GraduateMacroeconomicsI

Economics9603A
DepartmentofEconomics
UniversityofWesternOntario
Fall2014
TuesandThurs,1011:30am,SSC4161
Instructor:AnanthRamanarayanan
Office:4054SSC
email:aramanar@uwo.ca
Coursewebpage:sites.google.com/site/econ9603
Officehours:TuesandThurs,11:30am12:30pm

Textbooks
Therequiredtextsforthiscourseare:
Stokey,N.,R.E.Lucas,withE.C.Prescott(1989),RecursiveMethodsinEconomic
Dynamics,HarvardUniversityPress.[SLP]
Ljunqvist,L.andT.Sargent(2012).RecursiveMacroeconomicTheory(3
rd
edition),MIT
Press.[LS].Thesecondeditionisalsoacceptable.
BothofthesetextbooksmaybepurchasedattheUniversityBookstore.Theyareboth
importantreferencesandareprobablyworthbuyingnowforfutureuse.
Someotherusefulresourcesare:
Krueger,D.(2011),MacroeconomicTheory,manuscript.
Acemoglu,D.(2008),IntroductiontoModernEconomicGrowth,PrincetonUniversity
Press.
TheKruegermanuscriptwillbeavailableasapdfonthecoursewebsite.

CourseObjectives
Thiscourseisanintroductiontodynamicmacroeconomictheory.Theobjectiveisto
introduceyoutothebasictoolsandconceptsneededtounderstandandundertake
researchinmacroeconomictheoryandrelatedfields.Bytheendofthecourse,you
shouldbefamiliarwithdynamicgeneralequilibriumtheory,commonlyusedmarket
structuresfordynamiceconomies(i.e.ArrowDebreu,SequentialMarket,and
RecursiveCompetitiveEquilibrium),recursivetools(i.e.dynamicprogramming)and
theapplicationofthesetoolstoexaminelongrungrowth,businesscycles,assetpricing
andgovernmentpolicy.Thecoursewillalsointroducetheuseofnumericalmethods
andcomputerprogramming(usingMATLAB)tosolveandsimulatemacromodels.

LearningOutcomes
Bytheendofthiscourse,studentswillbeableto:
DefineParetoefficientandcompetitiveequilibriumallocationsinavarietyof
dynamiceconomicenvironments.
SolveforParetoefficientandcompetitiveequilibriumoutcomesinsimple
exampleeconomies.
Applyrecursivemethodstocastgeneraldynamiceconomicmodelsproblemsas
dynamicprogrammingproblems.
Developmethodstocomputethesolutionstodynamicprogrammingproblems
numerically.
Analyzetheeffectsoftaxes,governmentdebt,andotherpoliciesonoutcomesin
theneoclassicalgrowthmodel,throughthemechanismsofcapitalaccumulation,
consumptionsmoothing,andthelaborleisuretradeoff.
Extendthemethodsofdynamicprogrammingtoincludeelementsofuncertainty
anddiscretechoice,toanalyzestochasticvariationsontheneoclassicalgrowth
modelandlabormarketsearchmodels.

CourseRequirements&CalculationofGrades
Thecoursegradewillbebaseduponyourperformanceonhomeworks,twomidterms,
andafinalexam.Theweightsareasfollows:
Homeworks 20%
Midterms 40%(20%each)
Final 40%
Homeworks
Therewillbe(approximately)weeklyhomeworkassignments.Yourlowesthomework
scorewillbedroppedwhencalculatingyourgrade.Youareencouragedtocooperate
onthehomeworks,buteachstudentmusthandintheirownuniquelywritten
assignmentandacknowledgeanycooperationwithotherstudentsatthetopofthefirst
pageofeachassignment.
MidtermandFinal
Themidtermsandfinalexamwillbeclosedbook.Collaborationbetweenstudents
duringthewritingofthemidtermsandfinalexamisstrictlyprohibited.Thefinalexam
willbecomprehensive.
Themidtermswillbeheldinclass.ThetentativedatesforthemidtermsareOctober7
andNovember11.Thefinalexamwillbeheldatthetimescheduledbythedepartment.
Plagiarism
Scholasticoffencesaretakenseriouslyandstudentsaredirectedtoreadtheappropriate
policy,specifically,thedefinitionofwhatconstitutesaScholasticOffence,atthe
followingWebsite:
www.uwo.ca/univsec/handbook/appeals/scholastic_discipline_grad.pdf
QuestionsaboutGrades
Ifyouhavequestionsaboutthegrading,pleasesubmitawrittennotedetailingthe
problem(s)youwouldlikeregraded,aswellaswhyyoufeelthegradeshouldbe
changed.Theentireitemwillberegraded,soyourscoremaygoupordown.

