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14.06

Advanced Macroeconomics

4-0-8 units. HASS-S · Undergraduate

Blends a thorough study of the theoretical foundations of modern macroeconomics with a review of useful mathematical tools, such as dynamic programming, optimal control, and dynamic systems. Develops comfort with formal macroeconomic reasoning and deepens understanding of key macroeconomic phenomena, such as business cycles. Goes on to study more specific topics, such as unemployment, financial crises, and the role of fiscal and monetary policy. Special attention to reviewing relevant facts and disentangling them from their popular interpretations. Uses insights and tools from game theory. Includes applications to recent and historical events.

Spring 2004 · Intermediate Macroeconomic Theory

Topics

  • Introduction to Growth Facts and Growth Models
  • The Neoclassical Growth Model
  • Overlapping Generations
  • Applications: Fluctuations, Investment, Asset Pricing, Public Finance, Behavioral
  • Endogenous Growth: Externalities, R&D, Innovation
  • Real Business Cycles
  • The IS-LM Model
  • Incomplete Nominal Adjustment
  • Incomplete Financial Markets
  • Unemployment
  • Consumption and Savings

Readings

  • The main text for the course is Romer, David. Advanced Macroeconomics , 2nd ed. New York: McGraw Hill, 2001. ISBN: 0072318554. Supplementary readings include lecture notes, as well as journal articles and selections from other books. The other items are recommended but are not required.
    Listed reading
  • Required Readings
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 1. ISBN: 0072318554.
    Listed reading
  • Solow, R. M. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70 (1956): 65-94.
    Listed reading
  • Recommended Readings
    Listed reading
  • Barro, R. J., and X. Sala-i-Martin. Economic Growth. 1995, chap. 1 and 12.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 2. ISBN: 0072318554.
    Listed reading
  • Mankiw, N. G., D. Romer, and D. Weil. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (1992): 401-437.
    Listed reading
  • Recommended Readings Barro, R. J., and X. Sala-i-Martin. Economic Growth. 1995, chap. 2 and 3.
    Listed reading
  • Blanchard, O., and S. Fischer. Lectures on Macroeconomics. 1989, chap. 3.
    Listed reading
  • Barro, R. J. “Are Government Bonds Net Wealth?” Journal of Political Economy 82 (1974): 1095-1117.
    Listed reading
  • Diamond, P. “National Debt in a Neoclassical Growth Model.” American Economic Review 55 (1965): 1126-1150.
    Listed reading
  • Blanchard, O. “Debt, Deficits and Finite Horizons.” Journal of Political Economy 93 (1985): 223-247.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 7 and 8. ISBN: 0072318554.
    Listed reading
  • Barro, R. J., “On the Determination of the Public Debt.” Journal of Political Economy 87 (1979): 940-71.
    Listed reading
  • Barro, R. “Ramsey Meets Laibson in the Neoclassical Growth Model.” Quarterly Journal of Economics 114 (1999): 1125-1152.
    Listed reading
  • Laibson, D. “Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics 112 (1997): 443-478.
    Listed reading
  • Lucas, R. E, Jr. “Asset Prices in an Exchange Economy.” Econometrica 46 (1978): 1429-1445.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap 3. ISBN: 0072318554.
    Listed reading
  • Romer, P. M. “Increasing Returns and Long-Run Growth.” Journal of Political Economy 94 (1986): S1002-S1037.
    Listed reading
  • Lucas, R. E., Jr. “On the Mechanics of Economic Development.” Journal of Monetary Economics 22 (1988): 3-42.
    Listed reading
  • Romer, P. M. “Endogenous Technological Change.” Journal of Political Economy 98 (1990): 71-102.
    Listed reading
  • Recommended Readings Barro, R. J., and X. Sala-i-Martin. Economic Growth. 1995, chap. 4-7.
    Listed reading
  • Lucas, R. E., Jr. “Making a Miracle.” Econometrica 61 (1993): 251-272.
    Listed reading
  • Aghion, P., and P. Howitt. “A Model of Growth Through Creative Destruction.” Econometrica 60 (1992): 323-351.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 4. ISBN: 0072318554.
    Listed reading
  • Kydland, F., and Prescott, E. C. “Time to Build and Aggregate Fluctuations.” Econometrica 50 (1982): 1345-1370.
    Listed reading
  • Lucas, R. E., Jr. “An Equilibrium Model of the Business Cycle.” Journal of Political Economy 81 (1975): 1113-1144.
    Listed reading
  • Barro, R. Macroeconomics. Chap. 9. MIT Press, 1998. ISBN: 0262024365.
    Listed reading
  • Prescott, E. C. “Theory Ahead of Business Cycle Measurement.” Quarterly Review, Federal Reserve Bank of Minneapolis. 1986, pp. 9-22.
    Listed reading
  • Lucas, R. E., Jr. Models of Business Cycles. Oxford: Basil Blackwell, 1987.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 5. ISBN: 0072318554.
    Listed reading
  • Recommended Readings Blanchard, O. “Why Does Money Affect Output? A Survey.” In Handbook of Monetary Economics. Edited by B. Friedman and F. Hahn. North Holland: 1990, pp. 779-835.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 6. ISBN: 0072318554.
    Listed reading
  • Mankiw, N. G. “Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly.” Quarterly Journal of Economics 100 (1985): 529-539.
    Listed reading
  • Calvo, G. “Staggered Prices in a Utility-Maximizing Framework.” Journal of Monetary Economics 12 (1983): 383-398.
    Listed reading
  • Obstfeld, M. “Risk-Taking, Global Diversification, and Growth.” American Economic Review 84 (1994): 1310-1329.
    Listed reading
  • Bernanke, B., and M. Gertler. “Agency Costs, Collateral, and Business Fluctuations.” American Economic Review 79 (1989): 87-114.
    Listed reading
  • Greenwood, J., and B. Jovanovic. “Financial Development, Growth, and the Distribution of Income.” Journal of Political Economy 98 (1990): 219-240.
    Listed reading
  • Banarjee, A., and A. Newman. “Occupational Choice in the Process of Development.” Journal of Political Economy 101 (1993): 274-298.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 9 and 10. ISBN: 0072318554.
    Listed reading
  • Shapiro, C. and J. Stiglitz. “Equilibrium Unemployment as a Worker Discipline Device.” American Economic Review 74 (1984): 433-444.
    Listed reading
  • Diamond, P. “Aggregate Demand Management in Search Equilibrium.” Journal of Political Economy 90 (1982): 881-894.
    Listed reading
  • Romer, D. Advanced Macroeconomics. 2001, chap. 7. ISBN: 0072318554.
    Listed reading
  • Recommeded Readings
    Listed reading
  • Hall, R. E. “Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence.” Journal of Political Economy 86 (1978): 971-987.
    Listed reading
Spring 2003 · Intermediate Macroeconomic Theory

