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Advanced Macroeconomics II(2004) posted by duggu on 11/30/2007

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Abstract/Syllabus

Courseware/Lectures

Test/Tutorials

Course Highlights

All assignments may be downloaded for this course. In addition, an extensive bibliography is provided.

Course Description

14.462 is the second semester of the second-year Ph.D. macroeconomics sequence.

The course is intended to introduce the students, not only to particular areas of current research, but also to some very useful analytical tools. It covers a selection of topics that varies from year to year. Recent topics include:

Growth and Fluctuations
Heterogeneity and Incomplete Markets
Optimal Fiscal Policy
Time Inconsistency
Reputation
Coordination Games and Macroeconomic Complementarities
Information

Technical Requirements

MATLAB® software is required to view and run the .m and .mat files found on this course site.

Syllabus

Course Overview

14.462 is the second semester of the second-year Ph.D. macroeconomics sequence.

Growth and Fluctuations
Heterogeneity and Incomplete Markets
Optimal Fiscal Policy
Time Inconsistency
Reputation
Coordination Games and Macroeconomic Complementarities
Information

This year (2004) the course consists of two parts. The first, with Gilles Saint-Paul, concentrates on growth; the second, with George-Marios Angeletos, concentrates on coordination and incomplete markets. The course grade will be based on class participation, 6 or 7 problem sets to be assigned during the course, a midterm at the end of the first half-semester, and the general exam at the end of the semester.

Calendar

LEC #	TOPICS
1	Technology, Distribution, and Employment: Competing Technologies Models
2	Technology, Distribution, and Employment: Segregation by Skills and Superstars
3	Technology, Distribution, and Employment: Learning and Market Signals
4	Technology, Distribution, and Employment: Non Homotheticity in General Equilibrium
5	Intellectual Property Rights and Growth
6	Bounded Rationality in Macroeconomics
7	Demographics and Macroeconomics
8	Macro Complementarities/Coordination: Macroeconomic Complementarities, Amplification, Multiple Equilibria
9	Macro Complementarities/Coordination: Global Games, Higher-Order Uncertainty, and Morris-Shin
10	Macro Complementarities/Coordination: Policy and Information Transmission
11	Macro Complementarities/Coordination: Prices and Information Aggregation
12	Macro Complementarities/Coordination: Dynamics, Social Learning, and Other Applications
13	Macro Complementarities/Coordination: Information and Amplification
14	Macro Complementarities/Coordination: More on Complementarities, Dynamic Adjustment, and Business Cycles
15	Incomplete Markets: Recursive Equilibria, Heterogeneous Agents, Precautionary Savings, Non-expected Utility
16	Incomplete Markets: Aiyagari - Steady-State Effects
17	Incomplete Markets: Krusell-Smith - Introducing Business Cycles
18	Incomplete Markets: Idiosyncratic Investment Risk
19	Incomplete Markets: Incomplete Markets and Endogenous Growth

