Académique Documents
Professionnel Documents
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Savings
o
o
o
o
Bonds
o
N = Maturity,
o
o
Dividends are a function of firms cash flows, which will eventually adjust
to inflation
Unexpected increase in output
Movement should be less than for bonds since bonds dont have div effect
Recessions
Stock prices decline shortly before the recession and start to rise towards
the end of the recession [procyclical]
Current Yield: ic =
o
o
Required yields are higher during booms => bond prices fall during booms
Long term bonds have both interest-rate and inflation risk
Pb,t =
Stocks
o
Price-earning ratio
CA = S I
; Fisher approximation: r = i
i = risk-free rate
Pstock =
Production
o
Y = AF(K,N), where A = Total Factor Productivity, K = Capital, N = Labor hours
o
Cobb-Douglas: Y = AKaN1-a, where a = 0.3 for the US (capital share of income)
gN = population growth
gK = saving by people
Saving, Investment, and Capital
o
Closed Economy: St = It
o
Capital Accumulation: Kt+1 = (1-d)Kt + It, where d = .10 for the US
o
No set maturity
Pstock,t =
N (w) =
u=
Intertemporal:
consumption growth =
if (1+r) > 1, then cf > c
smoothing: (1+r) = 1, c = cf
Increase in r has ambiguous effect on c and cf
Government
o
Budget Current: G = T+B, B = bonds issued
Future: G + (1+r)B = Tf
consumer's: c +
Intertemporal: G +
c+
o
Marginal Propensity to Consume = c/y
Investment and Capital
o
Kt+1 = (1-d)Kt + It
o
Firm maximizes = P*AF(K,N) UC*K W*N
= MC
MPN = A
= ucf = MCf
Spvt = Y T + INT C
Sgovt = (T INT) - G
o
real interest rate r adjusts to clear market