Advanced Macroeconomics

Master 2020/2021

Type: Compulsory course (Economics: Research Programme)

Area of studies: Economics

Delivered by: Department of Theoretical Economics

Where: Faculty of Economic Sciences

When: 1 year, 2, 3 module

Mode of studies: offline

Instructors: Cemal Eren Arbatli, Arsenii Mishin

Master’s programme: Academic Economics

Language: English

ECTS credits: 6

Contact hours: 108

Full Syllabus

Abstract

This course is a master’s level introductory course on Macroeconomic theory. It aims to instill a firm understanding of the basic language of the modern macroeconomics. Macroeconomics addresses the “big” questions by asking: Why do economies grow over time, and what factors do determine the speed of economic growth? Why do we have business cycles, and how should monetary and fiscal policies react to short-run fluctuations? The course will seek the answers to these questions by applying modern tools to the analysis of macroeconomic processes. The evolution of total output can be conceptually decomposed into a long-term trend and business-cycles around this trend. Macroeconomists have developed two distinct groups of theories (e.g. employing different sets of assumptions) depending on whether they are interested in explaining the short-run dynamics or the long-run dynamics in the economy. Similarly, this course is divided into two parts. The first part of the course, taught by Eren Arbatli, is devoted to the process of trend-growth in output per capita. It offers an overview of a range of standard growth models, discuss their theoretical relevance and empirical success in explaining different aspects of the process of long-run economic growth and the emergence of income differences across countries. The second part of the course, taught by Arsenii Mishin, is focused on issues in a short-run macro. It presents basic theories of business cycle fluctuations with reference to the conduct of macroeconomic policies. We will do so using the dynamic stochastic general equilibrium (DSGE) models that take agent optimization, dynamics, and expectations formation seriously. DSGE models have become the standard workhorse models for the analysis of aggregate fluctuations. The primary focus of this part of the course will be on the analysis, solution, calibration, estimation, and extension of DSGE models. We will also emphasize basic computational methods that are used to solve DSGE models.

Learning Objectives

To provide students with the stylized facts about economic growth and business cycle and the main questions macroeconomists try to address
To present basic theories of economic growth and business cycle
Introduce the students to core concepts and standard methodological tools that lay the foundation of modern macroeconomic analysis

Expected Learning Outcomes

To show an awareness of the main debates and approaches in the literature on economic growth and business cycle that will help them decide on the direction of their future research
To have a basic understanding of the workings of standard macroeconomic models that will enable them to learn and work with more advanced models in the future;

Course Contents

Module 2. Weeks 1 – 4
Microfoundations for business cycle models: consumption and investment models
Module 2. Week 5
• Facts about business cycle; • Overview of business cycles theories in historical perspective
Module 2. Week 6
• Real Business Cycle theory; • General equilibrium model solution; • Dynamic programming. Bellman equation; • Steady-state. Log-linearization.
Module 2. Week 7
• Undetermined coefficients method; • Blanchard and Kahn method; • Calibration, IRF, Relative volatility of variables; • Illustration of a business cycle; • RBC model, facts and critique.
Module 2. Week 8
1. Monopolistic competition in New Keynesian models 2. Adjustment costs 3. Calvo pricing 4. Baseline New Keynesian model
Module 3. Weeks 1-2 (4 meetings)
Theories of Unemployment o Efficiency wage models (Shapiro-Stiglitz model) o Contracting models o Search and Matching models o Empirical Evidence
Module 3. Week 3 (2 meetings)
What do growth economists study and why? o Stylized facts of economic growth and income differences across countries o Taking stock: Questions and puzzles to address o A conceptual approach to drivers of economic growth: Proximate vs Ultimate Causes
Module 3. Weeks 4-5 (3 meetings)
Neoclassical Growth Theory o Brief overview (recap) of Solow-Swan model o Population and economic growth (Required reading: Weil, 4.1 & 4.2, Optional reading: Vollrath Lecture notes Ch. 6)  Population over the long-run: The Malthusian model  Population growth in the Solow-Swan model o Exogenous technological progress in Solow-Swan model o Growth Accounting
Module 3. Weeks 5-6 (3 meetings):
 Overlapping Generations (OLG) Models o Baseline and Canonical OLG models o Role of Social security in capital accumulation o An OLG application: Inequality and Development (Galor-Zeira Model ,1993)
Module 3. Weeks 6-7 (2 meetings):
 First generation models of endogenous growth: The AK Model  Product Variety Models
Module 3. Week 9 (2 meetings):
Technology transfer and cross-country convergence
Module 3. Week 10 (2 meetings)
A baseline model of directed Technological change
Module 3. Weeks 7-8 (3 meetings)
Modeling R&D: The Schumpeterian Model

