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Lecture

Decentralized Economy: Consumers and Firms

In course

FIN-406: Macrofinance

This course provides students with a working knowledge of macroeconomic models that explicitly incorporate financial markets. The goal is to develop a broad and analytical framework for analyzing the interaction of financial decisions, macroeconomic events ...

Description

This lecture explores the transition from a representative agent model to a decentralized economy, where consumers and firms make individual decisions on consumption, labor, and investment. The analysis shows that the outcomes in a decentralized economy align with those of a social-planner approach.

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Instructors (3)

Christian Pröbsting

Stylianos Tsiaras

I am a scientific collaborator at the Luisa Lambertini's Chair of International Finance at the Swiss Finance Inst i tute. Previously I was a Max Weber Fellow at the European University Institute. I got my PhD in economics at the University of Surrey. My thesis was supervised by Professor Martin Kaae Jensen and Dr. Tom Holden. My recent research explores the set of unconventional monetary policies by the European Central Bank and their impact on the macroeconomy, welfare and inequality.

Luisa Lambertini

Luisa Lambertini is Full Professor at the Ecole Polytechnique Federale de Lausanne (EPFL), where she holds the Chair of International Finance. She received her Ph.D. in Economics from the University of California at Berkeley in 1995, her Master of Science in Economics from Warwick University in 1989 and a Laurea cum Laude from the Universita' degli Studi di Bologna in 1987. Prior to coming to EPFL, Professor Lambertini was Associate Professor at Claremont McKenna College 2005-06, Associate Professor at Boston College 2003-06 and Assistant Professor at the University of California at Los Angeles 1995-03. Professor Lambertini's research is in international finance, open-economy macroeconomics and political economy. She studies how monetary and fiscal policies affect the economy, how they interact and how they can be used to achieve good economic outcomes and improve social welfare. Professor Lambertini's research focuses on how monetary and fiscal institutions should be designed to successfully mitigate the impact of unexpected shocks while pursuing long-run goals consistent with price stability and fiscal sustainability. These issues are even more important for small open economies in an interdependent world and for countries that adopt a common currency. Professor Lambertini has published articles in the American Economic Review, the Review of Economic Studies, the European Economic Review, the Journal of International Economics and the Economic Journal, among others. She was a Consultant in the Fiscal Policies Division of the European Central Bank and she has organized several international conferences. More details on my CV

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Related concepts (31)

Representative agent

Economists use the term representative agent to refer to the typical decision-maker of a certain type (for example, the typical consumer, or the typical firm). More technically, an economic model is said to have a representative agent if all agents of the same type are identical. Also, economists sometimes say a model has a representative agent when agents differ, but act in such a way that the sum of their choices is mathematically equivalent to the decision of one individual or many identical individuals.

Macroeconomic model

A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices. Macroeconomic models may be logical, mathematical, and/or computational; the different types of macroeconomic models serve different purposes and have different advantages and disadvantages.

Agent (economics)

In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy. Typically, every agent makes decisions by solving a well- or ill-defined optimization or choice problem. For example, buyers (consumers) and sellers (producers) are two common types of agents in partial equilibrium models of a single market. Macroeconomic models, especially dynamic stochastic general equilibrium models that are explicitly based on microfoundations, often distinguish households, firms, and governments or central banks as the main types of agents in the economy.

Week

A week is a unit of time equal to seven days. It is the standard time period used for short cycles of days in most parts of the world. The days are often used to indicate common work days and rest days, as well as days of worship. Weeks are often mapped against yearly calendars, but are typically not the basis for them, as weeks are not based on astronomy. The modern seven-day week can be traced back to the Babylonians, who used it within their calendar.

Investment fund

An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to: hire professional investment managers, who may offer better returns and more adequate risk management; benefit from economies of scale, i.e., lower transaction costs; increase the asset diversification to reduce some unsystematic risk.

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