Readings

LEC #	TOPICS	READINGS
1	Technology, Distribution, and Employment: Competing Technologies Models	Required Reading Acemoglu, D. "Technical Change, Inequality, and The Labor Market." Journal of Economic Literature 40, no. 1 (March 2002): 7-72. Caselli, F. "Technological Revolutions." American Economic Review 89, no. 1 (March 1999): 78-102. Beaudry, Paul, and David Green. "Wages and Employment in the US and Germany: What Explains the Difference?" American Economic Review 93, no. 3 (June 2003): 573-602. Related Reading Acemoglu, D. "Why do New Technologies Complement Skills? Directed Technical Change and Wage Inequality." Quarterly Journal of Economics 113, no. 4 (November 1998): 1055-89. Zeira, J. "Workers, Machines, and Economic Growth." Quarterly Journal of Economics 113, no. 4 (November 1998): 1091-1117. Cooley, T., and M. Yorukoglu. "Innovation and Imitation in an Information Age." Journal of the European Economic Association 1, no. 2-3 (April-May 2003): 406-18.
2	Technology, Distribution, and Employment: Segregation by Skills and Superstars	Required Reading Rosen, Sherwin. ''Authority, Control, and the Distribution of Earnings." Bell Journal of Economics 13, no.2 (1982): 311-23. Cooley, T., and M. Yorukoglu. "The New Economy: Some Macroeconomic Implications of an Information Age." mimeo, NYU. Murphy, Shleifer, and Vishny. "The Allocation of Talent: Implications for Growth." Quarterly Journal of Economics 106, no. 2 (May 1991): 503-30. Kremer, Michael. "The O-Ring Theory of Economic Development." Quarterly Journal of Economics 108, no. 3 (August 1993): 551-75. Related Reading Rosen, Sherwin. ''The Economics of Superstars.'' American Economic Review 71, no.5 (1981): 845-58. Saint-Paul, G. "On the Distribution of Income and Worker Assignment Under Intra-firm Spillovers, with an Application to Ideas and Networks." Journal of Political Economy 109, no. 1 (February 2001): 1-37. ———. "Information Technologies and the Knowledge Elite." Working Paper, 2001 (CEPR Discussion Paper: 2761). Garicano, Luis. "Hierarchies and the Organization of Knowledge in Production." Journal of Political Economy 108, no. 5 (October 2000): 874-904. Kremer, and Maskin. "Wage Inequality and Segregation by Skill." National Bureau of Economic Research Working Paper: 5718. Manasse, Paolo, and Turrini Alessandro. "Trade, Wages, and 'Superstars'." Journal of International Economics 54, no. 1 (June 2001): 97-117.
3	Technology, Distribution, and Employment: Learning and Market Signals	Required Reading Greenwood, Jeremy, and Mehmet Yorukoglu. "1974." Carnegie-Rochester Conference Series on Public Policy 46 (June 1997): 49-95. Related Reading Greenwood, Jeremy, and Boyan Jovanovic. " The Information-Technology Revolution and The Stock Market." American Economic Review (Papers and Proceedings) 89 (May 1999): 116-122. Hobijn, Bart, and Boyan Jovanovic. "The IT Revolution and the Stock Market: Evidence." American Economic Review 91 no. 5 (2001): 1203-20. Jovanovic, B., and P. Rousseau. "Two Technological Revolutions." Journal of the European Economic Association 1, no. 2-3 (April-May 2003): 419-28.
4	Technology, Distribution, and Employment: Non Homotheticity in General Equilibrium	Required Reading Saint-Paul, Gilles. "Distribution and Growth in an Economy With Limited Needs." CEPR Discussion Paper: 2834, 2001. Matsuyama, K. "The Rise of Mass Consumption Societies." Journal of Political Economy 110, no. 5 (October 2002): 1035-70. ———. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade." Journal of Political Economy 108, no. 6 (December 2000): 1093-1120. Related Reading Zweimuller, Josef. "Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth." Journal of Economic Growth 5, no. 2 (June 2000): 185-206. Foellmi, Reto, and Josef Zweimuller. "Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation." Royal Economic Society Annual Conference 2002. Matsuyama, K. "Growing Through Cycles in an Infinitely-Lived Agent Economy." Journal of Economic Theory 100, no. 2 (October 2001): 220-34. ———. "Growing Through Cycles." Econometrica 67, no. 2 (March 1999): 335-47. Cohen, Daniel, and G. Saint-Paul, "Uneven Technical Progress and Job Destruction." CEPR Working paper, 1994. Baumol, William. "Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis." In Baumol's cost disease: The arts and other victims (1997): 51-62, Elgar.
