ECGA7020
Macroeconomic Theory II
Darryl McLeod Fall 2005
Office Hours Email: dmcleod@pipeline.com
mcleod@fordham.edu
Course
Description Course Requirements:
Final
Exam Answers PhD Macro Comprehensive: Frequently Asked
Questions
Question 1: Simple
RBC Model Question 2
Precautionary Savings MIT Problem
Questions
4 and 5 (asset pricing) Question 3: Choosing the right
Central Banker
Midterm Ques 2 Ramsey
Peoples Answer Midterm Ques 4 Benevolent
Government
Midterm Exam Present vs.
Current Value Hamiltonian solution of Ramsey Peoples
Final Review Material:
Final Review Sheet and RBC reading guide
Midterm Answers
Log
Normal Distribution Obstfeld & Rogoff Question 4
(section 9.5)
Consumption and Asset Prices (Dixit SDP
solution, Romer 7.5-7.6) :
Adda
and Cooper Chapter 6 Consumption HARA Utility functions
Savings stochastic dynamic
programming solution Part 2 precautionary saving
(see B&F
chapt 6 pp. 279-82 & chapt 10 pp. 505-12)
Blanchard and Fischer Chapter 6 Chapter 10
Stochastic Growth (aka RBC) Models (Romer
Chapter 4)
Formal solution to Problem 4.11 Blanchard and Fischer Chapter
7
J.
Parker Reading Romer Chapter 4
Drazen Dynamic Programming Chapt. 2 pp.
31-35
Choosing the Right Central Banker (Romer Chapter 10;
O&R section 9.5):
Section 9.5 from Obstfeld and Rogoff
The Great Moderation (Dan Maolusi Presentation)
PowerPoint pdf for printing 2 slides per page
Article summarized: Clarida et. al. (2000)
Required
Text: Romer,
David (2001) Advanced Macroeconomics 2nd
ed,
McGraw-Hill 0072318554
Recommended (some required reading):
Ljungqvist, Lars & Thomas Sargent (2004) Recursive
Macroeconomic Theory 2nd
ed, (L&S)
MIT Press
Obstfeld, Maurice & Kenneth Rogoff (1996) Foundations
International Macroeconomics, (O&R)
MIT Press 0262150476
Blanchard, Olivier and
The MIT Press,
0262022834
De la Fuente, Angel (2000) Mathematical Methods and
Models for Economists, Cambridge U. Press.
Dixit, Avinash (1990) Optimization in Economic
Theory 2nd ed.
Dixit, A.K and R. Pindyck (1994) Investment under
Uncertainty,
Azariadis, Costas (1993) Intertemporal Macroeconomics,
Blackwell Publishers
Woodford, Michael (2003) Interest and prices:
foundations of a theory of monetary policy,PUP.
Stokey, Nancy and R. E. Lucas (1989) Recursive
Methods in Economic Dynamics, HUP.
Topics Outline Part I: Macro models without money or uncertainty
0.0 Notes on dynamic optimization
Adda and Cooper (2003) Dynamic Programming Chapter 2
Obstfeld and Rogoff Supplement to Chapter 2
Woodward, Richard Notes on dynamic Optimization
Barro and Sala-i-Martin Appendix A.3: Dynamic Optimization
Barro and Sala-i-Martin Appendix on Math Methods
Notes on the slope of the saddle path
Ljungqvist, & Sargent (2004) Chapter 3 - 4
Of interest: Richard Bellman on the history of Dynamic Programming
1. Frank Ramsey’s 1928 model of Optimal savings Romer Ch. 2 Part A
See also: Blanchard and Fischer (B&F) Chapter 2 pp. 37-52
Obstfeld’s Guide for the Perplexed Part 1 (notes on dynamic programming)
PowerPoint presentation of Ramsey Model dynamics
2. Alias-Diamond-Samuelson overlapping generations savings model
Case Study: social security reform? Romer Ch. 2 Part B
Blanchard and Fischer Chapter 3 pp. 37-52 and O&R Chapter 2
3. Investment Dynamics: Tobin’s Q: Romer Chapter 8: Sections 8.1-8.5
See also Blanchard & Fischer chapter 2 page 58-68 larger file, better quality
Baker, De Long and Krugman “Asset Returns and Economic Growth” BPEA, 1, 2005
Obstfeld and Rogoff, Chapter 2 (larger reading version) smaller file
Hayashi, Fumio (1982) Econometrica,
vol 50:1“Tobin’s Marginal and Average q “
4. Is the
Case Study: Is the U.S. Current Account Deficit sustainable?
