Questions tagged [macroeconomics]

Macroeconomics is a branch of economics dealing with the aggregate economy as a whole, rather than individual markets.

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Typical Growth Model Social Planner Problem

Consider the following social planner's problem, hand-waving the usual assumptions on the preference, technology, endowment, and inelastic supply of labor: $V(k_o^*)= max_{\{c_t,k_{t+1}\}_{t=0}^{\...
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Growth Model Choices

In a typical macro growth model, a set-up usually concerns with the following trade-offs or choices to be made in each $t$: (1) $c_t$ v. $c_{t+1}$, consumption today versus tomorrow. (2) $c_t$ v. $1-...
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Stokey, Lucas (1989) p 11 FOC

My Lagrangian is: $L=\sum\limits_{t=0}^T \beta^tU(f(k_t)-k_{t+1})+\sum\limits_{t=0}^T\lambda_t(f(k_t)-k_{t+1}).$ My FOC for $[k_{t+1}]$ is: $\beta^tU'(f(k_t)-k_{t_1}^*)(-1)-\lambda_t^*+\beta^{t+1}U'...
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Dixit Stiglitz price index FOC?

In the solution to the problem below provided by my professor he applies a first order condition to the lagrangian for ct, getting pt for the partial derivative of the argument "$\frac{d}{dc_t(t)} \...
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Measure of New Firms Born in Each Period

In an economy with stochastic overlapping generations of firms, how do we easily understand the measure of new firms born? The set-up states: "In each period, measure $\rho\in(0,1)$ of new firms are ...
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Puzzle: Fairness of consumer price indices

I have learned a bit how the consumer price index (= inflation rate) in Germany is calculated. It's a complex process, which takes into account a lot of measured values (mainly specific prices for ...
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Why people respond to surveys like that of Purchasing Managers' Index?

A lot of data, including indexes, rely on surveys. For example, Purchasing Managers' Index. (1) Why people answer these surveys (is there any benefit)? (2) How to make sure the data is correct? What ...
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Real Business Cycle model and demand shock

Suppose there is an increase in demand in a real business cycle set-up. Since aggregate supply is fixed and prices are fully flexible, won't that leave output unchanged as prices adjust to clear the ...
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74 views

Why is an inflation rate of 2% optimal? [duplicate]

Learning from different sources I got the impression that the European Central Bank targets at a inflation rate of 2% (not sure along which time scale actually). Can it be explained by general ...
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The law of supply and demand - How does it work?

I've learned what the principle of supply and demand says, and would paraphrase it like this: The price of a good is at equilibrium when supply and demand are equal. Or with other words: The ...
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Is the New Keynesian Phillips Curve a supply curve?

In New Keynesian models, the Phillips curve typically takes the form: $\pi_t=\beta E_t(\pi_{t+1})+\kappa y_t$ Here, $\pi_t$ refers to inflation in period $t$, and $y_t$ refers to output. Would it ...
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Difference between shocks, innovations and disturbances

In macroeconomics and macroeconomic models, shocks, innovations, and disturbances are very prominent and often mentioned in the literature. In general, is there a difference between macroeconomic ...
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Is there any mainstream criticism of the Benes-Kumhof conclusion that the Chicago Plan would improve the US economy nowadays?

A 2012 IMF Working paper by Benes and Kumhof "The Chicago Plan Revisited " has this abstract, finding in favor of the Chicago Plan an all counts basically: At the height of the Great Depression a ...
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2answers
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The TYPICAL law of motion of capital

Consider a typical macro firm set-up where the capital can be produced from output goods using a linear technology. It costs some X units of output good to make a unit of the capital, and the capital ...
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The economics of a “no deal” Brexit

A "no deal" Brexit is presented in negative terms. In such a scenario the UK would set tariff schedules in line with trade strategy and protect domestic industry/agriculture with tariff rate quotas. ...
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Remittance: Migrant workers sending money to their families

I wonder about the role of migrant workers in a general economic context. Migrant working appears all over the world and on many time and space scales: around cities (e.g. commuters) inside ...
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log linearization around steady state (price dynamics)

I'm stuck with a derivation from Gali's book. In the version 2008, I can't get eq. (7) from chapter 3. All is ok until the following: $$ (1-\epsilon)\log\pi_{t}=\log(\theta+(1-\theta)\exp[(1-\...
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What happened to the money multiplier after QE?

QE meant that the monetary base increased dramatically, yet we don't see such a large reaction in money supply (I am thinking of M4 for the UK) nor in inflation. Why is this money not being lent out? ...
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Would apprenticeships improve the economy long term?

Evening my name is Nick and I am a high school student from Fairfield California and I’m 17, my super hyper theatrical question is about a substitute to college in order to create more efficiency in ...
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Do countries have an obligation to match their savings and consumption rate with that of the U.S.?

https://www.barrons.com/articles/europe-is-now-a-bigger-trade-villain-than-china-51558118723 The above articles state that trade imbalances are a bad thing and that if a government doesn't enact ...
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What is meant by “resource base” in this sentence?

I read a sentence in a chapter in my book which was: The emphasis on developing a resource base also meant that export-oriented growth was limited. I googled the for the term "resource view". But ...
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How can I obtain State level Investment in the US?

How can I obtain investment level data by state in the US? I want to analyse how Public investment vs Private Investment responded to TFP shocks on a state level, so I am looking for Gross Private ...
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What is the proper term for “contraction economics?”

