Macro 2 - Tepper School of Business

Lecture Notes:
  1. Part 1: McCall search and DMP - [PDF]
  2. Part 2: Postel-Vinay and Robin - [PDF]
  3. Part 3: Income fluctuation problem and incomplete markets - see Chapters 16 and 17 of Sargent and Ljungqvist - Note on proof of boundedness of assets in Ayagari's model - [PDF]


Lectures:
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  • Lecture 1:
    • ​We discussed McCall's model of search. For a version where the searcher does not know the distribution of outcomes (wages, prices, etc.) see Rothschild (1974)
    • ​Discussed Rotschild's critique and Diamond's paradox
  • ​Lecture 2:
    • ​Briefly discussed Stigler's version of search which is non-sequential. As De Los Antos, Hortacsu, and Wildenbeest - paper here - show using data on consumers' online search, consumers do go back to examined item, i.e., they do not buy the last item visited which is what sequential search model a la McCall would prescribe.
    • Worked on the plain-vanilla version of the Diamond-Mortensen-Pissarides model and discussed its efficiency properties and the Hosios condition
  • ​Lecture 3:
    • Went through the model of Postel-Vinay and Robin (2002).
    • Other papers that we mentioned: Oi and Idson's paper on size-wage premium; AKM's paper on firm effects; Sorkin's paper on compensating differentials; Taber and Veijlin's paper on different sources of wage variation
  • ​Lecture 4:
    • ​Started working on the Income Fluctuation Problem
    • Studied the case with quadratic utility function and showed the it leads to Permanent Income Hypothesis (PIH)
  • ​Lecture 5:
    • ​Showed that assets converge to infinity in the income fluctuations problem
    • Started looking at the Ayagari's model
  • ​Lecture 6:
    • ​Discussed Ayagari/Huggett model in SS, transitions and with shocks
  • ​Lecture 7:
    • ​Worked on an endogenous incomplete market model in the spirit of Kehoe-Levine, Kocherlakota and Alvarez-Jermann.


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Problem Sets:
Problem Set 1 - [PDF]: due on Feb 18th 2019