Advanced Macroeconomic Theory (Economics 617) Miami University, Fall 2008

Transcription

1 Advanced Macroeconomic Theory (Economics 617) Miami University, Fall 2008 Professor: Bill Craighead Office: 208-E Laws Office hours: Tuesday and Thursday 4:00-5:30 pm; Wednesday, 1:00-3:00 pm, and by appointment Class meets Tuesday and Thursday, 2:00-3:15 pm, in Laws 217 Class web page: The models used in contemporary macroeconomic research are often quite different from those taught to undergraduate students. Modern macroeconomic theory is based on microeconomic foundations of dynamic, optimizing behavior by households and firms. This class will introduce some of the fundamental concepts, techniques and language of modern macroeconomics. The purpose is to develop a set of tools that students will be able to use to understand current research. The primary source of readings will be David Romer s text, Advanced Macroeconomics (McGraw-Hill, 3 rd edition). Other readings will be available through the course web page or library electronic reserve. The lectures will not follow the book closely - the readings will be a poor substitute for class attendance (and attentiveness). Economics is learned by practice. Problem sets will be assigned periodically. Students may work together, but must turn in the assignments individually. Late assignments will not be accepted and no extensions will be granted. A subsample of the problems will be graded. Grades will be calculated as a weighted average, based on the problem sets (15%), two in-class midterm exams (25% each) and a comprehensive final exam (35%). Dates for the midterm exams will be announced in class. Midterm exams will not be given late; in the event of a serious illness, family emergency or university-sponsored travel, students may ask, in advance, for permission to take exams early or to have weight added to the final exam grade in place of the midterm. This syllabus, as well as the outline and reading list, is subject to modifications, which will be announced in class.

2 Econ 617 Course Outline and Reading List Romer refers to David A. Romer, Advanced Macroeconomics, McGraw-Hill-Irwin (3 rd edition) marked (o) are optional Internet links to journals subscribed to by the university may not work off campus. I. Prologue: Getting to Modern Macroeconomics Rational expectations Lucas critique N. G. Mankiw, The Macroeconomist as Scientist and Engineer, Journal of Economic Perspectives 20:4 (Fall 2006) K. B. Athreya, In Praise of Theory, Federal Reserve Bank of Richmond Region Focus, Spring 2007 Nobel Prize Announcement for Robert Lucas (1995) (o) J. M. Keynes, The General Theory of Employment, Interest and Money, ch. 2, 3.3 (o) M. Friedman, The Role of Monetary Policy, American Economic Review 58:1 (March 1968) (o) P. Krugman, Who Was Milton Friedman? New York Review of Books, Feb. 15, 2007 (o) R. E. Lucas and T. J. Sargent, After Keynesian Macroeconomics, Federal Reserve Bank of Minneapolis Quarterly Review 3:2 (Spring 1979) (o) Romer, ch. 5 II. Consumption: Basic Concepts in a Two-Period Model Lagrangian Euler equation Intertemporal elasticity Mathematical expectation Risk aversion Lecture note Consumption: Basic Concepts in a Two-Period Model III. General Equilibrium: Basic Concepts Competitive equilibrium Pareto optimality Welfare theorems Social planner State-contingent claims Risk sharing Market completeness

3 Lecture note General Equilibrium: Basic Concepts (o) H. Varian, Microeconomic Analysis, ch (o) L. Ljungqvist and T. Sargent, Recursive Macroeconomic Theory, ch IV. Consumption in a Deterministic Dynamic Endowment Economy Life-cycle hypothesis Permanent income hypothesis Ricardian equivalence Romer, ch. 7.1 Lecture note Consumption in Dynamic Economies, 1, 2 (o) R. Barro, The Ricardian Approach to Budget Deficits, Journal of Economic Perspectives 3:2 (Spring 1989) (o) F. Modigliani, Life Cycle, Individual Thrift and the Wealth of Nations, American Economic Review 76:3 (June 1986) (o) Romer, ch V. Consumption in a Stochastic Dynamic Endowment Economy Random walk hypothesis Precautionary saving Consumption CAPM Equity Premium Dynamic Programming Bellman Equation Romer, ch Lecture note Consumption in Dynamic Economies, 3-6 J. B. DeLong and K. Magin, The US Equity Return Premium: Past, Present and Future, Journal of Economic Perspectives, forthcoming (o) F. Bagliano and G. Bertola, Models for Dynamic Macroeconomics, ch. 1 (o) R. Hall, Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence, Journal of Political Economy 86:6 (December 1978) (o) R. Mehra and E. Prescott, The Equity Premium: A Puzzle, Journal of Monetary Economics 15:2 (March 1985) (o) N. Kocherlakota, The Equity Premium: It s Still A Puzzle, Journal of Economic Literature 34:1 (March 1996) (o) L. Ljungqvist and T. Sargent, Recursive Macroeconomic Theory, ch. 3 VI. Consumption and Capital Accumulation in a Dynamic Economy

4 Ramsey model Hamiltonian Phase diagram Linearization Romer, ch Lecture note Capital and Labor in Dynamic Economies, 1, 2 (o) R. Barro and X. Sala-i-Martin, Economic Growth, Appendix on Mathematical Methods, 1.3 (o) Romer, ch. 1 VII. Consumption, Capital Accumulation and Leisure in a Dynamic Economy Optimal taxation Ramsey problem Dynamic inconsistency Lecture note Capital and Labor in Dynamic Economies, 3 N. G. Mankiw and M. Weinzierl, Dynamic Scroring: A Back-Of-The- Envelope Guide, Journal of Public Economics 90:8-9 (September 2006) C. I. Plosser, Credibility and Commitment, Speech, March 6, 2007 Nobel Prize Information for Finn Kydland and Edward Prescott (2004) (o) L. Ljunqvist and T. Sargent, Recursive Macroeconomic Theory, ch (o) S. Fischer, Dynamic Inconsistency, Cooperation and the Benevolent Dissembling Government, Journal of Economic Dynamics and Control 2 (1980) (o) Romer, ch VIII. Real Business Cycles Hodrick-Prescott filter Solow residual Calibration Romer, ch. 4 Lecture note Capital and Labor in Dynamic Economies, 4 C. I. Plosser, Understanding Real Business Cycles, Journal of Economic Perspectives 3:3 (Summer 1989) L. H. Summers, Some Skeptical Observations on Real Business Cycle Theory, Federal Reserve Bank of Minneapolis Quarterly Review 10:4 (Fall 1986) (o) E. C. Prescott, Theory Ahead of Business Cycle Measurement, Federal Reserve Bank of Minneapolis Quarterly Review 10:4 (Fall 1986) (o) E. C. Prescott, Response to a Skeptic, Federal Reserve Bank of Minneapolis Quarterly Review 10:4 (Fall 1986)

5 (o) F. E. Kydland and E. C. Prescott, Business Cycles: Real Facts and a Monetary Myth, Federal Reserve Bank of Minneapolis Quarterly Review 14:2 (Spring 1990) (o) N. G. Mankiw, Real Business Cycles: A New Keynesian Perspective, Journal of Economic Perspectives 3:3 (Summer 1989) (o) R. G. King and S. T. Rebelo, Resuscitating Real Business Cycles, NBER Working Paper 7534 (February 2000) IX. Money in a New Keynesian Economy Monopolistic competition Predetermined prices Menu costs Romer, ch. 6.9