5	Intellectual Property Rights and Growth	Required Reading Caballero, R., and A. Jaffe. "How High Are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth." NBER Macroeconomics Annual 1993 (1993): 15-74. De Long, Brad, and A. Michael Froomkin. "Speculative Microeconomics for Tomorrow's Economy." In Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property. Edited by Kahin, Brian; Varian, Hal R., 2000, pp. 6-44. Related Reading Boldrin M., and D. Levine. "Perfectly Competitive Innovation." Federal Reserve Bank of Minneapolis Staff Report: 303, 2002. Saint-Paul, Gilles. "Growth Effects of Non Proprietary Innovation." Journal of the European Economic Association 1, no. 2-3 (April-May 2003): 429-39. ———. "Cumulative Innovation and Information Sharing in Business Networks." mimeo, U. Toulouse, Sept. 2003. Aghion, P., and P Howitt. "Competition, Imitation and Growth with Step-by-Step Innovation." Review of Economic Studies 68, no. 3 (July 2001): 467-92. Romer, Paul. "When Should We Use Intellectual Property Rights?" American Economic Review 92, no. 2 (May 2002): 213-16. ———. "Two Strategies for Economic Development: Using Ideas and Producing Ideas." Supplement to The World Bank Economic Review and The World Bank Research Observer (1993): 63-91. Raymond, Eric S.The Cathedral and the Bazaar . Lerner, Josh, and Jean Tirole. "Some Simple Economics of Open Source." Journal of Industrial Economics 50, no. 2 (June 2002): 197-234. Jaffe, A., and Trajtenberg, M. Patents, citations, and innovations: A Window on the Knowledge Economy. MIT Press, 2002. Coe, D., and E. Helpman. "International R&D Spillovers." European Economic Review 39, no. 5 (May 1995): 859-87. Kremer, Michael. "Patent Buyouts: A Mechanism for Encouraging Innovation." Quarterly Journal of Economics 113, no. 4 (November 1998): 1137-67. Zucker, Darby, and Brewer. "Intellectual Capital and the Birth of U.S. Biotechnology Enterprises." American Economic Review 88, no. 1 (March 1998): 290-306. Caselli, Francesco. "Cross-Country Technology Diffusion: The Case of Computers." American Economic Review 91, no. 2 (May 2001): 328-35. Goh, Ai-Ting, and Olivier Jacques. "Optimal Patent Protection in a Two-Sector Economy." International Economic Review 43, no. 4 (November 2002): 1191-1214.
6	Bounded Rationality in Macroeconomics	Required Reading Sargent, Thomas. Bounded Rationality in Macroeconomics, Arne Ryde Memorial Lectures. Oxford and New York: Oxford University Press, Clarendon Press. Marcet, A., Nicolini, J. P. "Recurrent Hyperinflations and Learning." Centre for Economic Policy Research, Discussion Paper: 1875, 1998. Related Reading Gersbach, Hans, Schniewind, Achim. "Awareness of General Equilibrium Effects and Unemployment." IZA working paper 394, 2001. Hansen, L., Sargent, Thomas. "Robust Control and Model Uncertainty." American Economic Review 91, no. 2 (May 2001): 60-66. Hansen, Lars Peter, and Thomas J. Sargent. "Acknowledging Misspecification in Macroeconomic Theory." Review of Economic Dynamics 4, no. 3 (July 2001): 519-35. Marimon, Ramon, Ellen McGrattan, and Thomas J. Sargent. "Money as a Medium of Exchange in an Economy with Artificially Intelligent Agents." Journal of Economic Dynamics and Control 14, no. 2 (May 1990): 329-73. Arifovic, Jasmina. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies." Journal of Political Economy 104, no. 3 (June 1996): 510-41. ———. "Evolutionary Algorithms in Macroeconomic Models." Macroeconomic Dynamics 4, no. 3 (September 2000): 373-414. Harrington, J.E. "Rigidity of Social Systems." Journal of Political Economy 107, no. 1 (February 1999): 40-64. Saint-Paul, Gilles. "Some Evolutionary Foundations for Price Level Rigidity." CEPR Working Paper, 2001.