*Obstfeld and Rogoff (2005) Global CA Imbalances…” BPEA:1 updated in Clarida, Richard (2005)
G7 Current Account Imbalances, NBER Book forthcoming
*Blanchard-Giavazzi-Sa (2005) “Int. Investors and the U.S. Current Account..” BPEA:1
*Dooley and Garber (2005) “Is it 1958 or 1968?” BPEA:1
*Gourinchas and Rey (2005) International Financial Adjustment, BPEA:1
Edwards, Sebastian (2005) Is The
How Costly Is Adjustment Likely To Be? NBER WP #11541
*Raghuram Rajan (2005) Global Current Account Imbalances IMF Speech March 15th 2005
Blanchard’s (1983) Brazil Model (summary notes presented in class)
Debt and the Current Account Deficit in Brazil Overshooting Model v2
a. Traded-Non-Traded models (Real Exchange Rate)
b. The Mundell-Fleming Model: A Working Model (Economist Magazine).
c. Dornbusch’s Overshooting model Obstfeld and Rogoff Chapter 9 Version
K.Rogoff (2002) Dornbusch’s Overshooting Model After Twenty-Five Years
Second Annual Research Conference, International Monetary Fund
Mundell-Fleming Lecture November 30, 2001 (revised January 22, 2002)
5. Understanding high unemployment: Romer Ch. 9 pp. 410-449
Case
Study: Why is Unemployment so high in Continental
IMF WEO 2003 Chapter 4 Unemployment and Labor Market Institutions”
Blanchard, (2000) Economics of Unemployment Lecture 1 Lecture 2 Lecture 3 Outlook for Europe
Howell, David ed. (2005) Fighting Unemployment, The limits of orthodoxy, Oxford Univ. Press.
Pissarides, C., 2000, Equilibrium Unemployment 2nd ed. MIT Press Chapter 1 Chapter 2
Mortenson, Dale (2005) Growth, Unemployment and Labor Market Policy Marshall Lecture,
presented at the European Economic Association Meeting,
European Economic Association (April-May 2005) 3: 236-258 .
Mortenson, D. and C.A. Pissarides (1999) New
Developments in Models of Search in the Labor Market
CEPR Discussion Paper No. 2053, and in O. Ashenfelter and D.
Card, eds., cs
Handbook of
Labor Economics V.3: 2567-2627.
Fun with Beveridge curves (as opposed to beverages) around the World.
Singapore and other East Asian Beveridge curves from Teo,
Employment Protection and Search in Tunisia
Part II: Uncertainty and Macroeconomic policy:
6. Uncertainty Savings, Investment and Stabilization Policy: Romer 8.6 and 10.6
Weil, Phillipe (1990) Nonexpected Utility in
Macroeconomics, QJE, 105:1, 29-42.
Dixit, Avinash (1990) “Chapter 11:
Dynamic Programming” pp. 174-75.
What can Stabilization Policy Accomplish? (Romer Section 10.6)
Lucas, Robert (2003) “Macroeconomic
Priorities” Presidential Address
to the American Economic Association.
Investment under uncertainty (Romer Section 8.6)
Craine, R., 1989, "Risky Business:
The Allocation of Capital" JME 23, 201-218.
Caballero, R. 1991 “On the sign of
the Investment Uncertainty Relationship”
7. Choosing the right Central Banker (Romer 10.3-10.4) Chapter 10
Review Problems 10.7,
10.8a and 10.12.
Mishkin Why the
Fed should adopt inflation targeting
M. Woodford (2003) Interest and Prices
Case Study:
FRBSF (2000) Japan’s Liquidity Trap Krugman, P. (1998) Japan’s Trap
Lars E.O. Svensson (2005) Monetary Policy and Japan's Liquidity Trap
Bank of
Case study: Global disinflation in the 1990s.
