EC417 Lecture 9

EC417_Macroeconomics Macro

Related Topics

• Microeconomic Origins of Aggregate Fluctuations

• p9 some fields are volatile, some are not

• p12 Annual review is best to explore before starting a new area

• p14 Lucas’ diversification argument

  • economy is composed of a set $K$ production entities, like factories, firms…
  • only productivity shocks
  • entity $k\in K$ is subject to idiosyncratic output $a_{kt}$ , these shocks are micro shocks
  • Summing up, they become the GDP.
  • What’s the GDP volatility in this economy? p15 (double check the equation)

• p17 Granular shocks

• p22 Large firms are more important, right tail is fat. (Pareto Distribution)

  • 
  • Indeed small firms do not matter a lot in Economic Growth

• p25 whether $k$ is even less than $\delta$ .

• p36: The Domar weight is added up

  • $n$ competitive firms/industries.
  • The only assumption we need is the Constant Return to Scale.
  • Start from social planners. Use market equilibrium to derive the market prices… And then we still use the view from household, firms, like usual.
  • The Welfare Theorem guarantees that planners problem equals decentralized equilibrium.
  • Use Envelope Theorem again here.
  • Euler’s homogeneous function theorem p41
  • Hulten’s Theorem p42
    • The $1\%$ of decrease in Walmart is equivalent to $1\%$ of decreasing in a electricity sector. But it’s quite different when shutting down.

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