Abstract: Introduces methodological tools for dynamic analysis of macroeconomic phenomena: consumption and investment choices, employment, and unemployment outcomes, and economic growth. Discrete-time dynamic optimization under uncertainty is introduced in Ch. 1 and applied to intertemporal consumption theory, with particular attention to empirical implementation. Chapter 2 focuses on continuous-time optimization techniques and discusses the relevant insights in the context of partial equilibrium investment models. Chapter 3 applies previous chapters’ tools to dynamic labour demand, deriving the labour market equilibrium when both firms and workers face dynamic adjustment problems. Chapter 4 studies continuous-time equilibrium dynamics of representative-agent economies featuring both consumption and investment choices, with applications to long-run growth issues. The role of externalities in more recent models of endogenous growth is carefully discussed. Chapter 5 studies the determination of aggregate equilibria in markets with decentralized trading, discussing the possibility of coordination failures and multiple equilibria. A search model of the labour market, focussed on the flows into and out of unemployment, is then analyzed and the dynamics of frictional unemployment are discussed. Many exercises can be found both within and at the ends of chapters, with extended solutions.

Keywords: consumption, coordination failures, dynamic optimization, economic growth, externalities, investment, labour demand, uncertainty, unemployment