This course is a survey of modern macroeconomics at a fairly advanced level. Topics include neoclassical and new& growth theory, consumption and saving behavior, investment, and unemployment. It also includes use of the dynamic programming techniques. Assignments include problem sets and written discussions of macroeconomic events. This course is recommended for students planning to apply to graduate school in economics.

Readings

  • The text for the course is David Romer, Advanced Macroeconomics, Second Edition (New York: McGraw Hill, 2001). Other readings, listed below, include journal articles and selections from other books. A few other resources for the paper are listed at the end.
    Listed reading
  • Romer (2001), Chapter 1.
    Listed reading
  • Solow, Robert M. “Technical Change and the Aggregated Production Function.” Review of Economics and Statistics 39 (1957): 312-320.
    Listed reading
  • Mankiw, N. Gregory, David Romer, and David N. Weil. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (May 1992): 407-437.
    Listed reading
  • Romer (2001), Chapters 3.8-3.9.
    Listed reading
  • Romer, Paul M. 1990. “Endogenous Technological Change.” Journal of Political Economy 98 (October, Part 2): S71-S102.
    Listed reading
  • Romer (2001), Chapters 3.2-3.6.
    Listed reading
  • Dixit, Avinish. Optimization in Economic Theory . Oxford: University Press, 1990. (Chapter on dynamic optimization and the maximum principle).
    Listed reading
  • Dorfman, Robert. “An Economic Interpretation of Optimal Control Theory.” American Economic Review (December 1969): 817-31.
    Listed reading
  • Blanchard, Olivier J., and Stanley Fischer. Lectures on Macroeconomics . MIT Press, 1989, Chapter 2.1-2.2.
    Listed reading
  • Ramsey, F.P. “A Mathematical Theory of Saving.” Economic Journal 38 (December 1928): 543-559.
    Listed reading
  • Barro, Robert J. “Are Government Bonds Net Wealth?” Journal of Political Economy 82 (November/December 1974): 1095-1117.
    Listed reading
  • Blanchard, Olivier J., and Stanley Fischer. Lectures on Macroeconomics . MIT Press, 1989, Chapter 2.3.
    Listed reading
  • Chirinko, Robert S., and Huntley Schaller. “Business Fixed Investment and ‘Bubbles’: The Japanese Case.” The American Economic Review 91, 3 (2001): 663-680.
    Listed reading
  • Jorgenson, Dale, and Robert Hall. “Tax Policy and Investment Behavior.” American Economic Review (June 1967).
    Listed reading
  • Summers, Lawrence. “Taxation and Corporate Investment: A q-Theory Approach.” Brookings Papers on Economic Activity (1981).
    Listed reading
  • Blinder, Alan, and Louis J. Maccini. “Taking Stock: A Critical Assessment of Recent Research on Inventories.” A Journal of Economic Perspectives , 5 (1991): 73-96.
    Listed reading
  • Maccini, Louis J., Bartholomew Moore, and Huntley Schaller. “The Interest Rate, Learning, and Inventory Investment.” MIT Working Paper (2003): 03-04. ↗
    Listed reading
  • Ramey, Valerie A., and Kenneth D. West. “Inventories.” Chap. 13 in Handbook of Macroeconomics . Vol. 1B. Edited by John B. Taylor, Micheal Woodford, and Elsevier. 1999.
    Listed reading
  • Blanchard, Olivier. “Debt and the Current Account Deficit in Brazil.” In Financial Policies and the World Capital Market: The Problem of Latin American Countries . Edited by Pedro Aspe Armella et. al. University of Chicago Press, 1983.
    Listed reading
  • Fischer, Stanley, and Jacob Frankel. “Investment, the Two-Sector Model, and Trade In Debt and Capital Goods.” Journal of International Economics 2 (August 1972): 211-233.
    Listed reading
  • Svensson, Lars E.O. “Oil Prices, Welfare, and the Trade Balance.” Quarterly Journal of Economics 99, 4 (November 1984): 649-672.
    Listed reading
  • Chang, Yongsung, Joao Gomes, and Frank Schorfheide. “Learning by Doing as a Propagation Mechanism.” American Economic Review 92, 5 (2002): 1498-1521.
    Listed reading
  • Romer (2001), Chapter 4.
    Listed reading
  • Chang, Ha-Joon. Kicking Away the Ladder-Development Strategy in Historical Perspective . London: Anthem Press, 2002.
    Listed reading
  • Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics . Cambridge, MA: MIT Press, 2001.
    Listed reading

Prerequisites & course information

Prereq: 14.01 and 14.02 U (Fall) Not offered regularly; consult department 4-0-8 units. HASS-S

Sources