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Readings

Required readings are designated with a (*) symbol.

Readings by Session

Part I - Prof. Guido Lorenzoni

SES # TOPICS READINGS
1. Information and business cycles
1-2 News about the future and fluctuations

* Beaudry, Paul, and Franck Portier. "Stock Prices, News, and Economic Fluctuations." American Economic Review 96, no. 4 (September 2006): 1293-1307. Also available as National Bureau of Economic Research Working Paper No. 10548, June 2004.

* Jaimovich, Nir, and Sergio Rebelo. "Can News about the Future Drive the Business Cycle?" American Economic Review 99, no. 4 (September 2009): 1097-1118.

* Christiano, Lawrence, Cosmin Ilut, Roberto Motto, and Massimo Rostagno. "Monetary Policy and Stock Market Boom-Bust Cycles." European Central Bank Working Paper No. 955, October 2008.

Barsky Robert B., and Eric Sims. "Information Shocks, Animal Spirits, and the Meaning of Innovations in Consumer Confidence." National Bureau of Economic Research Working Paper No. 15049, June 2009.

Beaudry, Paul, and Franck Portier. "An Exploration into Pigou's Theory of Cycles." Journal of Monetary Economics 51, no. 6 (September 2004): 1183-1216.

———. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?" Journal of Economic Theory 135, no. 1 (July 2007): 458-477.

———. "The 'News View' of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral U.S. Data." Journal of the Japanese and International Economies 19, no. 4 (December 2005): 635-652. Also available as National Bureau of Economic Research Working Paper No. 11496, August 2005.

Two background references on vector autoregressions (VARs)

Buy at Amazon Hamilton, James D. Time Series Analysis. Princeton, NJ: Princeton University Press, 1994, chapters 10 and 11. ISBN: 9780691042893.

Blanchard, Olivier, and Danny Quah. "The Dynamic Effects of Aggregate Demand and Aggregate Supply Disturbances." American Economic Review 79, no. 4 (September 1989): 655-673.
3-6 Dispersed information

* Lucas, Robert, Jr. "Expectations and the Neutrality of Money." Journal of Economic Theory 4, no. 2 (April 1972): 103-124.

Buy at Amazon * Woodford, Michael. "Imperfect Common Knowledge and the Effects of Monetary Policy." Chapter 1 in Knowledge, Information, and Expectations in Modern Macroeconomics: In Honor of Edmund S. Phelps. Edited by Philippe Aghion, Roman Frydman, Joseph Stiglitz, and Michael Woodford. Princeton, NJ: Princeton University Press, 2003, pp. 25-58. ISBN: 9780691094854.

* Lorenzoni, Guido. "A Theory of Demand Shocks." American Economic Review 99, no. 5 (December 2009): 2050-2084. Also available as National Bureau of Economic Research Working Paper No. 12477, August 2006.

Nimark, Kristoffer. "Dynamic Pricing and Imperfect Common Knowledge." Journal of Monetary Economics 55, no. 2 (March 2008): 365-382.
7-8 Estimating models with imperfect information

* Schmitt-Grohe, Stephanie, and Martin Uribe. "What's News in Business Cycles." National Bureau of Economic Research Working Paper No. 14215, August 2008.

* Blanchard, Olivier, Jean-Paul L'Huillier, and Guido Lorenzoni. "News, Noise, and Fluctuations: An Empirical Exploration." National Bureau of Economic Research Working Paper No. 15015, May 2009.

Fernandez-Villaverde, Jesus, Juan F. Rubio-Ramirez, Thomas J. Sargent, and Mark W. Watson. "A, B, C's (and D's) for Understanding VARs." American Economic Review 97, no. 3 (June 2007): 1021-1026.
2. Financial frictions and investment
9-10 Models with limited pledgeability

Buy at Amazon * Bernanke, Ben S., Mark Gertler, and Simon Gilchrist. "The Financial Accelerator in a Quantitative Business Cycle Framework." Chapter 21 in Handbook of Macroeconomics. Vol. 1C. Edited by John Taylor and Michael Woodford. Amsterdam, The Netherlands: North Holland, 1999, pp. 1341-1393. ISBN: 9780444501585. Also available as National Bureau of Economic Research Working Paper No. 6455, March 1998.

