A running list of topics and references:
3/23 - We introduced the class, discussed what we mean by "frictions" and began thinking about the standard incomplete markets model---specifically which assets it's missing.
3/25 -Permanent Income Hypothesis today! We used quadratic preferences to show that consumption would be Markov leading to an easy expression for consumption based on expected, discounted future earnings. We finished with some foreshadowing: why our interest rate assumption mattered.
3/30 -I failed entirely to show a clip of Dana Carvey impersonating George HW Bush saying "not gonna do it; wouldn't be prudent" but we did learn about the coefficient of relative prudence and its effect on savings. Again, we showed how this can make assets/consumption go to infinity. The main reference is Kimball (Ecta 1990).
4/01 - Given the date, today was devoted to discussing our favorite pranks. Especially funny is the one where assets either expand infinitely or remain bounded depending on the relationship between the discount rate and the interest rate. A nice formalization in Chamberlain & Wilson (RED 2000)
4/06 - Rather than discussing possibilities of interest rates, we're going to find the interest rate. So we started defining a recursive competitive equilibrium. Class notes and references: Aiyagari 1994 and Huggett 1993
4/08 - The most important and useful picture in incomplete markets! We saw how demand for assets intersects with the net supply coming from households. Color-coded figures in the class notes.
4/13 - Existence and uniqueness of economy depends on 'mixing.' To demonstrate this, we talked about how the Q function is like a markov transition martix, and then we showed what mixing means on that transition matrix. Example in Julia output
4/15 - Looping back on some of the mathematical definitions of Markov chains, we looked at how the stationary distribution in incomplete market models looks a lot like finding the ergodic distribution of a Markov chain. Notes/scribbles here!
4/20 - SEARCH FRICTIONS! We talked about matching functions and introduced the problem of the posting firm. Notes and scribbles here! And check out the Rogerson, Shimer Wright synopsis
4/22 - To finish the search model, we discussed "free entry" and how it guarantees a firm is indifferent between posting a vacancy and not. Then, to set wages, we showed the two bounds defining wages that would be individually rational. Color-coded notes/scribbles here!
Problem Set 1, Due 3/31 at Noon
Problem Set 2, Due 4/21 at Noon
Problem Set 3, Due 5/18 at Noon
Notes from Fabrizio Perri's class at Minnesota. Look especially at his final few notes, the first bit of my course is based on my notes from taking his course, so the parallels should be obvious.
Notes from Victor Rios Rull's class at UPenn. This is the other model for the course, especially the incomplete markets portion.
Notes on labor markets and search frictions from Pascal Michaillat