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| Preface to Second Edition | |
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| Introduction | |
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| Equilibrium Theory as an Approach to Macroeconomics | |
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| Preview of the Argument | |
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| Example | |
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| Regular Case | |
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| Irregular Case | |
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| Concluding Remarks | |
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| Problems | |
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| Linear Difference Equations: Part 1 | |
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| Introduction | |
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| Linearizing Nonlinear Models | |
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| Nonlinear Models to Represent Economies | |
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| Linearizing Autonomous Equations | |
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| Linearizing Nonautonomous Equations | |
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| Example of Linearization: The Solow Model | |
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| Solving First-Order Linear Models | |
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| First-Order Deterministic Equations | |
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| First-Order Stochastic Equations | |
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| Sequences of Probability Distributions | |
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| The Solow Model Revisited | |
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| Solving Higher-Order Linear Models | |
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| Eigenvalues and Eigenvectors | |
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| Higher-Order Deterministic Equations | |
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| Diagonalizing Systems of Nonstochastic Equations | |
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| Stochastic Vector Difference Equations | |
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| Example of a Vector System--The Behavior of the Solow Residual | |
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| Concluding Remarks | |
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| Problems | |
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| Linear Difference Equations: Part 2 | |
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| Introduction | |
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| Linear Rational Expectations Models | |
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| Optimal Growth as an Illustration of a Rational Expectations Model | |
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| Solving Linear Rational Expectations Models | |
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| Different Types of Rational Expectations Models | |
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| Case of a Regular Equilibrium | |
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| Solving a Rational Expectations Model by Iterating into the Future | |
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| Completing the Solution by Solving Equations that Depend on the Past | |
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| Optimal Growth Model and the Solow Model Compared | |
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| Cross-equation Restrictions and the Lucas Critique | |
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| Dynamics of a Monetary Model--A Second Example | |
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| Solving the Example Explicitly | |
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| Lucas Critique and the Cross-equation Restrictions | |
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| Irregular Solutions | |
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| Concluding Remarks | |
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| Problems | |
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| General Equilibrium Theory under Certainty | |
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| Introduction | |
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| Idea of Equilibrium | |
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| Theory of Consumer Choice | |
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| Assumptions about Preferences | |
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| Consumer's Problem | |
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| Excess Demand Functions | |
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| Individual Excess Demand Functions | |
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| Aggregate Excess Demand Functions | |
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| Equilibria and Their Properties | |
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| Some Definitions and Development of Notation | |
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| Geometry of Equilibrium | |
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| Debreu-Sonnenschein-Mantel Theorem | |
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| General Equilibrium Theory and Efficient Allocations of Resources | |
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| First Welfare Theorem | |
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| Second Welfare Theorem | |
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| Concluding Remarks | |
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| Problems | |
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| Infinite Horizon Economies and Representative Agents | |
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| Introduction | |
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| Representative Agent Economy | |
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| Assumptions about Structure | |
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| Assumptions about Preferences | |
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| Budget Sets and Market Structure | |
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| Consumer's Problem | |
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| Competitive Equilibrium and the Planner's Problem | |
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| Competitive Equilibrium | |
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| Planner's Problem | |
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| Using the Representative Agent Model to Explain Time Series Data | |
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| Removing the Trend from Data | |
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| Simple RBC Model and Its Implications | |
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| Regression on a Common Trend: What the Model Tells Us to Do | |
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| Hodrick-Prescott Filter: What RBC Economists Actually Do | |
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| Calibration and Summary Statistics: How RBC Theorists Measure Success | |
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| Concluding Remarks | |
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| Transversality Condition | |
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| Problems | |
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| Infinite Horizon Economies and Overlapping Generations | |
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| Introduction | |
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| Structure of the Overlapping Generations Economy | |
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| Consumer's Problem | |
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| Problem of a Young Agent | |
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| Problem of an Old Agent | |
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| Example of a Pareto Inferior Equilibrium | |
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| Case of Early Endowments | |
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| Case of Late Endowments | |
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| Institutions that May Improve Allocations | |
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| Set of Equilibria in the Overlapping Generations Model | |
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| Equilibria as Solutions to Difference Equations | |
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| Stationary Equilibria | |
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| Classifying Economies by Types of Stationary Equilibria | |
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| Dynamic Equilibria | |
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| Some Questions about the Model | |
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| Why Does the First Welfare Theorem Break Down? | |
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| When Does Indeterminacy Occur? | |
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| When Are Equilibria Efficient? | |
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| More General Examples of Overlapping Generations Economies | |
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| Kehoe-Levine Approach | |
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| Indeterminacy in the OG Model | |
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| Concluding Remarks | |
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| Problems | |