7	Demographics and Macroeconomics	Required Reading Becker, Gary, Murphy Kevin, and Robert Tamura. "Human Capital, Fertility, and Economic Growth." Journal of Political Economy 98, no. 5 (Part 2, October 1990): S12-37. Galor, O., and O. Moav. "Natural Selection and the Origin of Economic Growth." Quarterly Journal of Economics 117, no. 4 (November 2002): 1133-91. Related Reading Kremer, M., and Chen. "Income Distribution Dynamics with Endogenous Fertility." (National Bureau of Economic Research Working Paper: 7530), American Economic Review 89, no. 2 (May 1999): 155-60. ———. "Population Growth and Technological Change: One Million B.C. to 1990." Quarterly Journal of Economics 108, no. 3 (August 1993): 681-7. Barro, R., and G. Becker. "Fertility Choice in a Model of Economic Growth." Econometrica 57, no. 2 (March 1989): 481-501. Moav, O. "Cheap Children and the Persistence of Poverty." CEPR Discussion Paper: 3059, 2003. Galor, O., and D. Weil. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond." American Economic Review 90, no. 4 (September 2000): 806-28.
8	Macro Complementarities/Coordination: Macroeconomic Complementarities, Amplification, Multiple Equilibria	Required Reading Cooper, R. Coordination Games: Complementarities and Macroeconomics. Chapters 1-3 and 7, Cambridge University Press, 1999. Cooper, Russell, and Andrew John. "Coordinating Coordination Failures in Keynesian Models." Quarterly Journal of Economics 103 (1988): 441--463. Cooper, R., and J. Haltiwanger. "Evidence on Macroeconomic Complementarities." Review of Economics and Statistics 78 (1996): 78-93. Obstfeld, Maurice. "Models of Currency Crises with Self-Fulfilling Features." European Economic Review 40 (1996): 3-5, 1037-47. Bartelsman, E., R. Caballero, and R. Lyons. "Customer- and Supplier-Driven Externalities." American Economic Review 84 (1994): 1075-84. Related Reading Acemoglu, Daron. "Learning About Others' Actions and the Investment Accelerator." Economic Journal 103 (1993): 318-328. Bryant, John. "A Simple Rational Expectations Keynes-Type Model." Quarterly Journal of Economics 98, no. 3 (1983): 525-28. Caballero, R., and R. Lyons. "External Effects in U.S. Procyclical Productivity." Journal of Monetary Economics 29 (1992): 209-225. Cole, Harold, and Timothy Kehoe. "Self-fulfilling Debt Crises." Federal Reserve Bank of Minneapolis Staff Report 211, 1996. Diamond, Douglas, and Philip Dybvig. "Bank Runs, Deposit Insurance, and Liquidity." Journal of Political Economy 91 (1983): 401-19. Diamond, Peter. "Aggregate Demand Management in Search Equilibrium." Journal of Political Economy 90, no. 5 (1982): 881-94. Howitt, P., and P. McAffee. "Stability of Equilibria with Externalities." Quarterly Journal of Economics 103 (1988): 261-277. Katz, M., and C. Shapiro. "Technology Adoption in the Presence of Network Externalities." Journal of Political Economy 94 (1986): 822-841. Kiyotaki, N., and J. Moore. "Credit Cycles." Journal of Political Economy (1997). Kiyotaki, Nobuhiro. "Multiple Expectational Equilibria under Monopolistic Competition." Quarterly Journal of Economics 103 (1988): 695 - 713. Murphy, Kevin M., Andrei Shleifer, and Robert Vishny. "Industrialization and the Big Push." Journal of Political Economy 97, no. 5 (1989): 1003-26. Obstfeld, Maurice. "Rational and Self-Fulfilling Balance-of-Payments Crises." American Economic Review 76, no. 1 (1986): 72-81. Romer, P. M. "Increasing Returns and Long-Run Growth." Journal of Political Economy 94 (1986): S1002- S1037.
9	Macro Complementarities/Coordination: Global Games, Higher-Order Uncertainty, and Morris-Shin	Required Reading Morris, Stephen, and Hyun Song Shin. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks." American Economic Review 88, no. 3, (1998): 587-597. ———. "Rethinking Multiple Equilibria in Macroeconomics." NBER Macro Annual (2000). Related Reading Carlsson, Hans, and Eric van Damme. "Global Games and Equilibrium Selection." Econometrica 61, no. 5 (1993): 989-1018. Hellwig, Christian. "Public Information, Private Information and the Multiplicity of Equilibria in Coordination Games." Journal of Economic Theory 107 (2002): 191-222. Morris, Stephen, David Frankel, and Ady Pauzner. "Equilibrium Selection in Global Games with Strategic Complementarities." Journal of Economic Theory 108 (2003): 1-44. Morris, Stephen, and Hyun Song Shin. "Global Games - Theory and Applications." In Advances in Economics and Econometrics, 8th World Congress of the Econometric Society. Edited by M. Dewatripont, L. Hansen, and S. Turnovsky. Cambridge, UK: Cambridge University Press, 2001. Yildiz, Muhamet, and Jonathan Weinstein. "Impact of Higher-Order Uncertainty." MIT mimeo, 2003.