Assessment Elements

Final test 1
Two controls (at the end of each module) will contain problems similar to those in home assignments as well as some short questions testing students’ knowledge of the stylized facts and core concepts mentioned in the lectures
Final test 2
Two controls (at the end of each module) will contain problems similar to those in home assignments as well as some short questions testing students’ knowledge of the stylized facts and core concepts mentioned in the lectures.
Home assignment 1
Two home assignments in each module will contain problems that will test your analytical thinking skills and your ability to analyze the models (and their slightly modified versions) we covered in the lectures, i.e. solving the models, discussing their predictions and summarizing the lessons that can be drawn from them
Home assignment 2
Two home assignments in each module will contain problems that will test your analytical thinking skills and your ability to analyze the models (and their slightly modified versions) we covered in the lectures, i.e. solving the models, discussing their predictions and summarizing the lessons that can be drawn from them
Home assignment 3
Two home assignments in each module will contain problems that will test your analytical thinking skills and your ability to analyze the models (and their slightly modified versions) we covered in the lectures, i.e. solving the models, discussing their predictions and summarizing the lessons that can be drawn from them.
Home assignment 4
Two home assignments in each module will contain problems that will test your analytical thinking skills and your ability to analyze the models (and their slightly modified versions) we covered in the lectures, i.e. solving the models, discussing their predictions and summarizing the lessons that can be drawn from them.
Class participation in module 2
Class participation in module 3

Interim Assessment

Interim assessment (3 module)
0.2 * Home assignment 1 + 0.2 * Home assignment 2 + 0.2 * Home assignment 3 + 0.4 * Home assignment 4

Bibliography

Recommended Core Bibliography

Advanced macroeconomics, Romer, D., 2012
Foundations of modern macroeconomics. (2002). Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsnar&AN=edsnar.oai.pure.rug.nl.publications.37e191bf.3063.4af6.b36b.f49a1861e10e
Knoop, T. A. (2015). Business Cycle Economics: Understanding Recessions and Depressions From Boom to Bust : Understanding Recessions and Depressions From Boom to Bust. Santa Barbara, California: Praeger. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=943327
Philippe Aghion, & Peter Howitt. (2009). The Economics of Growth. The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.mtp.titles.0262012634
Snowdon, B., & Vane, H. R. (2005). Modern Macroeconomics : Its Origins, Development and Current State. Cheltenham, UK: Edward Elgar Publishing. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=127477

Recommended Additional Bibliography

Acemoglu, D. (DE-588)124929575, (DE-576)173178197. (2009). Introduction to modern economic growth / Daron Acemoglu. Princeton, N.J. [u.a.]: Princeton Univ. Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.284986100
Campbell, J. (1994). Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model. Scholarly Articles. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.hrv.faseco.3196342
Don Harding, & Adrian Pagan. (2006). Measurement of Business Cycles. Department of Economics - Working Papers Series. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.mlb.wpaper.966
King, R. G., & Rebelo, S. T. (1999). Resuscitating real business cycles. Handbook of Macroeconomics, 927. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.h.eee.macchp.1.14
Weil, D. N. (2016). Economic Growth : International Edition (Vol. Third edition). Abingdon, Oxon: Routledge. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=nlebk&AN=1244212

Course Syllabus