This is a short book. It aims to get across the essential elements of dynamics
that are used in modern treatments of the subject. More significantly, it aims
to do this through the means of examples. Some of these examples are purely
algebraic. But many others consider economic models: both microeconomic
and macroeconomic. Macroeconomics is replete with dynamic models – some
simple and others quite complex. But this is not true of microeconomics.
This book is authored by James Lamb who has been a student of mine in “Introduction to Macroeconomics”, Fall 2004. The reasons for this assignment are: Learning is a “Cumulative” procedure. The students learn a little bit every day...
Chapter 11 - The aggregate expenditures model. The chapter begins with the simple version of the AE model: that of a closed, private economy. The equilibrium GDP is determined and multiplier effects are briefly reviewed. The simplified “closed” economy is then “opened” to show how it would be affected by exports and imports.
Chapter 21 Optimal Unemployment Insurance
21.1. History-dependent UI schemes
This chapter applies the recursive contract machinery studied in chapters 19, 20, and 22 in contexts that are simple enough that we can go a long way toward computing the optimal contracts by hand.
The Santa Fe Institute (SFI) is interested in understanding evolving complex
social, biological, and physical adaptive systems in a most general sense
(see Cowan et al. 1994). Those of us at SFI interested in the evolution of
social behavior have tended to focus on either small-scale societies or on specific
aspects of more complex societies, such as the economy.
Also, since most job holders do useful work, job creation is tied to wealth creation—for
the simple reason that when more people are put to work, more work gets done. This
point requires a bit of explaining, as an exception comes to mind right away. Certainly it
is possible for a given company to get more work done without adding jobs, or even
while eliminating jobs. That is called raising productivity, and we as a society are
constantly coming up with ways to raise productivity.
For instance, this paper you are reading did not need to be...
This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on collateral. Basel I- and Basel II-type regulatory regimes are deﬁned and a capital channel is introduced through a signaling effect of capital buffers. The macroeconomic effects of
The plan of the paper is as follows. Section 1 argues that very high government debt/GDP
ratios will increase uncertainty about the future path of interest rates. This will reduce the
degree of asset substitutability between short-dated and long-dated paper, impairing the
effectiveness of changes to the policy rate and making the short-term/long-term mix of
government debt sales a more effective instrument of macroeconomic policy (Section 2). But
the long-term interest rate on government bonds also has fundamental implications for
financial stability (Section 3).
Briefly, we construct a measure of relative macroeconomic performance by first identifying
the global business cycle using a simple factor model. We calculate seasonally adjusted
quarter-over-quarter real GDP growth rates and extract the first principal component across
the 46 economies in our sample. This single factor explains around 40 per cent of the
variation in the average economy’s output, but with wide variation across economies. We
then use the residuals from the principal component analysis as the measure of an
economy’s idiosyncratic performance.
In this chapter you will: See how economists apply the methods of science, consider how assumptions and models can shed light on the world, learn two simple models - the circular flow and the production possibilities frontier, distinguish between microeconomics and macroeconomics,...