10	Macro Complementarities/Coordination: Policy and Information Transmission	Required Reading Angeletos, George-Marios, Christian Hellwig, and Alessandro Pavan. "Coordination and Policy Traps." MIT Working Paper, 2003. Related Reading Morris, Stephen, and Hyun Song Shin. "Catalytic Finance: When Does It Work?" 2004. Corsetti, G., A. Dasgupta, S. Morris, and H. Shin. "Does One Soros Make a Difference? The Role of a Large Trader in Currency Crises." Review of Economic Studies 71 (2004): 87-114. Edmond, Chris. "Information and the Limits to Autocracy." UCLA Working Paper, 2003.
11	Macro Complementarities/Coordination: Prices and Information Aggregation	Required Reading Grossman, Sanford, and Joseph Stiglitz. "Information and Competitive Price Systems." American Economic Review 66, (1976): 246-253. Atkeson, Andrew. "Discussion on Morris and Shin." NBER Macro Annual, 2000. Angeletos, George-Marios, and Ivan Werning. "Information Aggregation and Equilibrium Multiplicity: Morris-Shin Meets Grossman-Stiglitz." MIT/UCLA/Northwestern Working Paper, 2004. Related Reading Grossman, Sanford. "The Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities." Review of Economic Studies 44 (1977): 431-449. ———. "An Introduction to the Theory of Rational Expectations under Asymmetric Information." Review of Economic Studies 48 (1981): 541-559. Grossman, Sanford, and Joseph Stiglitz. "On the Impossibility of Informationally Efficient Markets." American Economic Review 70 (1980): 393-408. Hellwig, Martin. "On the Aggregation of Information in Competitive Markets." Journal of Economic Theory 22 (1980): 477-498.
12	Macro Complementarities/Coordination: Dynamics, Social Learning, and Other Applications	Required Reading Chamley, Christophe. "Coordinating Regime Switches." Quarterly Journal of Economics 114, no. 3 (1999): 869-905. Angeletos, George-Marios, Christian Hellwig, and Alessandro Pavan. "Crises." MIT Working Paper, 2004. Related Reading Caplin, Andrew, and John Leahy. "Business as Usual, Market Crashes, and Wisdom After the Fact." American Economic Review 84, no. 3 (1994): 548-565. Bernardo, Guimaraes, and Stephen Morris. "Risk and Wealth in a Model of Self-Fulfilling Currency Crises." Yale Working Paper, 2004. Dasgupta, Amil. "Coordination, Learning and Delay." LSE Working Paper, 2003. Goldstein, Itay, and Ady Pauzner. "Demand Deposit Contracts and the Probability of Bank Runs." Working Paper, Duke University and Tel Aviv University, 2000. Morris, Stephen, and Hyun Song Shin. "A Theory of the Onset of Currency Attacks." In The Asian Financial Crisis. Edited by P.-R. Agenor, M. Miller, D. Vines and A. Weber. Cambridge University Press, 1999. ———. "Coordination Risk and the Price of Debt." Forthcoming in European Economic Review, 2003. ———. "Liquidity Black Holes." Forthcoming in Review of Finance, 2004.
13	Macro Complementarities/Coordination: Information and Amplification	Required Reading Morris, Stephen, and Hyun Song Shin. "The Social Value of Public Information." American Economic Review 92 (2002): 1521-1534. Angeletos, G. M., and A. Pavan. "Transparency of Information and Coordination in Economies with Investment Complementarities." Forthcoming American Economic Review (P&P) (2004). Woodford, Michael. "Imperfect Common Knowledge and the Effects of Monetary Policy." In Knowledge, Information and Expectations in Modern Macroeconomics: in Honor of Edmund S. Phelps. Edited by P. Aghion, R. Frydman, J. Stiglitz, and M. Woodford, 2003. Related Reading Allen, Franklin, Stephen Morris, and Hyun Song Shin. "Beauty Contests and Iterated Expectations in Asset Markets." 2003. Amato, Jeffery, and Hyun Song Shin. "Public and Private Information in Monetary Policy Models." 2003. ———. "Imperfect Common Knowledge and the Information Value of Prices." 2004. Hellwig, Christian. "On the Aggregate Effects of Information Heterogeneity." UCLA mimeo, 2003. Lorenzoni, Guido. "Imperfect Information and Aggregate Demand." Princeton University mimeo, 2003.
