This textbook introduces readers to essential tools, techniques and methods for intertemporal and strategic modeling in economics. It presents a variety of analytical models covering both dynamic processes and strategic interaction. Students will learn the basic mechanisms associated with the intertemporal approach, on the one hand, and game theory, i.e., the strategic approach, on the other. In addition, a wide range of applications are explored, including growth models, labor markets, international trade, and individual decision-making. Intended for upper undergraduate and graduate students in economics and related fields with a background in mathematics and calculus, this textbook provides a comprehensive introduction to economic modeling and its applications. By avoiding excessive formalism and exploring straightforward examples and applications, it is optimally suited for graduate courses in economics and finance.
Author(s): Orlando Gomes
Series: Lecture Notes in Economics and Mathematical Systems, 693
Publisher: Springer
Year: 2022
Language: English
Pages: 257
City: Cham
Preface
Contents
1 Dynamics: Intertemporal Decision-Making
1.1 The Two-Period Budget Constraint
1.2 The Intertemporal Budget Constraint
1.3 The Utility Function
1.4 Time Preference and Intertemporal Utility
1.5 The Two-Period Utility Maximization Problem
1.6 The Infinite Horizon Utility Maximization Problem
1.7 Endogenous Labor Supply
1.8 Finite Horizons and Life Cycle Choices
1.9 Money and Prices
1.10 Decreasing Impatience and Inconsistent Plans
1.11 Review Questions
2 Games: Strategic Decision-Making
2.1 Basic Elements of a Game
2.2 Normal Form Games
2.3 Dominant Strategies and Nash Equilibrium
2.4 Classification of Game Solutions
2.5 Examples of Normal Form Two-Player Games
2.6 Games with More Than Two Strategies
2.7 Mixed Strategies
2.8 Games with Incomplete Information
2.9 Sequential Games or Games in Extensive Form
2.10 Evolutionary Games
2.11 Review Questions
3 Economic Growth Models
3.1 The Neoclassical Production Function
3.2 The Profit Maximization Problem of the Representative Firm
3.3 Neoclassical Growth with Exogenous Savings (the Solow Model)
3.4 Income Convergence
3.5 Additional Elements: Population Growth and Labor Productivity
3.6 The Ramsey Growth Model
3.7 Transitional Dynamics in the Ramsey Growth Model
3.8 Growth in Discrete Time
3.9 Investment with Adjustment Costs
3.10 Overlapping Generations and Growth
3.11 Review Questions
4 More on Growth Dynamics: Endogenous Growth and Beyond
4.1 Endogenous Growth with Exogenous Savings: The AK Model
4.2 The AK Model with Transitional Dynamics
4.3 Externalities and Endogenous Growth
4.4 Human Capital and Endogenous Growth
4.5 The Dynamics of the Uzawa–Lucas Model
4.6 Technical Progress and Endogenous Growth
4.7 A Model of Allocation of Time
4.8 Automation and the Fall of the Labor Share
4.9 Heterogeneity: Ants and Grasshoppers
4.10 Ants and Grasshoppers in an AK Endogenous Growth Model
4.11 Review Questions
5 The Search and Matching Model
5.1 The Matching Function and Labor Market Tightness
5.2 Unemployment Dynamics
5.3 Optimal Firm’s Behavior
5.4 Optimal Worker’s Behavior
5.5 Wage Bargaining
5.6 Equilibrium and Dynamics
5.7 Search Intensity
5.8 Endogenous Job Destruction and Endogenous Unemployment Benefit
5.9 Heterogeneity
5.10 A Goods Market Search and Matching Model
5.11 Review Questions
6 Fiscal Policy and Government Intervention
6.1 The Government Budget Constraint in Two-Periods
6.2 The Government Budget Constraint in Multiple Periods
6.3 Ricardian Equivalence (Two Periods)
6.4 Ricardian Equivalence (Long Horizons)
6.5 Tax Systems and Welfare
6.6 A Two-Period Model With Multiple Taxes
6.7 Social Security
6.8 Social Security as Insurance
6.9 Unemployment Benefit
6.10 A Public Goods Game
6.11 Review Questions
7 New Keynesian Macro Dynamics
7.1 Household Behavior Under Monopolistic Competition
7.2 Firm Behavior Under Monopolistic Competition
7.3 Macro Equilibrium Without Nominal Rigidities
7.4 Price Stickiness
7.5 The New Keynesian Is and Phillips Curves
7.6 The Dynamics of the New Keynesian Model: Optimal Monetary Policy
7.7 The Dynamics of the New Keynesian Model: The Taylor Rule
7.8 Information Stickiness
7.9 Heterogeneous Agents: Fundamentalists Versus Trend Followers
7.10 Heterogenous Agents: Optimizers Versus Hand-to-Mouth Consumers
7.11 Review Questions
8 International Trade and Geography
8.1 A Heterogeneous Productivity Setting
8.2 Iceberg Costs and Exports
8.3 Imports
8.4 Market Dimension, Cost Structure, and Dynamic Gains from Trade
8.5 Foreign Direct Investment
8.6 Simple Location Dynamics
8.7 A Time–Space Equation
8.8 An Epidemiological Model of Knowledge Diffusion
8.9 Waves of Knowledge Propagation
8.10 International Environmental Management
8.11 Review Questions
9 Additional Applications
9.1 The Cobweb Market Model
9.2 Allocation of Talent and Economic Growth
9.3 Basic Science Versus Applied Technology: Setup
9.4 Basic Science Versus Applied Technology: Dynamics
9.5 Socially Responsible Investment: Setup
9.6 Socially Responsible Investment: Dynamics
9.7 Agency Relations in the Brain: Setup
9.8 Agency Relations in the Brain: Dynamics
9.9 Chaos: A Simple Example
9.10 Rock-Paper-Scissors Evolutionary Game
9.11 Review Questions
Reference List/Suggestions for Further Reading