* Clementi, Gina Luca, and Hugo Hopenhayn. "A Theory of Financing Constraints and Firm Dynamics." Quarterly Journal of Economics 121, no. 1 (February 2006): 229-265.

* Kiyotaki, Nobuhiro, and John Moore. "Credit Cycles." Journal of Political Economy 105, no. 2 (April 1997): 211-248.

Carlstrom, Charles T., and Timothy S. Fuerst. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis." American Economic Review 87, no. 5 (December 1997): 893-910.

Cooley, Thomas, Ramon Marimon, and Vincenzo Quadrini. "Aggregate Consequences of Limited Contract Enforceability." Journal of Political Economy 112, no. 4 (August 2004): 817-847.

DeMarzo, Peter, and Michael Fishman. "Optimal Long-Term Financial Contracting with Privately Observed Cash Flows." Working paper, Stanford Graduate School of Business, Stanford University, May 2004. Also available as DeMarzo, Peter, and Michael Fishman. "Optimal Long-Term Financial Contracting." Review of Financial Studies 20, no. 6 (November 2007): 2079-2128.
11-12 Models with corporate control problems

* Dow, James, Gary Gorton, and Arvind Krishnamurthy. "Equilibrium Investment and Asset Prices under Imperfect Corporate Control." American Economic Review 95, no. 3 (June 2005): 656-681.

Philippon, Thomas. "Corporate Governance over the Business Cycle." Journal of Economic Dynamics and Control 30, no. 11 (November 2006): 2117-2141.

Jensen, Michael. "The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers." American Economic Review 76, no. 2 (May 1986): 323-329.
13 Models with intermediation and securitization

* Holmstrom, Bengt, and Jean Tirole. "Financial Intermediation, Loanable Funds, and the Real Sector." Quarterly Journal of Economics 112, no. 3 (August 1997): 663-691.

* Angeletos, George Marios, and Guido Lorenzoni. "Notes on Price-Making-Intermediaries." Mimeograph, Department of Economics, Massachusetts Institute of Technology, 2009.

He, Zhiguo, and Arvind Krishnamurthy. "A Model of Capital and Crises." Mimeograph, Northwestern University, September 2009. Also available as National Bureau of Economic Research Working Paper No. 14366, November 2008. (This resource may not render correctly in a screen reader.PDF)

Diamond, Douglas W. "Financial Intermediation and Delegated Monitoring." Review of Economic Studies 51, no. 3 (July 1984): 393-414.

Background references on corporate finance

Buy at Amazon Tirole, Jean. "Outside Financing Capacity," and "Liquidity and Risk Management, Free Cash Flow, and Long-Term Finance." Chapters 3 and 5 in The Theory of Corporate Finance. Princeton, NJ: Princeton University Press, 2005, pp. 113-156 and 199-236. ISBN: 9780691125565.

Buy at Amazon Hart, Oliver. Firms, Contracts, and Financial Structure. New York, NY: Oxford University Press, 1995. ISBN: 9780198288817.

 

Part II - Prof. Veronica Guerrieri

SES # TOPICS READINGS
3. Search models of decentralized trade with imperfect information
14-18 Labor market search and efficiency

Diamond, Peter. "Wage Determination and Efficiency in Search Equilibrium." Review of Economic Studies 49, no. 2 (April 1982): 217-227.

Mortensen, Dale. "Property Rights and Efficiency in Mating, Racing, and Related Games." American Economic Review 72, no. 5 (December 1982): 968-979.

* Mortensen, Dale, and Christopher Pissarides. "Job Creation and Job Destruction in the Theory of Unemployment." Review of Economics Studies 61, no. 3 (July 1994): 397-415.

Rogerson, Richard, Robert Shimer, and Randall Wright. "Search-Theoretic Models of the Labor Market: A Survey." Journal of Economic Literature 43, no. 4 (December 2005): 959-988.

