Economics 807

Exam Dates:
    Midterm 1. Thursday, February  19. (Note: class is cancelled on February 17).
    Midterm 2. Thursday, March 18.
    Final. TBA.
 
Grading:
    Assignments: 10%.
    Midterms: 15% each.
    Final: 30%.
    Paper: 30%. Due date: April 8.
 
Term Paper. 
    [1] Think of a question (or set of questions) that you would like to address. This question could serve as the title of your paper.
          The question should be something that you find interesting. The question might deal with quantifying the effects of  existing
          policies (e.g., estimating the effects of Bush's fiscal policy) or hypothetical policies (e.g., estimating the effects of a negative
          income tax). Or the question may deal with evaluating the empirical content of an existing model (can the Solow growth
          model account for world income disparity?). Or you may want to build your own model and evaluate it.
    [2] Think about a theoretical framework that might be suitable for addressing the question posed.
    [3] Build a computer model based on your theory and estimate (calibrate) its parameters.
    [4] Solve your computer model and interpret the results.
    [5] Outline the limitations of your model and provide suggestions for future research.


Lectures

 [1] GDP and Employment.  Growth and business cycle facts. Labor market facts. The income-leisure model. Using the model to interpret the facts.
             Readings: Andolfatto (2004). Chapters 1-3.
             Assignment 1: Questions in Chapter 3.
             Assignment 2: Measurement.
             Assignment 3: Fiscal Spending Shocks.
                   Sample code (Solving and simulating a simple business cycle model).
                   Code for solving and simulating model with fiscal spending shocks.

[2] Redistribution Policy. Explaining the distribution of income and employment. The negative income tax proposal.
             Readings: Browning, Edgar K. (1973). "Alternative Programs for Income Redistribution," American Economic Review,
                             Volume 63, Number 1, pp. 38-49.
             Code for income distribution model.
             Assignment 4: Negative Income Tax.

[3] Interpreting Labour Market Flows.
             Readings: Andolfatto (2004). Chapter 4.
 
[4] Consumption, Saving, Capital and Investment.
             Readings: Andolfatto (2004). Chapters 5 and 7.

[5] Optimal Growth Models.
            
Assignment 5: Solving for Optimal Capital Stock Trajectories.
             Code for solving optimal trajectories.

[6] Asset Pricing.
            
Assignment 6: Computing Asset Prices.
             Readings (optional): (a) Barsky, Robert B. (1989). "Why Don't the Prices of Stocks and Bonds Move Together?"
                                                 American Economic Review, Volume 79, Number 5, pp. 1132 - 1145.
                                            (b) Mehra, Rajnish and Ed Prescott (2003). " The Equity Premium in Retrospect. " NBER Working Paper 9525.
                                            (c) McGratten, Ellen and Ed Prescott (2003). " Average Debt and Equity Returns: Puzzling? "
                                                 Federal Reserve Bank of Minneapolis Staff Report 313.
[7] Business Cycle Theory.
            
Assignment 7:  Business Cycles and Labor Market Search.
             Readings: (a) Long Jr., John and Charles Plosser (1983). "Real Business Cycles," Journal of Political Economy,
                                  91(1): 39-69. Available at Jstor .
                             (b) