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Dynamic Economics : Quantitative Methods and Applications - Jerome Adda

Dynamic Economics

Quantitative Methods and Applications

Hardcover Published: 29th August 2003
ISBN: 9780262012010
Number Of Pages: 296
For Ages: 18+ years old

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This book is an effective, concise text for students and researchers that combines the tools of dynamic programming with numerical techniques and simulation-based econometric methods. Doing so, it bridges the traditional gap between theoretical and empirical research and offers an integrated framework for studying applied problems in macroeconomics and microeconomics. In part I the authors first review the formal theory of dynamic optimization; they then present the numerical tools and econometric techniques necessary to evaluate the theoretical models. In language accessible to a reader with a limited background in econometrics, they explain most of the methods used in applied dynamic research today, from the estimation of probability in a coin flip to a complicated nonlinear stochastic structural model. These econometric techniques provide the final link between the dynamic programming problem and data. Part II is devoted to the application of dynamic programming to specific areas of applied economics, including the study of business cycles, consumption, and investment behavior. In each instance the authors present the specific optimization problem as a dynamic programming problem, characterize the optimal policy functions, estimate the parameters, and use models for policy evaluation. The original contribution of "Dynamic Economics: Quantitative Methods and Applications" lies in the integrated approach to the empirical application of dynamic optimization programming models. This integration shows that empirical applications actually complement the underlying theory of optimization, while dynamic programming problems provide needed structure for estimation and policy evaluation.

"Paarsch is the 'founding father' of the rapidly growing literature on structural econometric analysis of auctions, and Hong compliments Paarsch's skills in the economics, theory, and computation of solutions to auction models with his own strongexpertise in semiparametric econometric methods. The result is an excellent book that is on the 'must read' list for anyone who is interested in this literature, including the frontiers of current research in both parametric and semiparametric methods of inferences that can be applied to a wide range of auction institutions."--John Rust, Professor of Economics, University of Maryland " Dynamic Economics is the sort of book I wish I had written. It provides a very accessible and interesting introduction to the literature on economic models based on dynamic programming methods that have been developed in the last several decades. Unlike other recent work in this area, Adda and Cooper"s book discusses econometric methods for estimating the unknown parameters of these models as well as summarizing some of the most promising computational methods for solving them. The book provides a range of interesting examples and is written at a level that is accessible for people who are new to the subject, but it also contains many deep ideas that will be appreciated by people who spend their careers researching in this area. I learned a lot from this book and recommend it as a text for graduate classes (possibly even advanced undergraduate classes) on dynamic economic methods." John Rust, Professor of Economics, University of Maryland "*Dynamic Economics* is the sort of book I wish I had written. It provides a very accessible and interesting introduction to the literature on economic models based on dynamic programming methods that have been developed in the last several decades. Unlike other recent work in this area, Adda and Cooper's book discusses econometric methods for estimating the unknown parameters of these models as well as summarizing some of the most promising computational methods for solving them. The book provides a range of interesting examples and is written at a level that is accessible for people who are new to the subject, but it also contains many deep ideas that will be appreciated by people who spend their careers researching in this area. I learned a lot from this book and recommend it as a text for graduate classes (possibly even advanced undergraduate classes) on dynamic economic methods."--John Rust, Professor of Economics, University of MarylandPlease note: Endorser gives permission to excerpt from quote.