* Hosios, Arthur J. "On the Efficiency of Matching and Related Models of Search and Unemployment." Review of Economic Studies 57, no. 2 (April 1990): 279-298.

Moen, Espen. "Competitive Search Equilibrium." Journal of Political Economy 105, no. 2 (April 1997): 385-411.

* Acemoglu, Daron, and Robert Shimer. "Efficient Unemployment Insurance." Journal of Political Economy 107, no. 5 (October 1999): 893-928.

* Guerrieri, Veronica. "Inefficient Unemployment Dynamics under Asymmetric Information." Journal of Political Economy 116, no. 4 (August 2008): 667-708. (This resource may not render correctly in a screen reader.PDF)

Galenianos, Manolis, and Philipp Kircher. "Directed Search with Multiple Job Applications." Journal of Economic Theory 144, no. 2 (March 2009): 445-471.

Hawkins, William. "Competitive Search, Efficiency, and Multi-Worker Firms." Mimeograph, Massachusetts Institute of Technology, April 2006. 

Kircher Philipp. "Efficiency of Simultaneous Search." Journal of Political Economy 117, no. 5 (October 2009): 861-913. Also available as Penn Institute of Economic Research (PIER) Working Paper No. 08-004, Department of Economics, University of Pennsylvania, January 2008.
19 Wage dispersion

* Burdett, Kenneth, and Kenneth Judd. "Equilibrium Price Dispersion." Econometrica 51, no. 4 (July 1983): 955-969.

Burdett, Kenneth, and Dale Mortensen. "Wage Differentials, Employer Size, and Unemployment." International Economic Review 39, no. 2 (May 1998): 257-273.

Acemoglu, Daron, and Robert Shimer. "Wage and Technology Dispersion." Review of Economic Studies 67, no. 4 (October 2000): 585-607.

Shi, Shouyong. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Based Technology." Review of Economic Studies 69, no. 2 (April 2002): 467-491.

Menzio, Guido. "A Theory of Partially Directed Search." Journal of Political Economy 115, no. 5 (October 2007): 748-769.

Shi, Shouyong. "Directed Search for Equilibrium Wage-Tenure Contracts." Econometrica 77, no. 2 (March 2009): 561-584.
20 Moral hazard and optimal unemployment insurance

Shavell, Stephen, and Laurence Weiss. "The Optimal Payment of Unemployment Insurance Benefits Over Time." Journal of Political Economy 87, no. 6 (December 1979): 1347-1362.

* Hopenhayn, Hugo, and Juan Pablo Nicolini. "Optimal Unemployment Insurance." Journal of Political Economy 105, no. 2 (April 1997): 412-438.

Werning, Iván. "Optimal Unemployment Insurance with Unobservable Savings." Mimeograph, Department of Economics, Massachusetts Institute of Technology, 2001. (This resource may not render correctly in a screen reader.PDF)

* Shimer, Robert, and Iván Werning. "Liquidity and Insurance for the Unemployed." American Economic Review 98, no. 5 (December 2008): 1922-1942.
21-23 Money search and liquidity

Lucas, Robert, Jr. "Inflation and Welfare." Econometrica 68, no. 2 (March 2000): 247-274.

* Kiyotaki, Nobuhiro, and Randall Wright. "On Money as a Medium of Exchange." Journal of Political Economy 97, no. 4 (August 1989): 927-954.

* Kocherlakota, Narayana. "Money is Memory." Journal of Economic Theory 81, no. 2 (August 1998): 232-251.

Shi, Shouyong. "A Divisible Search Model of Fiat Money." Econometrica 65, no. 1 (January 1997): 75-102.

* Lagos, Ricardo, and Randall Wright. "A Unified Framework of Money Theory and Policy Analysis." Journal of Political Economy 113, no. 3 (June 2005): 463-484.

Menzio, Guido, Shouyong Shi, and Amy Hongfei Sun. "A Monetary Theory with Non-Degenerate Distribution." Mimeograph, University of Pennsylvania, May 2009. (This resource may not render correctly in a screen reader.PDF)

Guerrieri, Veronica, and Guido Lorenzoni. "Liquidity and Trading Dynamics." Econometrica 77, no. 6 (November 2009): 1751-1790. Also available as National Bureau of Economic Research Working Paper No. 13204, June 2007.

