Outline PDF Version       Weekly Course Schedule

Announcements

• February 1: Last year's final exam and Stephen's solutions.

• February 1: Sample exams from my Penn training: 2004 Prelim 2005 Prelim 2006 Prelim

• February 1: Final exam is scheduled on February 12, 9am-11am in GE100 in class. 

• January 5: Outline is posted. 

Course Description

This course is the fourth and the last in 1st year PhD macroeconomics sequence and complements its predecessor ECO2030. The ultimate goal of this course is to learn how to develop a variety of quantitate models (that can be used to generate artificial data of both allocations and prices which can be meaningfully mapped to actual data) to give answers to macroeconomic questions. In this course, most (if not all) of the material will be studied from the strict theoretical point of view and the emphasis is on economic rigor. So, we will neither look at data in any serious manner nor computationally solve the models. Furthermore, this course is not a survey of topics in macroeconomics: The objective is not to give a review of known results of a specific topic but rather to give an example of how to use modern macroeconomic tools to tackle questions. 

Textbooks and Papers

• Frontiers of Business Cycle Research, by Cooley, T. (1995), Princeton University Press.

• Recursive Methods in Economic Dynamics, by Stokey and Lucas with Prescott, Harvard University Press.

• Recursive Macroeconomic Theory, by Ljungqvist and Sargent, The MIT Press.

• None of these books are required. I will post my slides and I will benefit from teaching material of Victor Rios-Rull, Dirk Krueger, Chris Carroll, Fabrizio Perri in my slides.

• The papers that I will cite (in a very incomplete form below) are not to be read in general, although some students may find them useful.

Evaluation

• There will be a final exam which be held during the regular final exam season announced by the University. The final exam will include all the material covered in the course. It will constitute 90% of the final grade.

• In the context of the course, I will occasionally assign some homework questions.

• Class participation and assigned homework questions will be 10% of your final grade.  

Tentative List of Topics, Reading List and Slides 

Week #1: Introduction, Modern Macroeconomics Framework

• Introduction Slides

• Prescott E.C., The Transformation of Macroeconomic Policy and Research, 2004 Nobel Prize Lecture.

Week  #1 and #2: Recursive equilibrium of stochastic and other variants of the neo-classical growth model. 

• Stochastic Growth Models and Recursive Equilibrium Slides

• Dirk Krueger, Quantitative Macroeconomics: An Introduction

• Gary D. Hansen, "Indivisible labor and the business cycle", JME 1985

Week #3-1: Lucas Tree, Equity Premium Puzzle

• Lucas Tree Slides

• Chris Carroll's notes on Lucas tree

• Robert E. Lucas, Jr., "Asset Prices in an Exchange Economy", Econometrica, 1978

• Rajnish Mehra, "The Equity Premium: Why Is It a Puzzle?"

Week #3-2: Economies with Heterogenous Agents: Measure Theory and Industry equilibrium

• Heterogeneity and Industry Equilibrium Slides

• Chapter 11 and 12: Recursive Methods in Economic Dynamics, by Stokey and Lucas with Prescott, Harvard University Press.

• Hugo A. Hopenhayn, "Entry, Exit, and firm Dynamics in Long Run Equilibrium", Econometrica 1992

Week #4 and #5: Economies with Heterogenous Households: Permanent Income Hypothesis (PIH) and Standard Incomplete Markets (SIM) Models; Bewley, Huggett, Aiyagari and Krusell-Smith Models, Consumption insurance

• Incomplete Market Models Slides

• Fabrizio Perri's Notes I, Notes II

• Hall, Robert E. (1978): “Stochastic Implications of the Life-Cycle/Permanent Income Hypothesis: Theory and Evidence,” Journal of Political Economy, 96, 971–87

• Huggett, M. (1993): “The Risk-Free Rate in Heterogeneous-Agent Incomplete-Insurance Economies,” Journal of Economic Dynamics and Control, 17, 953–969.

• Aiyagari, S. R. (1994): “Uninsured Idiosyncratic Risk and Aggregate Saving,” The Quarterly Journal of Economics, 659–684.

• Jonathan Heathcote, Kjetil Storesletten and Gianluca Violante, "Quantitative Macroeconomics with Heterogeneous Households", Annual Review of Economics, 2009

• Fatih Guvenen, "Macroeconomics with Heterogeneity: A Practical Guide", Economic Quarterly, 2011

Week #6: Endogenous Credit Constraints: Economies with Household Default and Unsecured Credit 

• Endogenous Credit Constraints Slides

• Fabrizio Perri and Krueger, "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory", 2006, ReStud

• Grey Gordon, "Optimal Bankruptcy Code: A Fresh Start for Some", 2015

• Chatterjee, Corbae, Nakajima and Ríos-Rull, "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default", Econometrica, 2015

Week #6-2: Midterm Exam.