14.451
Dynamic Optimization Methods with Applications
Provides an introduction to dynamic optimization methods, including discrete-time dynamic programming in non-stochastic and stochastic environments, and continuous time methods including the Pontryagin maximum principle. Applications may include the Ramsey model, irreversible investment models, and consumption choices under uncertainty. Enrollment limited.
Fall 2009
This course focuses on dynamic optimization methods, both in discrete and in continuous time. We approach these problems from a dynamic programming and optimal control perspective. We also study the dynamic systems that come from the solutions to these problems. The course will illustrate how these techniques are useful in various applications, drawing on many economic examples. However, the focus will remain on gaining a general command of the tools so that they can be applied later in other classes.
Readings
- [SLP] = Stokey, Nancy L., and Robert E. Lucas, Jr., with Edward C. Prescott. Recursive Methods in Economic Dynamics . Cambridge, MA: Harvard University Press, 1989. ISBN: 9780674750968.
- Chiang, Alpha C. Elements of Dynamic Optimization . Long Grove, IL: Waveland Press, 1999. ISBN: 9781577660965.
- Luenberger, David. Optimization by Vector Space Methods . New York, NY: Wiley-Interscience, 1997. ISBN: 9780471181170. First published in 1969 by John Wiley and Sons, Inc.
- Kamien, Morton I., and Nancy L. Schwartz. Dynamic Optimization: The Calculus of Variations and Optimal Control in Economics and Management . 2nd ed. San Diego, CA: Elsevier, 1991. ISBN: 9780444016096.
- [SLP] chapter 3.
- [SLP] chapter 4.1 [Acemoglu] sections 6.2 to 6.3.
- [SLP] chapter 6.
- [SLP] section 9.6, chapters 11 and 12.
Spring 2007 · Macroeconomic Theory I
Introduction to the theories of economic growth. Topics will include basic facts of economic growth and long-run economic development; brief overview of optimal control theory and dynamic programming; basic neoclassical growth model under a variety of market structures; human capital and economic growth; endogenous growth models; models with endogenous technology; models of directed technical change; competition, market structure and growth; financial and economic development; international trade and economic growth; institutions and economic development. This is a half-term subject. The class size is limited.
Readings
- Barro, R. J., and X. Sala-i-Martin. Economic Growth . New York, NY: McGraw-Hill, 1995. ISBN: 0070036977.
- Acemoglu, D. Introduction to Modern Economic Growth , 2007, chapters 1-3.
- Barro, R. J., and X. Sala-i-Martin. Economic Growth , 1995, chapters 1 and 12.
- Hall, R., and C. Jones. “Why Do Some Countries Produce So Much More Output than Others?” Quarterly Journal of Economics 114 (1999): 83-116.
- Jones, C. “On the Evolution of the World Income Distribution.” Journal of Economic Perspectives 11 (1997): 19-36.
- Klenow, P., and M. Bils. “Does Schooling Cause Growth?” American Economic Review 90 (2000): 1160-1183.
- Mankiw, N. G., D. Romer, and D. Weil. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (1992): 401-437.
- Solow, R. M. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70 (1956): 65-94.
- ———. Growth Theory: An Exposition . 2nd ed. New York, NY: Oxford University Press, 2000. ISBN: 0195109031.
- Acemoglu, D. Introduction to Modern Economic Growth , 2007, chapters 5-8.
- Barro, R. J., and X. Sala-i-Martin. Economic Growth , 1995, chapters 2-3.
- Cass, D. “Optimum Growth in an Aggregative Model of Capital Accumulation: A Turnpike Theorem.” Econometrica 34 (1966): 833-850.
- Lucas, R. E., Jr. “Why Doesn’t Capital Flow from Rich to Poor Countries?” American Economic Review 80 (1990): 92-96.
- Ramsey, F. P. “A Mathematical Theory of Saving.” Economic Journal 38 (1928): 543-559.
- Skiba, A. K. “Optimal Growth with a Convex-Concave Production Function.” Econometrica 46 (1978): 527-539.
- Acemoglu, D. Introduction to Modern Economic Growth , chapter 9.
- Lucas, R. E., Jr. “Asset Prices in an Exchange Economy.” Econometrica 46 (1978): 1429-1445.
- Barro, R. J. “Are Government Bonds Net Wealth?” Journal of Political Economy 82 (1974): 1095-1117.
- ———. “On the Determination of the Public Debt.” Journal of Political Economy 87 (1979): 940-71.
- Blanchard, O. “Debt, Deficits and Finite Horizons.” Journal of Political Economy 93 (1985): 223-247.
