1. Lecture II: Medium run evolutions

2. Blanchard, “the medium run” Develops an adjustment cost model of labor demand and labor supply Looks at the dynamic response of a number of variables to labor supply and labor demand shifts

12. The model

13. The firm’s optimization problem

14. Functional forms

16. Figure 4:

22. Figure 5

28. Figure 6

41. Figure 10

47. Figure 11

53. Figure 12

61. Caballero-Hammour, “Jobless growth” Looks at the dynamic response of K/L to wage pushes and more generally “appropriability” Uses a putty-clay model instead of Blanchard’s adjustment cost model

66. The model

67. The model (continued)

69. The model (end)

74. What is going on? K L Old vintage (Labour intensive) New vintage (Capital intensive)

75. w r New Old RORA B C D Initial wage push

77. Figure 4.2

83. Figure 4.3