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| Infinite Horizon Economies with Nonconvexities | |
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| Introduction | |
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| Growth Model with Increasing Returns | |
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| Equations That Characterize an Equilibrium | |
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| Behavior of the Representative Family | |
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| Interpretation 1: Externalities in Production | |
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| Interpretation 2: Monopolistic Competition | |
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| Empirical Evidence for Increasing Returns | |
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| Equilibria in the Increasing Returns Economy | |
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| Finding a Balanced Growth Path | |
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| Approximate Linear Model | |
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| Comparing the Theoretical Properties of RA and IR Models | |
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| Why Does the IR Model Display Different Dynamics? | |
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| RA Model: An Example of a Regular Equilibrium | |
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| IR Model: An Example of an Irregular Equilibrium | |
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| Comparing Some Empirical Predictions of RA and IR Models | |
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| Contemporaneous Statistics | |
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| Dynamic Responses--The Impulse Response Function | |
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| Concluding Remarks | |
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| Problems | |
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| Some Recent Developments | |
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| Introduction | |
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| New Evidence against Big Increasing Returns | |
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| Nonseparable Preferences | |
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| Households | |
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| Technology | |
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| Solving the Consumer's Problem | |
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| Equations That Characterize Equilibrium | |
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| Example | |
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| Two-Sector Models | |
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| Technology | |
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| Production Possibilities Frontier | |
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| Behavior of the Representative Family | |
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| Indeterminacy and the Two-Sector Model | |
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| Procyclical Consumption | |
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| Calibrated Two-Sector Model | |
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| Concluding Remarks | |
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| Problems | |
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| General Equilibrium Theory and Uncertainty | |
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| Introduction | |
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| Debreu's Formulation of the Problem | |
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| Preferences under Uncertainty | |
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| Budget Constraints | |
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| Arrow's Formulation of the Problem | |
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| Trade in Financial Securities | |
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| Complete and Incomplete Markets | |
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| Multiple Budget Constraints and Incomplete Markets | |
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| Infinite Horizon Economies with Uncertainty | |
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| Asset Pricing in Lucas Tree Economies | |
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| Digression on Market Structure | |
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| Asset Pricing in the Representative Agent Case | |
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| Concluding Remarks | |
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| Problems | |
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| Sunspots | |
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| Introduction | |
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| Do Sunspots Matter? | |
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| Complete and Incomplete Participation | |
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| Setting up the Environment | |
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| Sunspot Theorems | |
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| Example of a Macroeconomic Model Where Sunspots Matter | |
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| Description of the Environment | |
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| Set of Equilibria | |
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| Supporting Sunspot Equilibria with Beliefs | |
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| Sunspots, Bubbles, and Regular Equilibria | |
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| Concluding Remarks | |
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| Problems | |
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| Macroeconomic Models of Money | |
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| Introduction | |
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| Rate of Return Dominance and Legal Restrictions Theory | |
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| Some Quick Fixes to Rate of Return Dominance | |
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| Models of Money | |
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| Budget Sets: the Opportunity Cost of Holding Money | |
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| Objective Functions: Cash in Advance and Its Relationship to Money in the Utility Function | |
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| Dynamics of a Cash-in-Advance Model | |
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| Different Types of Monetary Policy | |
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| Government's Budget Constraints | |
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| Typology of Policy Regimes | |
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| Equilibrium under Interest Rate Control | |
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| Policy Mix A: Fixed Interest Rates and Zero Debt | |
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| Equilibrium of the Real Economy under Interest Rate Control | |
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| Equilibrium Rates of Change of Nominal Variables under Interest Rate Control | |
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| Indeterminacy of the Nominal Scale of the Economy under Interest Rate Control | |
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| Economics of Indeterminacy under Interest Rate Control | |
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| Equilibrium under a Fixed Money Growth Rate Rule | |
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| Policy Mix B: Fixed Money Growth Rate and Zero Debt | |
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| Equilibrium of the Real Economy with a Fixed Money Growth Rate | |
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| Example of Indeterminate Equilibria in a Simple Economy | |
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| Concluding Remarks | |
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| Problems | |
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| Applied Monetary Theory | |
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| Introduction | |
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| Monetary Facts: What There Is to Explain | |
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| Simple Monetary Model: Using Equilibrium Theory to Explain the Facts | |
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| Modeling the Exchange Process | |
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| Formalizing the Exchange Technology | |
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| How to Describe an Equilibrium | |
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| How Do Equilibria Behave? | |
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| Choosing Functional Forms | |
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| What Do Equilibria Look Like? | |
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| Alternative Views of the Money-Income Correlation? | |
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| What Does All of This Have to Do with Sticky Prices? | |
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| Concluding Remarks | |
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| Problems | |
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| Notes | |
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| Bibliography | |
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| Index | |