Foundations of Macro-Finance (Spring 2022)
The course is a rigorous, quantitative analysis of consumption based asset pricing models. After carefully reviewing the basics of the representative consumer framework in a closed economy, we will be interested in understanding the way in which prices are determined in general equilibrium and the way in which leading theories perform when it comes to international asset pricing. Since a special attention will be devoted to developing the tools for solving recursive dynamic problems in theory and practice, basic knowledge of Matlab or Fortran is a prerequisite for this class. A pdf version of the syllabus is available here.
Meeting time and venue
Based on the evolution of the spread of the coronavirus, the class will either meet in person (room 4015) or remotely (https://kenan-flagler.zoom.us/my/drric) on Wednesdays from 8.30am to 11am.
The recommended textbooks for this class are:
- “Recursive Macroeconomic Theory” by Lars Ljungqvist and Thomas Sargent. We will abbreviate it as RMT below.
- “Applied Computational Economics and Finance”, by Mario Miranda and Paul Fackler. We will refer to it as COMP below.
- “Robustness” by Lars Peter Hansen and Thomas J. Sargent. We will refer to it as HS below.
- Class 1-3 (1/12, 1/19, 1/26)
- Class 4 (2/2)
- Topic: Consumption based asset pricing with multiple consumers: equilibrium with complete markets.
- Readings: RMT, chapter 8
- Class 5 (2/9)
- Topic: Consumption based asset pricing with multiple consumers: equilibrium with complete markets (cont’d).
- Readings: RMT, chapter 8
- Homework #2 [pdf]
- Class 6-7 (2/16, 2/21)
- Note: class 7 will take place on Monday 2/21 instead of Wednesday 2/23; class starts at 8.30am.
- Topic: Asset Pricing with recursive preferences
- Slides: two states example [pdf]
- Matlab Programs
- Hansen and Jagannathan bound with recursive preferences [matlab]
- Bansal and Yaron’s baseline calibration [matlab]
- Campbell and Shiller approximation of p/d ratio [matlab]
- Polynomial Approximation of p/d ratio [matlab]
- Piecewise Linear Approximation of p/d ratio [matlab]
- Polynomial vs Piecewise: motivational example [matlab]
- Class 8(3/2)
- Topic: International Asset Pricing with recursive preferences
- “International Risk Sharing is better than you think, or exchange rates are too smooth”, by Michael Brandt, John Cochrane, and Pedro Santa-Clara Journal of Monetary Economics, 2006, vol.53, pp.671-698. [pdf]
- “Risks for the long-run and the real exchange rate”, by Riccardo Colacito and Mariano Croce, Journal of Political Economy, 2011. [pdf]
- Slides [pdf]
- Anskwer key to homework #2 [pdf]
- Final exam: Thursday 3/10 at 9am