Office Hours: Tue 15:00-16:00


Office hours: Tuesday, 15:00-17:00
T.A.: Pasquale Filiani (

The course is an introduction to modern macroeconomics analysis based on utility maximization, asset pricing and competitive equilibrium theory. A first part focuses on optimal consumption, savings and asset accumulation from the individual point of view. We introduce the notions of inter-temporal budget constraints, Euler equations, consumption smoothing over time and states, risk aversion and precautionary saving. Then, we present some basic insights on asset pricing under risk. The second part of the course is devoted to the equilibrium restrictions on consumption and asset accumulation in competitive economies under two alternative frameworks: a finite number of infinitely lived individuals and overlapping generations. We will establish conditions under which an equilibrium configuration implies consumption smoothing and risk sharing and examples in which these properties may fail. Then, we discuss some topics in public finance, Ricardian equivalence and existence of bubbles and positive outside assets. Finally, we examine what conditions insure or prevent the Pareto efficiency of competitive equilibria.


1. Consumption Choices in the Deterministic Model

1.1. Budget constraints and debt limits

1.2. The Euler equation

1.5. The Lagrange method

1.6. The transversality condition

1.7. The Arrow-Debreu budget constraint (how it arises and why)

1.8. Consumption smoothing and the permanent income hypothesis

1.9. An example of optimal plans with binding debt limits

2. Consumption and Savings under Uncertainty

2.1. Modeling uncertainty (the date-event tree, events probabilities)

2.2. Budget constraints and Euler equations with complete markets

2.3. Budget constraints and Euler equations with incomplete markets

2.4. The consumption function under certainty equivalence

2.5. Precautionary savings

2.6. Asset pricing with long-lived assets, no arbitrage and risk premiums

2.7. Market fundamentals and bubble components

3. Equilibrium

3.1. Defining equilibria and basic properties of the equilibrium price sequences

3.2. The CRRA example

3.3. Consumption smoothing and risk sharing with no aggregate uncertainty

3.4. The cost of Business Cycles

3.5. Equilibrium with tight debt limits in a Bewley economy

3.6. Overlapping generations with and w/out parental altruism

3.7. Social security in the overlapping generations model

3.8. First Welfare Theorem

3.9. Pareto inefficiency in the overlapping generations model

4. Outside Assets

4.1. Long-Term assets and bubbles in equilibrium

4.2. Existence of asset bubbles in the overlapping generations model

4.3. Public debt and Ricardian equivalence

4.4. Government Debt in the Bewley economy with tight debt limits


Teaching material is based on my lecture notes


14/2 Introduction, Preferences, Budget Sets, Debt Limits 01
15/2 Euler Equations, Transversality – Problem Set 1 assigned 02
21/2 Inter-Temporal Budget Constraints in Infinite Horizons 03
22/2 Consumption Smoothing and the Permanent Income Hypothesis 04
28/2 Review Session – Problem Set 2 assigned 05
01/3 Decisions under Uncertainty, complete markets 06
07/3 Review Session – Problem Set 3 assigned 07
08/3 Incomplete Markets and the Certainty Equivalence Model 08
14/3 Review Session – Problem Set 4 assigned 09
15/3 Prudence and Precautionary Savings 10
21/3 Review Session – Problem Set 5 assigned 11
22/3 Asset Pricing and Long-Lived Assets 12
28/3 Break ///
29/3 Midterm Exam ///
04/4 Review Session 13
05/4 Review Session – Problem Set 6 assigned 14
11/4 Equilibrium with Long Lived Individuals 15
12/4 Consumption Smoothing and Risk Sharing – Problem Set 7 assigned 16
18/4 Easter Break ///
19/4 Welfare Theorems – Problem Set 8 assigned 17
25/4 Holiday ///
26/4 Overlapping Generations, Parental Altruism 18
02/5 Review Session – Problem Set 8 assigned 19
03/5 Outside Assets, Long-Lived Assets and Bubbles 20
09/5 Review Session – Problem Set 9 assigned 21
10/5 Government debt and Ricardian equivalence 22
In general, I will hold classes on Wednesday and the TA will hold a review session on Tuesday. But there will be exceptions
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