Overviewp. 1
Theory
Theory of Dynamic Programmingp. 7
Overviewp. 7
Indirect Utilityp. 7
Consumersp. 7
Firmsp. 8
Dynamic Optimization: A Cake-Eating Examplep. 9
Direct Attackp. 10
Dynamic Programming Approachp. 12
Some Extensions of the Cake-Eating Problemp. 16
Infinite Horizonp. 16
Taste Shocksp. 20
Discrete Choicep. 22
General Formulationp. 24
Nonstochastic Casep. 24
Stochastic Dynamic Programmingp. 29
Conclusionp. 31
Numerical Analysisp. 33
Overviewp. 33
Stochastic Cake-Eating Problemp. 34
Value Function Iterationsp. 34
Policy Function Iterationsp. 40
Projection Methodsp. 41
Stochastic Discrete Cake-Eating Problemp. 46
Value Function Iterationsp. 47
Extensions and Conclusionp. 50
Larger State Spacesp. 50
Appendix: Additional Numerical Toolsp. 52
Interpolation Methodsp. 52
Numerical Integrationp. 55
How to Simulate the Modelp. 59
Econometricsp. 61
Overviewp. 61
Some Illustrative Examplesp. 61
Coin Flippingp. 61
Supply and Demand Revisitedp. 74
Estimation Methods and Asymptotic Propertiesp. 79
Generalized Method of Momentsp. 80
Maximum Likelihoodp. 83
Simulation-Based Methodsp. 85
Conclusionp. 97
Applications
Stochastic Growthp. 103
Overviewp. 103
Nonstochastic Growth Modelp. 103
An Examplep. 105
Numerical Analysisp. 107
Stochastic Growth Modelp. 111
Environmentp. 112
Bellman's Equationp. 113
Solution Methodsp. 115
Decentralizationp. 120
A Stochastic Growth Model with Endogenous Labor Supplyp. 122
Planner's Dynamic Programming Problemp. 122
Numerical Analysisp. 124
Confronting the Datap. 125
Momentsp. 126
GMMp. 128
Indirect Inferencep. 130
Maximum Likelihood Estimationp. 131
Some Extensionsp. 132
Technological Complementaritiesp. 133
Multiple Sectorsp. 134
Taste Shocksp. 136
Taxesp. 136
Conclusionp. 138
Consumptionp. 139
Overview and Motivationp. 139
Two-Period Problemp. 139
Basic Problemp. 140
Stochastic Incomep. 143
Portfolio Choicep. 145
Borrowing Restrictionsp. 146
Infinite Horizon Formulation: Theory and Empirical Evidencep. 147
Bellman's Equation for the Infinite Horizon Problemp. 147
Stochastic Incomep. 148
Stochastic Returns: Portfolio Choicep. 150
Endogenous Labor Supplyp. 153
Borrowing Constraintsp. 156
Consumption over the Life Cyclep. 160
Conclusionp. 164
Durable Consumptionp. 165
Motivationp. 165
Permanent Income Hypothesis Model of Durable Expendituresp. 166
Theoryp. 166
Estimation of a Quadratic Utility Specificationp. 168
Quadratic Adjustment Costsp. 169
Nonconvex Adjustment Costsp. 171
General Settingp. 172
Irreversibility and Durable Purchasesp. 173
A Dynamic Discrete Choice Modelp. 175
Investmentp. 187
Overview and Motivationp. 187
General Problemp. 188
No Adjustment Costsp. 189
Convex Adjustment Costsp. 191
Q Theory: Modelsp. 192
Q Theory: Evidencep. 193
Euler Equation Estimationp. 198
Borrowing Restrictionsp. 201
Nonconvex Adjustment: Theoryp. 202
Nonconvex Adjustment Costsp. 203
Irreversibilityp. 208
Estimation of a Rich Model of Adjustment Costsp. 209
General Modelp. 209
Maximum Likelihood Estimationp. 212
Conclusionp. 213
Dynamics of Employment Adjustmentp. 215
Motivationp. 215
General Model of Dynamic Labor Demandp. 216
Quadratic Adjustment Costsp. 217
Richer Models of Adjustmentp. 224
Piecewise Linear Adjustment Costsp. 224
Nonconvex Adjustment Costsp. 226
Asymmetriesp. 228
The Gap Approachp. 229
Partial Adjustment Modelp. 230
Measuring the Target and the Gapp. 231
Estimation of a Rich Model of Adjustment Costsp. 235
Conclusionp. 238
Future Developmentsp. 241
Overview and Motivationp. 241
Price Settingp. 241
Optimization Problemp. 242
Evidence on Magazine Pricesp. 244
Aggregate Implicationsp. 245
Optimal Inventory Policyp. 248
Inventories and the Production-Smoothing Modelp. 248
Prices and Inventory Adjustmentp. 252
Capital and Laborp. 254
Technological Complementarities: Equilibrium Analysisp. 255
Search Modelsp. 257
A Simple Labor Search Modelp. 257
Estimation of the Labor Search Modelp. 259
Extensionsp. 260
Conclusionp. 263
Bibliographyp. 265
Indexp. 275
Table of Contents provided by Ingram. All Rights Reserved.

ISBN: 9780262012010
ISBN-10: 0262012014
Series: The MIT Press
Audience: Professional
For Ages: 18+ years old
Format: Hardcover
Language: English
Number Of Pages: 296
Published: 29th August 2003
Publisher: MIT Press Ltd
Country of Publication: US
Dimensions (cm): 22.8 x 15.8  x 1.9
Weight (kg): 0.51

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