Course Description

The objective of this course is to introduce you to the study of macroeconomics at the advanced level. This means that we will use rigorous models and employ (dynamic) optimization techniques to present and analyze macroeconomic theories. A common theme across the models we will study is that economic aggregates are the equilibrium result of the optimizing decisions made by rational agents at the individual level. We will employ this rigorous approach, not as an end, but as a means to obtain disciplined insights into the important questions that trouble macroeconomists. The topics we will cover include economic growth, inequality, business cycle fluctuations, employment and unemployment, and fiscal and monetary policy.

Textbooks and Papers

• Advanced Macroeconomics (4th Edition), by David Romer, McGraw Hill, 2012.

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

• Big Ideas in Macroeconomics: A Nontechnical View, by Kartik B. Athreya (2014), MIT Press

Evaluation

• Scheme A: 2 Assignments: 10% + Exam#1: 40% + Exam#2: 50%

Scheme B: Assignment #1: 5% + Assignment #2: 10% + Exam#1: 35% + Exam#2: 50%

Total: Maximum of Scheme A and B.

• The assignments must be handed in on the pre-specified dates. No late submissions will be accepted. If a problem set is not handed in on time, for a justified and documented reason, the weight will shift to the second exam. 

• There will be 2 exams. The first test will be held on October 20 during class time. There will be no make-up exam for the first test. If you provide appropriate and timely documentation for missing it, the weight will be transferred to the second exam.  

• The second exam will be held during the last class of the semester on December. The final exam will include all the material covered in the course.

Tentative List of Topics, Reading List, and Slides 

#1: Introduction and Modern Macroeconomics Framework

• Slides

• Martin's tutorial notes on dynamic programming

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

• Jesus Fernandez-Villaverde and Dirk Krueger, Macroeconomics Notes: Chapter 4 and Chapter 5.

• Dirk Krueger, Macroeconomic Theory: Chapter 2

#2: Solow Growth Model

• Slides

• David Romer, Advanced Macroeconomics: Chapter 1

• Mankiw, Gregory, David Romer, and David Weil (1992) "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, vol. 107, pp. 407-437

#3: Neoclassical growth model and Overlapping Generations Model

• Slides for neoclassical growth model.

• Slides for OLG model.

• David Romer, Advanced Macroeconomics: Chapter 2

• Dirk Krueger, Macroeconomic Theory: Chapter 3 and Chapter 8

#4: Decline in Labor Share

• Slides

• Elsby, Michael WL, Bart Hobijn, and Ayşegül Şahin. "The decline of the US labor share." Brookings Papers on Economic Activity 2013, no. 2 (2013): 1-63.

• Karabarbounis, Loukas, and Brent Neiman. "The global decline of the labor share." The Quarterly journal of economics 129, no. 1 (2014): 61-103.

• Autor, David, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen. "The fall of the labor share and the rise of superstar firms." The Quarterly Journal of Economics 135, no. 2 (2020): 645-709.

• Barkai, Simcha. "Declining labor and capital shares." The Journal of Finance 75, no. 5 (2020): 2421-2463.

• De Loecker, Jan, Jan Eeckhout, and Gabriel Unger. "The rise of market power and the macroeconomic implications." The Quarterly Journal of Economics 135, no. 2 (2020): 561-644.

#8: Business cycle facts and theory. 

• Slides

• David Romer, Advanced Macroeconomics: Chapter 5

• Cooley, Thomas, and Edward Prescott (1995), “Economic Growth and Business Cycles,” Ch.1, in Frontiers of Business Cycle Research, by T.Cooley (ed), Princeton University Press.

#9: Real Business Cycle Theory

• Slides

• Dirk Krueger, Quantitative Macroeconomics: An Introduction

• David Romer, Advanced Macroeconomics: Chapter 5

• Cooley, Thomas, and Edward Prescott (1995), “Economic Growth and Business Cycles,” Ch.1, in Frontiers of Business Cycle Research, by T.Cooley (ed), Princeton University Press.

• Imrohoroglu, Ayse. "Welfare costs of business cycles." The New Palgrave Dictionary of Economics, (2008)

• There is a small sub-section on value function iteration here: Dirk Krueger, Macroeconomic Theory: Chapter 3

#10: Cash-In-Advance Model and  3 Equation New Keynesian Model

• Slides

• Cooley, Thomas F., and Gary D. Hansen (1995), “Money and the Business Cycle,” Ch.7, in Frontiers of Business Cycle Research, by T.Cooley (ed), Princeton University Press.

• David Romer, Advanced Macroeconomics: Chapter 6 & 7

#11: Inequality and Macroeconomics

• Slides

• Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub, and Iván Werning, "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?", 2020

#12: Economies with Heterogenous Households: Permanent Income Hypothesis (PIH) and Standard Incomplete Markets (SIM) Models

• 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.

#13: Covid 19 and the Economy

• Here is a short list of studies that have come out during the pandemic (thanks to Roozbeh Hosseini). 

• Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub, and Iván Werning, "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?", 2020

• Eichenbaum, Martin S., Sergio Rebelo, and Mathias Trabandt. The Macroeconomics of Epidemics. No. w26882. National Bureau of Economic Research, 2020.

#5: Endogenous Growth Models: The AK Model, Human Capital Model, R&D Model

• David Romer, Advanced Macroeconomics: Chapter 3

• Jesus Fernandez-Villaverde and Dirk Krueger, Macroeconomics Notes: Chapter 9.

#6: Cross-country Income Differences

• David Romer, Advanced Macroeconomics: Chapter 4

• Mankiw, Gregory, David Romer, and David Weil (1992) "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, vol. 107, pp. 407-437

• Pritchett, Lant (1997), “Divergence, Big Time”, Journal of Economic Perspectives, 11(3), pp.3-17.

• Acemoglu, Daron, and Robinson, James A. 2000. “Political Losers as a Barrier to Economic Development.” American Economic Review 90 (May): 126–130.

• Albouy, David. 2008. “The Colonial Origins of ComparativeDevelopment: An Investigation of the Settler Mortality Data.” National Bureau of Economic Research Working Paper No. 14130.

• Caselli, Francesco, and Feyrer, James. 2007. “The Marginal Product of Capital.” Quarterly Journal of Economics 122 (May): 535–568.

• Hsieh, Chang-Tai, and Klenow, Peter J. 2009. “Misallocation and Manufacturing TFP in China and India.” Quarterly Journal of Economics, 124 (4): 1403-1448.

• Jones, Benjamin F., and Olken, Benjamin A. 2005. “Do LeadersMatter? National Leadership and Growth since World War II.” Quarterly Journal of Economics 120 (August): 835–864.

• David Lagakos 2013. “Explaining Cross-Country Productivity Differences in Retail Trade”, Journal of Political Economy

• Pritchett, Lant. 2000. “The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) is Not Capital.” Journal of Economic Growth 5 (December): 361–384.

• Schmitz, James A., Jr. 2005. “What Determines Productivity? Lessons from the Dramatic Recovery of the U.S. and Canadian Iron Ore Industries Following Their Early 1980s Crisis.” Journal of Political Economy 113 (June): 582–625.

#11: Unemployment and Labor Search Models 

• David Romer, Advanced Macroeconomics: Chapter 10