Economies are constantly in flux, and economists have long sought reliable means of analyzing their dynamic properties. This book provides a succinct and accessible exposition of modern dynamic (or intertemporal) macroeconomics. The authors use a microeconomics-based general equilibrium framework, specifically the overlapping generations model, which assumes that in every period there are two generations which overlap. This model allows the authors to fully describe economies over time and to employ traditional welfare analysis to judge the effects of various policies. By choosing to keep the mathematical level simple and to use the same modeling framework throughout, the authors are able to address many subtle economic issues. They analyze savings, social security systems, the determination of interest rates and asset prices for different types of assets, Ricardian equivalence, business cycles, chaos theory, investment, growth, and a variety of monetary phenomena.
Introduction to Dynamic Macroeconomic Theory will become a classic of economic exposition and a standard teaching and reference tool for intertemporal macroeconomics and the overlapping generations model. The writing is exceptionally clear. Each result is illustrated with analytical derivations, graphically, and by worked out examples. Exercises, which are strategically placed, are an integral part of the book.
George McCandless is an economist at the Central Bank of Argentina.
Preface PART ONE: REAL ECONOMIES 1. Describing the Enviroment Time The Population Total Resources Feasible Consumption Allocations Efficient Consumption Allocations Preferences Pareto Optimality Reprise 2. Competitive Equilibrium Private Ownership Competitive Intragenerational Trade Consumption Decisions An Example Savings Function Competitive Equilibrium An Example of a Competitive Equilibrium Reprise 3. Introducing a Government Taxes Government Borrowing Ricardian Equivalence Rolling Over Government Debt Equivalence between Equilibria with Bonds and Tax-Transfer Schemes Reprise Appendix: Proof of Ricardian Equivalence 4. Bequests Generation 0 Cares about Generation 1 Diversity within Generations All Generation Care about Their Children Reprise 5. Long-Term Government Bonds k-Period Bonds Temporary Equilibrium Perfect Foresight Term Structure of Interest Rates Reprise 6. Infinitely Lived Assets Temporary Equilibrium with Land An Example A Price Function Perfect Foresight Competitive Equilibria Three Example Economies The Price of Land and the Crop International Capital Movements Reprise 7. Equilibrium Fluctuations Real Cycles Multiple Nonstationary Equilibria Equilibria with the Crop Reprise 8. A Storage Technology Feasible Allocations Competitive Equilibrium Finding a Competitive Equilibrium Reprise 9. The Neoclassical Growth Model The Physical Environment and the Feasible Allocations Equilibrium Outputs, Inputs, and Factor Rentals at Each Date The Individual Choice Decision under Perfect Foresight A Definition of Equilibrium Equilibrium Paths when n=1 and g=0 Equilibrium Paths when n> 1 and g=0 Equilibrium Paths when n=1 and g> 0 Differential Savings Rates Reprise PART TWO: MONETARY ECONOMIES 10. Money and Inflation Equilibria with fixed Money Supply Fiat Money and Other Assets Inflation Money Creation and Inflation Seignorage Nonoptimality of Seignorage Reprise 11. Multiple Currencies and Exchange Rates Independence with Laissez-Faire Floating Rates Seignorage in a Multiple Money World Portfolio Autarky Regimes Reprise 12. Legal Restrictions and Monetary Policy Comsumption Choice under Credit Controls Equilibrium Conditions under Credit Controls Monetary Policy The Government Individual Choice with Requirements and No Government Bonds Equilibrium with Reserve Requirements and No Government Bonds A Two-Group Example of a Binding Equilibrium Large Denomination Bonds Stationary Equilibrium with Large Denomination Bonds Reprise References Index