RecitationandTeachingAssistant
Theteachingassistant(TA)isYifanGong.Hewillholdaweeklyrecitation(Tuesdays
from67pmin4161),todiscusshomeworkassignmentsandaddressstudents
questions.Yifanwillannouncehisofficehoursduringthefirstrecitation.

TopicsandReadings
Paperswithanasterisk(*)willbe(partially)discussedduringlecture.Pdfsofallpapers
willbemadeavailableonthecoursewebsite.Thefollowinglistoftopicsmaybe
updatedduringtheterm.
I.Dynamicexchangeeconomieswithinfinitelylivedagents
Krueger,Ch.2.
*Kehoe,T.J.(1989),IntertemporalEquilibriumModels,inF.Hahn,ed.,TheEconomics
ofMissingMarkets,InformationandGames,ClarendonPress.
Negishi,T.(1960),WelfareEconomicsandExistenceofanEquilibriumfora
CompetitiveEconomy,Metroeconomica,12,9297.

II.Overlappinggenerationsmodels
LS,Chapter9.
Krueger,Chapter8.
Diamond,P.(1965),NationalDebtinaNeoClassicalGrowthModel,American
EconomicReview,55,11261150.
*Samuelson,P.A.(1958),AnExactConsumptionLoanModelofInterest,Withor
WithouttheSocialContrivanceofMoney,JournalofPoliticalEconomy,66,47682.
Gale,D.(1973),PureExchangeEquilibriumofDynamicEconomicModels,Journalof
EconomicTheory,6,1236.
Weil,P.(2008),OverlappingGenerations:TheFirstJubilee,JournalofEconomic
Perspectives,22,116134.

III.TheNeoclassicalgrowthmodel;Deterministicdynamicprogramming
SLP,Chapters16.
LS,Chapters1,3,4.
Krueger,Chapters35.

IV.Stochasticmodels
SLP,Chapters710.
LS,Chapters8,12.
Krueger,Chapter6.
Cooley,T.F.(1995),FrontiersofBusinessCycleResearch,PrincetonUniversityPress.

V.Searchandmatchingtheory
LS,Chapters6and28.
Mortensen,D.T.andC.A.Pissarides(1994),JobCreationandJobDestructioninthe
TheoryofUnemployment,ReviewofEconomicStudies,61,397415.
*Lucas,R.E.andE.C.Prescott(1974),Equilibriumsearchandunemployment,
JournalofEconomicTheory,7,188209.

VI.Othertopics,astimeallows
VI.i.Assetpricing
LS,Chapters8,13,14.
*Mehra,RandE.C.Prescott(1985),TheEquityPremium:APuzzle,Journalof
MonetaryEconomics,March,15,145161.
Kocherlakota,N.R.(1996),TheEquityPremium:ItsStillaPuzzle,JournalofEconomic
Literature,Vol.34,pp.4271.

VI.ii.Fiscalpolicyintheneoclassicalgrowthmodel
LS,Chapters11and16.
*Chari,V.V.andP.J.Kehoe(1999),OptimalFiscalandMonetaryPolicy,NBER
workingpaper#6891.
Chari,V.V.,L.J.Christiano,andP.J.Kehoe(1991),OptimalFiscalandMonetary
Policy:SomeRecentResults,JournalofMoney,CreditandBanking,vol.23,51939.

VI.iii.Incompletemarketsmodels
LS,Chapters1718.
*Hugget,M.(1993),TheRiskFreeRateinHetereogenousAgentIncompleteInsurance
Economies,JournalofEconomicDynamicsandControl,17,953969.
Aiyagari,S.R.(1994),UninsuredRiskandAggregateSaving,QuarterlyJournalof
Economics,109,659684.