By "contraction economics" I mean theories and work based on the assumption that the population of a country will decline over time. An example might be a paper looking at the housing market for ...
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Quantity theory of money

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate. My ...
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lifetime consumption explained

The formula for today's consumption is defined as: $$C = Y - T -S^P $$ That being said the consumption of tomorrow is: $$C' = Y' - T' + S^P(1+r)$$ Could anyone possibly explain to me why the ...
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Steady State in Korinek and Simsek (2014)

I was reading a paper by Korinek and Simsek (published in the AER in 2016). The version I cite is an IMF Working paper from 2014. The authors essentially describe an economy which has two types of ...
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Why is the present value of outflows = present value of inflow in an small open economy?

So as far as I understand the present value of outflows is the amount of money economy. On the other hand, the present value of inflow is the money coming into the economy (from other countries). ...
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Uncovered Interest Rate Parity Assumptions (UIRP)

When learning about UIRP i have naturally come across the assumptions under which it may hold. However i am having trouble understanding the role of these assumptions and what the actual consequences ...
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Exchange rate target zone 45 degree line in the free float case - Krugman Target Zones

As far as i understand in the Krugman target zone model the following equation describes the behaviour of the exchange rate within and outside a target zone $s_t = f_t + \alpha E_t(ds_t/dt)$. But if ...
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Are there economic models that predict (only) a medium/long-term negative effect of protectionism?

Going by some ECB models/estimates from last year, protectionism would result in negative consequences pretty fast, e.g. For illustration, I will use the results of simulations carried out by ECB ...
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Difference between IS curve viewed by Keynes and by Friedman

In my economics lectures, we are going through Keynes vs Friedman. As far as I got we have a downward sloping IS curve in the IS-LM model. We get this curve from the Keynesian cross when the rate of ...
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2answers
65 views

SMD and Lucas critique

One of the consequences of Lucas' critique is that models must be microfounded. On the other side, Sonnenschein-Mantel-Debreu (SMD) theorem claims that microfoundation doesn't have any repercussion on ...
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Does migration exacerbate (albeit delay) the problem of aging, economically-inactive populations in Western societies?

As a layman, I've always understood that there is a general consensus amongst economists that "immigration is economically beneficial" to rich Western countries (like Britain) who have aging ...
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Characteristics of monetary sovereignty

I would like to explore how much of a consensus there is regarding the term "monetary sovereignty" and how precise we can articulate it. The broad concept being: The power of the state to exercise ...
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How long did it take before the Hawley–Smoot Tariffs reached their peak effect on US growth?

I understand that this may still be a contentious issue, but are there some estimates how long it took before the Hawley–Smoot Tariffs impacted US growth significantly and/or how long it took for them ...
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What is the appeal of DSGE models?

As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation. They appear to explain observations in a ...
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Stationarity of log industrial index and log CPI

I'm looking to estimate a VAR, one of the variables in this VAR is the log of industrial production, and another is the log of the consumer price index. Will I need to difference these to get ...
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2answers
105 views

Could robots replace humans as consumers?

Could it ever be economically viable, once technology allows, to create robot consumers to replace humans if demand was so low because of automation and reduced spending power/unemployment or is there ...
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1answer
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Finding the % of the total consummation by category using elasticity and MPC

Given a total consummation of 1000 and a total revenue of 2000 with Cat 1 => elasticity of 0.5; MPC of 0.1 Cat 2 => elasticity of 1, MPC of 0.3 How would I go about to calculating the % of the ...
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1answer
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International emissions trading

As far as I have understood emission right certificates are some kind of currency. Each company may emit as much of say CO2 as its certificates allow. Certificates may be traded, i.e. bought and sold. ...
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Vector Autoregressions

Suppose running a VAR system featuring the central bank interest rate, inflation and GDP. Start by estimating each equation by OLS. How should you interpret the OLS residuals to these equations? My ...
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What is the difference between a growth shock and a productivity shock

In a RBC context, what I mean by growth shock is a total factor productivity shock that follows a stochastic trend $ln(a_t) = ln(a_{t−1}) + \gamma + \epsilon^a_t$. I.e. the technology $a_t$, has a ...
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Derivation of demand function

Hello. I'm graduate student in Japan. This time, what I want to ask is how to solve the profit maximization problem using the image production function and derive the demand function. This ...
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How Do I Numerically Represent Liquidity in the General Monetary Model Md = L(i) x PY

Please help me it's driving me mad yet I know it's so simple. I understand the qualitative aspects - how liquidity is simply a portion of our nominal income that we demand for transactions. And how ...
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Effect of Import Tariff on Supply of Currency on Foreign Exchange Market

I'm struggling with this question below for my macroeconomics course. If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be ...
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Why is there a Lagrangian Multiplier in the Dynamic Programming Problem of the RBC model?

Suppose that the household faces the following problem: $\underset{ c_t , k_{t+1}, n_t } \max \mathbb{E}_0 \sum_{t=0}^{\infty} \beta^t \ln c_t + \ln (1 - n_t)$ subjected to $ k_{t+1} = A_t k_t ^{\...
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Is it unreasonable to expect a country with a large public deficit and the world's reserve currency to not run trade deficits with other countries?

I have heard that country trade deficits are primarily driven by excessive consumer spending and large public deficits, and that having the world's reserve currency means that you will have to run ...
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How do you achieve quantative tightening?

In order to achieve quantative tightening the US Government is letting debt expire and not renewing it. What does this actually mean in practice? Presumably once money is made it is essentially ...
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Maximization problem FOC and Euler equation

Can someone please help me with the Lagragian and the derivation of the following objective function ? Beneath I provide the objective function, the constraint and the Euler equation that results from ...