Recursive macroeconomic theory, Thomas Sargent 2nd Ed - Chapter 13 ppt

... constraint (13. 10.9) that all government debt has to be backed by future primary surpluses 16 The second equality follows from the expressions for j -step-ahead contingent- claim-pricing functions in (13. 10.3) ... model with an infinitely lived representative agent. See chapter 10 for more on Ricardian equivalence. 406 Asset Pricing wherewehaveusedequations (13. 9.8), (13. 9.9), and (13....

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... stationary stochastic process, all second moments can be en- coded in a complex-valued matrix called the spectral density matrix. The auto- covariance sequence for the process determines the spectral ... difficult to predict variable; and (b) nevertheless that θ(L) = φ(L) so that the stochastic discount factor has subtle predictable components. Fea- ture (a) is needed to match observed prices...

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... involve no opti- mization, just computing discounted expected utility. The appendix to chapter 6 describes some related examples based on search theory. 4.6.1. Example 1: calculating expected utility Suppose ... V is a discounted present value that an insurer has promised to an unem- ployed worker, V u is a value for next period that the insurer promises the worker if he remains unemployed,...

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... the state-contingent consumption to- day and the promised discounted utility tomorrow are functions of the initial promised discounted utility levels. Define v as the expected discounted utility ... viewed as redundant , in the sense that it offers a bundle of history-contingent dated claims, each component of which has already been priced by the market. While we shall devote chapter 13 ent...

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... steady state. 2 To ensure well-defined maximization problems, a maintained assumption throughout the chapter is that parameters are such that any derived consump- tion growth rate 1+µ yields finite ... equations (14.5.5). Each worker is assumed to be endowed with one unit of time. The Exogenous growth 447 We see that a constant consumption growth rate on the left-hand side is sus- tained in a...

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... (15.9.6). Similar no-arbitrage arguments were made in chapters 8 and 13. As before, by repeated substitution of one-period budget constraints, we can obtain the household’s present-value budget constraint: ∞  t=0  s t q 0 t  s t  c t  s t  = ∞  t=0  s t q 0 t  s t  1 ... distortionary taxation. And any tax revenues raised in earlier periods and carried over as government-owned as...

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... interest-bearing government indebt- edness equals the present value of the net-of-interest government surplus,with 6 In chapter 9, we studied the perfect-foresight dynamics of a closely related system ... expressed in time-t utility. The cost of holding money balances instead of bonds is lost interest earnings (R t − R mt ) discounted at the rate R t andexpressedintime-t utility when multip...

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... insured away. Higher present-value-of-endowment consumers will have permanently higher consump- tion than lower present-value-of-endowment consumers, so that there is a non- degenerate cross-section ... humans share a com- mon ancestor called Eve who lived 200,000 years ago. All of macroeconomics too seems to have descended from a common source, Irving Fisher’s and Mil- ton Friedman’s consump...

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... permit uncertainty. Es- sentially, we add some well-placed shocks to the previous non-stochastic prob- lem. So long as the shocks are either independently and identically distributed or Markov, straightforward ... method proceeds by constructing a sequence of value functions and associated policy functions. The sequence is created by iterating on the following equation, starting from V 0 = 0,...

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... devoted to characterizing the conditions on A, B, R,and Q under which the optimal closed-loop system matrix (A−BF) is stable. These results are surveyed by Anderson, Hansen, McGrattan, and Sargent ... those prob- lems otherwise is why linear quadratic approximations are used so widely. We describe those approximations in appendix B to this chapter. In chapter 7, we go beyond the single-...

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