Models for Dynamic Macroeconomics

by Bagliano, Fabio-Cesare; Bertola, Giuseppe

• ISBN13: 9780199266821
• ISBN10: 0199266824
• Format: Hardcover
• Copyright: 2004-04-08
• Publisher: Oxford University Press

Summary

This is a textbook for advanced students in macroeconomics. It provides a clear guide to the techniques and tools used in modern macroeconomic analysis without requiring advanced mathematical training. It covers the core topics of consumption and investment, employment and unemployment, and economic growth. Each analytical tool is illustrated with applications.

Author Biography

Fabio-Cesare Bagliano is currently Professor of Economics in the Faculty of Economics, University of Tunrin, having previously held other teaching positions in Turin and Teramo (Italy); in 1987-90 he held a research position at the Centre for Economic Performance (London School of Economics and Political Science). He is Associate Editor of Giornale degli Economisti e Annali di Economia and has published in the Journal of Banking and Finance, the European Economic Review, the Journal of Macroeconomics, and other academic journals and books. Giuseppe Bertola is currently Professor of Economic Policy in the Faculty of Political Science, University of Turin. He has previously held other teaching positions in Turin and visiting positions in various places, including Assistant Professor and Assistant Director of the International Finance Section, Princeton University. He is a Managing Editor of Economic Policy and Condirettore of Giornale degli Economisti e Annali di Economia. His work is published in the Review of Economic Studies, American Economic Review, the European Economic Review, and other academic journals and books.

Table of Contents

List of Figures	xv
Dynamic Consumption Theory	1	(46)
Permanent Income and Optimal Consumption	1	(12)
Optimal consumption dynamics	5	(2)
Consumption level and dynamics	7	(2)
Dynamics of income, consumption, and saving	9	(2)
Consumption, saving, and current income	11	(2)
Empirical Issues	13	(8)
Excess sensitivity of consumption to current income	13	(2)
Relative variability of income and consumption	15	(3)
Joint dynamics of income and saving	18	(3)
The Role of Precautionary Saving	21	(8)
Microeconomic foundations	22	(3)
Implications for the consumption function	25	(4)
Consumption and Financial Returns	29	(18)
Empirical implications of the CCAPM	31	(3)
Extension: the habit formation hypothesis	34	(2)
Appendix A1: Dynamic Programming	36	(5)
Review Exercises	41	(2)
Further Reading	43	(1)
References	44	(3)
Dynamic Models of Investment	47	(55)
Convex Adjustment Costs	48	(3)
Continuous-Time Optimization	51	(9)
Characterizing optimal investment	54	(6)
Steady-State and Adjustment Paths	60	(5)
The Value of Capital and Future Cash Flows	65	(3)
Average Value of Capital	68	(3)
A Dynamic IS--LM Model	71	(5)
Linear Adjustment Costs	76	(6)
Irreversible Investment Under Uncertainty	82	(20)
Stochastic calculus	82	(3)
Optimization under uncertainty and irreversibility	85	(6)
Appendix A2: Hamiltonian Optimization Methods	91	(6)
Review Exercises	97	(2)
Further Reading	99	(1)
References	100	(2)
Adjustment Costs in the Labor Market	102	(29)
Hiring and Firing Costs	104	(6)
Optimal hiring and firing	107	(3)
The Dynamics of Employment	110	(4)
Average Long-Run Effects	114	(5)
Average employment	115	(2)
Average profits	117	(2)
Adjustment Costs and Labor Allocation	119	(12)
Dynamic wage differentials	122	(3)
Appendix A3: (Two-State) Markov Processes	125	(2)
Exercises	127	(1)
Further Reading	128	(1)
References	129	(2)
Growth in Dynamic General Equilibrium	131	(39)
Production, Savings, and Growth	133	(6)
Balanced growth	135	(2)
Unlimited accumulation	137	(2)
Dynamic Optimization	139	(6)
Economic interpretation and optimal growth	140	(1)
Steady state and convergence	141	(1)
Unlimited optimal accumulation	142	(3)
Decentralized Production and Investment Decisions	145	(4)
Optimal growth	148	(1)
Measurement of ``Progress'': the Solow Residual	149	(3)
Endogenous Growth and Market Imperfections	152	(18)
Production and non-rival factors	153	(1)
Involuntary technological progress	154	(3)
Scientific research	157	(1)
Human capital	158	(1)
Government expenditure and growth	159	(2)
Monopoly power and private innovations	161	(3)
Review Exercises	164	(4)
Further Reading	168	(1)
References	169	(1)
Coordination and Externalities in Macroeconomics	170	(51)
Trading Externalities and Multiple Equilibria	171	(9)
Structure of the model	171	(2)
Solution and characterization	173	(7)
A Search Model of Money	180	(8)
The structure of the economy	181	(1)
Optimal strategies and equilibria	182	(3)
Implications	185	(3)
Search Externalities in the Labor Market	188	(11)
Frictional unemployment	189	(2)
The dynamics of unemployment	191	(1)
Job availability	192	(3)
Wage determination and the steady state	195	(4)
Dynamics	199	(7)
Market tightness	200	(3)
The steady state and dynamics	203	(3)
Externalities and efficiency	206	(15)
Appendix A5: Strategic Interactions and Multipliers	211	(5)
Review Exercises	216	(1)
Further Reading	217	(2)
References	219	(2)
Answers to Exercises	221	(54)
Index	275