Economic Fluctuations

Readings

• While there is no required textbook, the course does make frequent use of the following books:
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• BF = Blanchard, Olivier J., and Stanley Fisher. Lectures on Macroeconomics . Cambridge, MA: MIT Press, 1989, ISBN: 0262022834. ↗
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• Deaton = Deaton, Angus. Understanding Consumption . New York, NY: Oxford University Press, 1992, ISBN: 0198288247.
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• LS = Ljungqvist, Lars, and Thomas J. Sargent. Recursive Macroeconomic Theory . 2nd ed. Cambridge, MA: MIT Press, 2004, ISBN: 026212274X. ↗
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• Backus, David, Bryan Routledge, and Stanley Zin. “Exotic Preferences for Macroeconomists.” NBER Working Paper No. 10597, June 2004.
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• Deaton. Chapter 1.
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• Lucas, Robert E., Jr. Models of Business Cycles . Reprint ed. Malden, MA: Blackwell, 1987, chapter 3. ISBN: 0631147918.
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• Epstein, Larry G., and Stanley E. Zin. “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework.” Econometrica 57, no. 4 (1989): 937-969.
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• Lucas, Robert E., Jr. “Macroeconomic Priorities.” A. E. A. Presidential Address in American Economic Review 93, no. 1 (2003).
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• Weil, Philippe. “Non-expected Utility in Macroeconomics.” Quarterly Journal of Economics 105, no. 1 (1990): 29-42.
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• Stokey, Nancy L., Robert E. Lucas, Jr. and Edward C. Prescott. Recursive Methods in Economic Dynamics. Cambridge, MA: Harvard University Press, 1989, chapter 15. ISBN: 0674750969.
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• LS. Chapter 8.
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• Townsend, Robert M. “Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies.” Journal of Economic Perspectives 9, no. 3 (1995): 83-102.
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• LS. Chapters 8 and 13.
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• Kocherlakota, Narayana R. “The Equity Premium Puzzle: It’s Still a Puzzle.” Journal of Economic Literature 34, no. 1 (1996): 42-71.
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• Cochrane, John H., and Lars Peter Hansen. “Asset Pricing Explorations for Macroeconomics.” NBER Macroeconomics Annual. Cambridge, MA: MIT Press, 1992, pp. 115-169. (NBER Working Paper No. 4088.)
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• Cochrane, John. “Where is the Market Going? Uncertain Facts and Novel Theories.” Economic Perspectives XXI: 6 (1997). (NBER Working Paper No. 6207.)
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• Alvarez, Fernando, and Urban Jermann. “Using Asset Returns to Estimate the Costs of Business Cycle Fluctuations.” Journal of Political Economy 112, no. 6 (2004): 1223-1256.
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• Barro, Robert J. “On the Welfare Costs of Consumption Uncertainty.” NBER Working Paper No. 12763, December 2006.
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• ———. “Rare Disasters and Asset Markets in the Twentieth Century.” Quarterly Journal of Economics 121 (2006): 823-866.
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• Mehra, Rajnish, and Edward C. Prescott. “The Equity Premium: A Puzzle.” Journal of Monetary Economics 15, no. 2 (1985): 145-161.
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• LS. Chapters 16 and 17.
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• Krusell, Per, and Anthony A. Smith Jr. “Income and Wealth Heterogeneity in the Macroeconomy.” Journal of Political Economy 106, no. 5 (1998): 867-896.
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• Deaton. Chapters 6 and 7.
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• Aiyagari, S. Rao. “Uninsured Idiosyncratic Risk and Aggregate Savings.” Quarterly Journal of Economics 109, no. 3 (1994): 659-84. (See appendix in working paper version.)
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• Caballero, Ricardo J. “Earnings Uncertainty and Aggregate Wealth Accumulation.” American Economic Review 81, no. 4 (1991): 859-871.
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• Castañeda, Ana, Javier Díaz-Giménez, and José-Victor Ríos-Rull. “Accounting for the U.S. Earnings and Wealth Inequality.” Journal of Political Economy 111, no. 4 (2004): 818-857.
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• Deaton, Angus, and Christina Paxson. “Intertemporal Choice and Inequality.” Journal of Political Economy 102, no. 3 (1994): 437-467.
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• Heathcote, Jonathan, Kjetil Storesletten, and Giovanni Violante. “The Macroeconomic Implications of Rising Wage Inequality in the U.S.” CEPR Working Paper No. 4296, August 2004.
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• Harris, Christopher, and David Laibson. “Hyperbolic Discounting and Consumption.” Chapter 7 in Advances in Economics and Econometrics. Vol. 1. Edited by M. Dewatripont, L. P. Hansen, and S. J. Turnovsky. Cambridge, UK: Cambridge University Press, 2003. ISBN: 0521524113.
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• Krusell, Per, and Anthony A. Smith, Jr. “On the Welfare Effects of Eliminating Business Cycles.” Review of Economic Dynamics 2, no. 1 (1999): 245-272.
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• Laibson, David. “Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics 112, no. 2 (1997): 443-477.
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• Schechtman, Jack, and Vera L. Escudero. “Some Results on an Income Fluctuation Problem.” Journal of Economic Theory 16, no. 2 (1997): 151-166.
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• Weil, Philippe. “Precautionary Savings and the Permanent Income Hypothesis.” Review of Economic Studies 60, no. 2 (1993): 367-383.
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• Zeldes, Stephen P. “Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence.” Quarterly Journal of Economics 104, no. 2 (1989): 275-298.
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• Deaton. Chapters 2-5.