14	Macro Complementarities/Coordination: More on Complementarities, Dynamic Adjustment, and Business Cycles	Required Reading Beaudry, P., and F. Portier. "Stock Prices, News and Economic Fluctuations." 2004. Cabalero, R., and E. Engel. "Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy." 2004. Frankel, David and Ady Pauzner. "Resolving Indeterminacy in Dynamic Settings: The Role of Shocks." Quarterly Journal of Economics 115 (2000): 283-304. Frankel, David. "Shocks and Business Cycles." Forthcoming in Journal of Political Economy, 2004. Related Reading Baxter, M., and R. King. "Production Externalities and Business Cycles." Minneapolis Fed. (1991) Beaudry, P., and M. Devereux. "Monopolistic Competition, Price Setting, and the Effects of Real and Monetary Shocks." 1993. Benhabib, J., and R. Farmer. "Indeterminacy and Increasing Returns." Journal of Economic Theory 63, (1994). Burdzy, Krzysztof, David Frankel, and Ady Pauzner. "Fast Equilibrium Selection by Rational Players Living in a Changing World." Econometrica 68 (2001): 163-190. Shleifer, A. "Implementation Cycles." Journal of Political Economy 94 (1986): 1163-1190.
15	Incomplete Markets: Recursive Equilibria, Heterogeneous Agents, Precautionary Savings, Non-expected Utility	Required Reading Hansen, G., and E. Prescott. "Recursive Methods for Computing Equilibria." Chapter 2 in Frontiers of Business Cycle Research. Edited by T. Cooley. Princeton University Press, 1995. Rios-Rull, J. -V. "Models wih Heterogeneous Agents." Chapter 4 in Frontiers of Business Cycle Research. Edited by T. Cooley. Princeton University Press, 1995. Ljungqvist, L., and T.J. Sargent. Chapter 13 in Recursive Macroeconomic Theory, 2001. Weil, P. "Nonexpected Utility in Macroeconomics." Quarterly Journal of Economics 105, (1990): 29-42. Related Reading Caballero, R. "Consumption Puzzles and Precautionary Saving." Journal of Monetary Economics 25 (1990): 113-136. Chamberlain, G., and C. A. Wilson. "Optimal Intertemporal Consumption under Uncertainty." Review of Economic Dynamics 3 (2000): 365-395. Epstein, L.G., and S. E. Zin. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework." Econometrica 57 (1989): 937-969. Kimball, M. S. "Precautionary Saving in the Small and in the Large." Econometrica 58 (1990): 53-73. Prescott, E., and R. Mehra. "Recursive Competitive Equilibrium: The Case of Homogeneous Households." Econometrica 48 (1980): 1365-79. Weil, P. "Precautionary Savings and the Permanent Income Hypothesis." Review of Economic Studies 60 (1993): 367-383.
16	Incomplete Markets: Aiyagari - Steady-State Effects	Required Reading Aiyagari, S. R. "Uninsured Idiosyncratic Risk and Aggregate Saving." Quarterly Journal of Economics 109 (1994): 659-84. Ljungqvist, L., and T. J. Sargent. Chapter 14 in Recursive Macroeconomic Theory . Castaneda, A., J. Diaz-Gimenez, and J.-V. Rios-Rull. "Accounting for the U.S. Earning and Wealth Heterogeneity." Journal of Political Economy, 2003. Related Reading Aiyagari, S. R. "Macroeconomics with Frictions." FRB Minneapolis Quarterly Review 18 (1994): 24-40. ———. "Optimal Capital Income Taxation with Incomplete Markets, Borrowing Constraints, and Constant Discounting." Journal of Political Economy 103 (1995): 1158-75. Banerjee, A., and A. F. Newman. "Occupational Choice and the Process of Economic Development." Journal of Political Economy, 1993. Bewley, T. "The Optimum Quantity of Money." In J. H. Kareken and N. Wallace ed., Models of Monetary Economies , FRB Minneapolis, 1980, pp. 169-210. Constantinides, G., and D. Duffie. "Asset Pricing with Heterogeneous Consumers." Journal of Political Economy 104 (1996): 219-240. Heaton, J., and D. J. Lucas. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing." Journal of Political Economy 104 (1996): 443-487. Huggett, M. "The Risk-Free Rate in Heterogeneous-Agent Incomplete-Insurance Economies." Journal of Economic Dynamics and Control 17 (1993): 953-969. Huggett, M. "The One-Sector Growth Model with Idiosyncratic Shocks." Journal of Monetary Economics 39, (1997): 385-403. Weil, P. "Equilibrium Asset Prices in Economies with Undiversifiable Labor Income Risk." Journal of Economic Dynamics and Control 16 (1992): 769-790.
