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Excercises In Dynamic Macroeconomic Theory / Edition 1

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This book is a companion volume to Dynamic Macroeconomic Theory by Thomas J. Sargent. It provides scrimmages in dynamic macroeconomic theory--precisely the kind of drills that people will need in order to learn the techniques of dynamic programming and its applications to economics. By doing these exercises, the reader can acquire the ability to put the theory to work in a variety of new situations, build technical skill, gain experience in fruitful ways of setting up problems, and learn to distinguish cases in which problems are well posed from cases in which they are not.

The basic framework provided by variants of a dynamic general equilibrium model is used to analyze problems in macroeconomics and monetary economics. An equilibrium model provides a mapping from parameters of preferences, technologies, endowments, and "rules of the game" to a probability model for time series. The rigor of the logical connections between theory and observations that the mapping provides is an attractive feature of dynamic equilibrium, or "rational expectations," models. This book gives repeated and varied practice in constructing and interpreting this mapping.

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Product Details

  • ISBN-13: 9780674274761
  • Publisher: Harvard University Press
  • Publication date: 8/11/2004
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 240
  • Product dimensions: 6.14 (w) x 9.21 (h) x 0.51 (d)

Meet the Author

Rodolfo E. Manuelli is Professor of Economics, Stanford University.
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Table of Contents

1. Dynamic Programming
Brock-Mirman (1972)

Howard Policy-Improvement Algorithm

Levhari-Srinivasan (1969)

Habit Persistence: 1

Habit Persistence: 2

Lucas and Prescott (1971) and Kydland and Prescott (1982)

Meet a Linear Regulator

Interrelated Factor Demand

Two-Sector Growth Models

Learning to Enjoy Spare Time

Investment with Adjustment Costs

Investment with Signal Extraction

2. Search

Being Unemployed with Only a Chance of an Offer

Two Offers per Period

A Random Number of Offers per Period

Cyclical Fluctuations in Number of Job Offers

Choosing the Number of Offers

Mortensen Externality

Variable Labor Supply

Wage Growth Rate and the Reservation Wage

Search with a Finite Horizon

Finite Horizon and Mean-Preserving Spread

Pissarides' Analysis of Taxation and Variable Search Intensity

Search and Nonhuman Wealth

Search and Asset Accumulation

3. Asset Prices and Consumption

Taxation and Stock Prices

Contingent Claims Prices in a Brock-Mirman Economy

Trees (Stocks) in the Utility Function

Government Debt in the Utility Function

Tobin's q

A Generalization of Logarithmic Preferences

Arbitrage Pricing


Arbitrage Pricing and the Term Structure of Interest Rates

Pricing One-Period Options

Pricing n-Period Options

4. Currency in the Utility Function (no exercises)

5. Cash-in-Advance Models

Private Wealth

Unpleasant Monetarist Arithmetic

A Permanent (McCallum) Government Deficit

A Useful Identity under Interest on Reserves

Defining the State Vector

Computing an Equilibrium

Interest on Reserves and Stock Prices

Incentives for "Private Currencies"

Other Interest-on-Reserve Schemes

Stock Prices and Inflation

6. Credit and Currency with Long-Lived Agents

Value of Unbacked Currency

Computing Equilibrium Interest Rates

"Self-Insurance" and the Permanent Income Theory

The Distribution of Currency

Rate-of-Return Dominance

7. Credit and Currency with Overlapping Generations

Credit Controls

Inside Money and Real Bills

Social Security and the Price Level


Oscillating Physical Returns

Indeterminacy of Exchange Rates

Asset Prices and Volatility

Unpleasant Monetarist Arithmetic



8. Government Finance in Stochastic Overlapping-Generations Models

A Version of Kareken-Wallace Exchange Rate Indeterminacy

The Term Structure of State-Contingent Claims

Wairas's Law: 1

Wairas's Law: 2

Constancy of Fiscal Policy

Altered Version of Logarithmic Preferences

Appendix. Functional Analysis for Macroeconomics

Periodic Difference Equation

Asset Pricing


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