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• Attanasio, Orazio P. “Consumption.” In Handbook of Macroeconomics . Vol. 1B. Edited by John B. Taylor and Michael Woodford. Amsterdam, Netherlands: Elsevier Science, 1998. ISBN: 0444501568. (Also as NBER Working Paper No. 6466.)
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• Abel, Andrew. “Consumption and Investment.” In Handbook of Monetary Economics. Vol. 2. Edited by B. M. Friedman and F. H. Hahn. Amsterdam, Netherlands: Elsevier Science, 1990. ISBN: 0444880267.
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• Blundell, Richard, Luigi Pistaferri, and Ian Preston. “Consumption Inequality and partial insurance.” IFS Working Papers W04/28, Institute for Fiscal Studies, 2004.
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• Carroll, Christopher, and Lawrence Summers. “Consumption Growth Parallels Income Growth: Some New Evidence.” In National Savings and Economic Performance . Edited by Bernheim and Shoven. Chicago, IL: University of Chicago Press for NBER, 1991. ISBN: 0226044041.
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• Guvenen, Fatih. “Learning Your Earning: Are Labor Income Shocks Really Very Persistent?” American Economic Review . (Forthcoming)
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• Huggett, Mark, Gustavo Ventura, and Amir Yaron. “Sources of Lifetime Inequality.” Mimeo, 2006.
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• Gourinchas, Pierre-Olivier, and Jonathan Parker. “Consumption over the Life Cycle.” Econometrica 70, no. 1 (2002): 47-89.
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• Heathcote, Jonathan, Kjetil Storesletten, and Giovanni L. Violante. “Two Views of Inequality Over the Life-Cycle.” Journal of the European Economic Association 3, nos. 2-3 (2005): 765-775.
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• Storesletten, Kjetil, Chris Telmer, and Amir Yaron. “Consumption and Risk Sharing over the Life Cycle.” Journal of Monetary Economics 51, no. 3 (2004): 609-663.
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• Hall, Robert. “Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence.” Journal of Political Economy 86, no. 6 (1978): 971-987.
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• Kocherlakota, Narayana R. “Implications of Efficient Risk Sharing without Commitment.” Review of Economic Studies 63, no. 4 (1996): 595-609.
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• Townsend, Robert M. The Medieval Village Economy: A Study of the Pareto Mapping in General Equilibrium Models. Princeton, NJ: Princeton University Press, 1993, chapters 4-6. ISBN: 0691042705.
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• ———. “Risk and Insurance in Village India.” Econometrica 62, no. 3 (1994): 539-591.
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• LS. Chapters 19, 20, and 21.
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• Lucas, Robert E., Jr. “On Efficiency and Distribution.” Economic Journal 102, no. 411 (1992): 233-247.
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• Alvarez, Fernando, and Urban J. Jermann. “Quantitative Asset Pricing Implications of Endogenous Solvency Constraints.” Review of Financial Studies 14, no. 4 (2001). Especially sections 2, 4, and 5.1.
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• Atkeson, Andrew, and Robert E. Lucas, Jr. “On Efficient Distribution with Private Information.” Review of Economic Studies 59, no. 3 (1992): 427-453.
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• Abel, Andrew. “Consumption and Investment.” In Handbook of Monetary Economics. Vol. 2. Edited by B. M. Freeman and F. H. Hahn. Amsterdam, Netherlands: Elsevier Science, 1990. ISBN: 0444880267.
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• Hayashi, Fumio. “Tobin’s Marginal q and Average q: A Neoclassical Interpretation.” Econometrica 50, no. 1 (1982): 213-224.
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• Dixit, A. K., and R. S. Pindyck. Investment Under Uncertainty . Princeton, NJ: Princeton University Press, 1994, chapter 2. ISBN: 0691034109.
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• Bentolila, Samuel, and Giuseppe Bertola. “Firing Costs and Labour Demand: How Bad is Eurosclerosis?” Review of Economic Studies 57, no. 3 (1990): 381-402.
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• Caballero, Ricardo J. “Aggregate Investment.” In Handbook of Macroeconomics. Vol. 1B. Edited by John B. Taylor and Michael Woodford. Amsterdam, Netherlands: Elsevier Science, 1999. ISBN: 0444501576.
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• Hopenhayn, Hugo, and Richard Rogerson. “Job Turnover and Policy Evaluation: A General Equilibrium Analysis.” Journal of Political Economy 101, no. 5 (1993): 915-938.
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• Abel, Andrew B., and Janice C. Eberly. “Optimal Investment with Costly Reversibility.” Review of Economic Studies 63, no. 4 (1996): 581-593.
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• Bachmann, Ruediger, Ricardo J. Caballero, and Eduardo M. R. A. Engel. “Lumpy Investment in Dynamic General Equilibrium.” NBER Working Paper No. 12336, 2006.
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• Caballero, Ricardo J., and Eduardo M. R. A. Engle. “Explaining Investment Dynamics In U.S. Manufacturing: A Generalized (S,s) Approach.” Econometrica 67, no. 4 (1999): 783-826.
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• Caballero, Ricardo J., and John V. Leahy. “Fixed Costs: The Demise of Marginal q.” NBER Working Paper No. 5508, 1996.
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• Thomas, Julia K. “Is Lumpy Investment Relevant for the Business Cycle?” Journal of Political Economy 110, no. 3 (2002): 508-534.
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• Veracierto, Marcelo L. “Plant-Level Irreversible Investment and Equilibrium Business Cycles.” American Economic Review 92, no. 1 (2002): 181-197.
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