* Banerjee, Abhijit, and Eric Maskin. "A Walrasian Theory of Money and Barter." Quarterly Journal of Economics 111, no. 4 (November 1996): 955-1005.

Lagos, Ricardo. "Asset Prices and Liquidity in Exchange Economy." Federal Reserve Bank of Minneapolis Research Department Staff Report No. 373, May 2006. (This resource may not render correctly in a screen reader.PDF)

* Lester, Benjamin, Andrew Postlewaite, and Randall Wright. "Information, Liquidity, Asset Prices, and Monetary Policy." Mimeograph, University of Pennsylvania, February 2009. (This resource may not render correctly in a screen reader.PDF)
24 Adverse selection and lemons problem

Akerlof, George. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism." Quarterly Journal of Economics 84, no. 3 (August 1970): 488-500.

* Rothschild, Michael, and Joseph Stiglitz. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information." Quarterly Journal of Economics 90, no. 4 (November 1976): 629-649.

Prescott, Edward, and Robert Townsend. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard." Econometrica 52, no. 1 (January 1984): 21-45.

* Gale, Douglas. "Equilibria and Pareto Optima of Markets with Adverse Selection." Economic Theory 7, no. 2 (1996): 207-235.

Dubey, Prandeep, and John Geanakoplos. "Competitive Pooling: Rothschild-Stiglitz Reconsidered." Quarterly Journal of Economics 117, no. 4 (November 2002): 1529-1570.

Bisin, Alberto, and Pietro Gottardi. "Efficient Competitive Equilibria with Adverse Selection." Journal of Political Economy 114, no. 3 (June 2006): 485-516.

* Guerrieri, Veronica, Shimer, Robert, and Randall Wright. "Adverse Selection in Competitive Search Equilibrium." National Bureau of Economic Research Working Paper No. 14915, April 2009.
25-26 Decentralized trading in financial markets

Ashcraft, Adam, and Darrell Duffie. "Systematic Illiquidity in the Federal Funds Market." American Economic Review 97, no. 2 (May 2007): 221-225.

Vayanos, Dimitri, and Pierre-Olivier Weill. "A Search-Based Theory of the On-the-Run Phenomenon." Journal of Finance 63, no. 3 (June 2008): 1361-1398.

* Duffie, Darrell, Nicolae Garleanu, and Lasse Heje Pederson. "Over-the-Counter Markets." Econometrica 73, no. 6 (November 2005): 1815-1848. Also available as National Bureau of Economic Research Working Paper No. 10816, October 2004.

Duffie, Darrell, Nicolae Garleanu, and Lasse Heje Pederson. "Valuation in Over-the-Counter Markets." Review of Financial Studies 20, no. 5 (2007): 1865-1900. Also available as National Bureau of Economic Research Working Paper No. 12020, February 2006.

Lagos, Ricardo, and Guillaume Rocheteau. "Liquidity in Asset Markets with Search Frictions." Econometrica 77, no. 2 (March 2009): 403-426.

* Lagos, Ricardo, Guillaume Rocheteau, and Pierre-Olivier Weill. "Crashes and Recoveries in Illiquid Markets." National Bureau of Economic Research Working Paper No. 14119, June 2008.

Guerrieri, Veronica, and Péter Kondor. "Fund Managers, Career Concerns, and Asset Price Volatility." National Bureau of Economic Research Working Paper No. 14898, April 2009.

* Caballero, Ricardo, and Alp Simsek. "Complexity and Financial Panics." National Bureau of Economic Research Working Paper No. 14997, May 2009.

Golosov, Michael, Guido Lorenzoni, and Aleh Tsyvinski. "Decentralized Trading with Private Information." National Bureau of Economic Research Working Paper No. 15513, November 2009.

Duffie, Darrell, Semyon Malamud, and Gustavo Manso. "Information Percolation with Equilibrium Search Dynamics." Econometrica 77, no. 5 (September 2009): 1513-1574.