply and Consumption	469	(3)
An Equilibrium Model of the Labor Market	472	(9)
Disparate Information Sets	481	(8)
Behavior of Economy-Wide Averages	489	(1)
The Procyclical Behavior of ``Labor Productivity'' and ``Real Hourly Earnings''	490	(5)
Conclusions	495	(4)
Exercise	496	(1)
References	497	(2)
Appendix FORMULAS FROM TRIGONOMETRY	499	(2)
Reference	500	(1)
Author Index	501	(4)
Subject Index	505