17	Incomplete Markets: Krusell-Smith - Introducing Business Cycles	Required Reading Krusell, P., and A. Smith. "Income and Wealth Heterogeneity in the Macroeconomy." Journal of Political Economy 106 (1998): 867-896. Ljungqvist, L., and T. J. Sargent. Chapter 14 in Recursive Macroeconomic Theory. 2001. Related Reading Imrohoroglu, A. "The Costs of Business Cycles with Indivisibilities and Liquidity Constraints." Journal of Political Economy 97 (1989): 1364-83. Kiyotaki, N., and J. Moore. "Credit Cycles." Journal of Political Economy (1997). Krusell, P., and A. Smith. "On the Welfare Effects of Business Cycles." Review of Economic Dynamics 2 (1999): 247-272. ———. "Revisiting the Welfare Effects of Eliminating Business Cycles." CMU Working Paper, 2002. Kocherlakota, N. "Creating Business Cycles Through Credit Constraints." Federal Reserve Bank of Minneapolis Quarterly Review (2000). Storesletten, K., C. Telmer, and A. Yaron. "The Welfare Cost of Business Cycles Revisited: Finite lives and Cyclical Variations in Idiosyncratic Risk." European Economic Review (2001). Ríos-Rull, V. "Life-Cycle Economies and Aggregate Fluctuations." Review of Economic Studies 63 (1996): 465-490.
18	Incomplete Markets: Idiosyncratic Investment Risk	Required Reading Angeletos, G. M. "Idiosyncratic Investment Risk in the Neoclassical Growth Model." MIT mimeo. 2003. Meh, C., and V. Quadrini. "Uninsurable Investment Risks." NYU mimeo, 2004. Related Reading Angeletos, G. M., and L. Calvet. "Idiosyncratic Production Risk, Growth, and the Business Cycle." MIT mimeo, 2003. Carroll, C. "Portfolios of the Rich." In Household Portfolios. Edited by L. Guiso, M. Haliassos, and T. Jappelli. MIT Press, 2001. Gentry, W. M., and R. G. Hubbard. "Entrepreneurship and Household Saving." Columbia University mimeo, 2000. Heaton, J., and D. J. Lucas. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk." Journal of Finance 105 (2000): 1163-1198. Moskowitz, T., and A. Vissing-Jørgensen. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?" American Economic Review 92 (2002): 745-778. Quadrini, V. "The Importance of Entrepreneurship for Wealth Concentration and Mobility." Review of Income and Wealth 45 (1999): 1-19.
19	Incomplete Markets: Incomplete Markets and Endogenous Growth	Required Reading Acemoglu, D., and F. Zilibotti. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth." Journal of Political Economy 105 (1997): 709-751. Bencivenga, and B. Smith. "Financial Intermediation and Endogenous Growth." Review of Economic Studies . 1991. Krebs, Tom. "Human Capital Risk and Economic Growth." Quarterly Journal of Economics (2003). Obstfeld, M. "Risk-Taking, Global Diversification, and Growth." American Economic Review 84 (1994): 310-1329. Related Reading Devereux, M. B., and G. W. Smith. "International Risk-Sharing and Economic Growth." International Economic Review 35 (1994): 535-550. Galor, O., and J. Zeira. "Income Distribution and Macroeconomics." Review of Economic Studies 60 (1993): 35-52. Greenwood, J., and B. Jovanovic. "Financial Development, Growth, and the Distribution of Income." Journal of Political Economy 98 (1990): 219-240. King, R. G., and R. Levine. "Finance and Growth: Schumpeter Might Be Right." Quarterly Journal of Economics (1993): 717-737. Khan, A., and B. Revikumar. "Growth and Risk-Sharing with Private Information." Journal of Monetary Economics 47 (2001): 499-521. Levine, R. "Financial Development and Economic Growth: Views and Agenda." Journal of Economic Literature 35 (1997): 688-726. Krebs, T. "Growth and Welfare Effects of Business Cycles in Economies with Idiosyncratic Human Capital Risk." Brown University Working Paper. 2003. Matsuyama, K. "The Rise and Fall of Class Societies." Northwestern University mimeo, 2002. Rajan, R., and L. Zingales. "Financial Dependence and Growth." American Economic Review 88 (1998): 559-586.