- Abel, A., and O. Blanchard. “An Intertemporal Equilibrium Model of Saving and Investment.” Econometrica 51 (1983): 675-692.
- Barro, R. J., and X. Sala-i-Martin. Economic Growth , chapter 3 and appendix to chapter 3.
- Barro, R. “Ramsey Meets Laibson in the Neoclassical Growth Model.” Quarterly Journal of Economics 114 (1999): 1125-1152.
- Baxter, M., and R. King. “Fiscal Policy in General Equilibrium.” American Economic Review 78 (1988): 315-334.
- Chamley, C. “Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives.” Econometrica 54 (1986): 607-622.
- Diamond, P. “National Debt in a Neoclassical Growth Model.” American Economic Review 55 (1965): 1126-1150.
- Kydland, F., and E. C. Prescott. “Time to Build and Aggregate Fluctuations.” Econometrica 50 (1982): 1345-1370.
- Lucas, R. E, Jr., and N. L. Stokey. “Optimal Fiscal and Monetary Policy in an Economy without Capital.” Journal of Monetary Economics 12 (1983): 55-93.
- Modigliani, F. “Life Cycle, Individual Thrift, and the Wealth of Nations.” American Economic Review 76 (1986): 297-313.
- Samuelson, P. A. “An Exact Consumption Loan Model of Interest with and without the Social Contrivance of Money.” Journal of Political Economy 1958 (1958): 467-482.
- Sidrausky, M. “Rational Choice and Patterns of Growth in a Monetary Economy.” American Economic Review 77 (1967): 534-544.
- Acemoglu, D. Introduction to Modern Economic Growth , 2007, chapters 10-11.
- Barro, R. J., and X. Sala-i-Martin. Economic Growth , 1995, chapters 4-5.
- Barro, R. J. “Government Spending in a Simple Model of Endogenous Growth.” Journal of Political Economy 98 (1990): S103-S125.
- Lucas, R. E., Jr. “Making a Miracle.” Econometrica 61 (1993): 251-272.
- ———. “On the Mechanics of Economic Development.” Journal of Monetary Economics 22 (1988): 3-42.
- Jones, L. and R. Manuelli. “A Convex Model of Equilibrium Growth.” Journal of Political Economy 98 (1990): 1008-1038.
- Rebelo, S. “Long-Run Policy Analysis and Growth.” Journal of Political Economy 99 (1991): 500-521.
- Romer, P. M. “Increasing Returns and Long-Run Growth.” Journal of Political Economy 94 (1986): S1002-S1037.
- Young, A. “Invention and Bounded Learning by Doing.” Journal of Political Economy 101 (1993): 443-472.
- Acemoglu, D. Introduction to Modern Economic Growth , 2007, chapters 13-15.
- Aghion, P., and P. Howitt. “A Model of Growth through Creative Destruction.” Econometrica 60 (1992), 323-351.
- Barro, R. J., and X. Sala-i-Martin. Economic Growth , 1995, chapters 6-7.
- Romer, P. M. “Endogenous Technological Change.” Journal of Political Economy 98 (1990): 71-102.
- Acemoglu, D. “Directed Technical Change.” Review of Economic Studies 69 (2001): 781-810.
- Barro, R., and X. Sala-i-Martin. “Public Finance in Models of Economic Growth.” Review of Economic Studies 59 (1992): 645-662.
- Brezis, E., P. R. Krugman, and D. Tsiddon. “Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership.” American Economic Review 83 (1993): 1211-1219.
- Grossman, G. M. and E. Helpman. “Quality Ladders in the Theory of Economic Growth.” Review of Economic Studies 58 (1991): 43-61.
- Jones, C. “R&D-Based Models of Economic Growth.” Journal of Political Economy 103 (1995): 759-784.
- Parente, S. L., and E. C. Prescott. “Barriers to Technology Adoption and Development.” Journal of Political Economy 102 (1994): 298-321.
Prerequisites & course information
Prereq: 14.06 and permission of instructor G (Fall; first half of term) 3-0-3 units
Sources
- Course catalogue ↗2026–2027
- MIT OpenCourseWare ↗Fall 2009
- MIT OCW readings ↗
- MIT OCW syllabus ↗
- MIT OpenCourseWare ↗Spring 2007
- MIT OCW readings ↗
- MIT OCW syllabus ↗
- Historical MIT OpenCourseWare offering. Named reading entries and schedule topics are automatically extracted from the linked source pages.
- Historical MIT OpenCourseWare offering. Named reading entries and schedule topics are automatically extracted from the linked source pages.