Rogoff, J. (2003) Globalization and Global Disinflation,
8. Fiscal Theories of the Price Level
Cochrane, John (2004) Money as Stock (forthcoming JME)
Cochrane, John (2003) Fiscal Foundations of Monetary Regimes
Sargent and Wallace (1981) Some Unpleasant Monetarist Arithmetic
Christiano L and Fitzgerald (2000) Understanding Fiscal Theories of the Price Level
Part III: Stochastic growth Models: Savings and Investment under Uncertainty
Obstfeld’s Guide for the Perplexed Part 2
(notes on stochastic programming)
Time Series L&S
Chapter 2: Dixit & Pyndyck Chapter 2 & 3 (Stochastic Processes/Ito’s
lemma)
Guide for the Dynamic
Programming L&S Chapter 3
Investment under Uncertainty: Dixit and Pyndyck
Chapter 4
McLeod and Welch (1994) Uncertainty and Investment in
Stochastic Growth Model
Practical
Dynamic Programming L&S Chapter 4 Practical Dynamic Programming
Computable General Equilibrium models
of the distributional impact of macroeconomic policies
Monopolitistic competition and price adjustment
Part III: Stochastic growth Models and Real Business Cycle Models
3. Declining
Macroeconomic Volatility
Bernanke, B The Great Moderation
4.
FRBSF (2000) Japan’s Liquidity Trap
Krugman, P. (1998) Japan’s Trap
Lars E.O. Svensson (2005) Monetary Policy and Japan's Liquidity Trap
Bank of
Part IV: Concluding thoughts
Akerlof
(2005) Presidential Address to 2007 AEA meetings in Chicago
Handouts: problem sets Midterm Review sheet v2
Persistent Unemployment – Search Models—Updated class handout
Problem Set #3 (HW #3) Problem Set #4 (HW #4)
Data Sources and
NBER Macroeconomics Annual #20
CEPR—Center for Economic Policy Research
BLS: Unemployment, CPI, productivity, etc.
Brookings Papers on Economic Activity (or access via Walsh Library)
Economic Report of the President
(see also the spreadsheet database for these reports)
Homework Problems: Please type all assignments, if possible. Write in equations by hand, or
paste them in from the lecture notes. Word has an equation editor, or you can use mathtype
(a trial version will get you a long way). All homework assignments are due one week from the day
of the class they are assigned, however, you may turn in HWs by 2pm Friday the week they are due
by putting them in the blue envelope on my door. Late HWs will be marked down as we often
discuss answers in class the week after they are due.
Problem Set #1: Due 09/16: Romer Page 91-92 Problems 2.1a ; 2.2 ; for #2.5 set up the
Lagrangian and first order condition; Do #2.6 a-c for a productivity speed up (not a slowdown),
using the answer to 2.6d given in the class calendar announcements, but you should do 2.6e.
Course Description: This course
reviews several topics in advanced macroeconomics,
assuming at least one previous graduate
course in Macroeconomic theory. As it is a somewhat
technical course, reading several
authors’ explanation of the same problem often proves helpful.
This explains the number of recommended
texts included below, most of which are on reserve in
Walsh. Our main text is the aptly named
Advanced Macroeconomics 2nd ed by David Romer.
We begin where the Solow model leaves
off, with some theories of optimal saving. This is high
theory but not purely academic as some
people (countries) do save, even as Americans save less
these days. That Americans save so
little, public or private, brings about the first of several
conundrums addressed during out
otherwise theoretical tour of macroeconomics: why is the
current
perhaps the macroeconomic question of
the day. Social security reform is another topic optimal
savings models should be able to
address, albeit not politically. Another macroeconomic puzzle
is high unemployment in
is a modern macroeconomic policy
success: what explains the world-wide disinflation of the
1990s? Perhaps this victory explains why
monetary economics has become its own branch of
macroeconomics. We discuss the broad
outlines of how this happened and the extent which the
greatly reduced cyclical volatility of
the past 20 years is due to good monetary policy or good
luck (or perhaps to retiring Alan
Greenspan). Another 20 years like this and the study of business
cycles will be an Economic history
course. Finally, we turn to the reality of an uncertain, stochastic
world. Here we sample modern time series
econometrics and a small dose of stochastic calculus,
just enough to make use appreciate
why finance and economics has proved such a successful
field of economics
Course
Requirements: There will be several
problem sets in preparation for a midterm in
preparation for a final exam (in preparation for the
comprehensive exam in macroeconomics
next spring).
Calendar/HW assignments/announcements Handouts Problem Sets
Special Topics Project Description old version GSAS Calendar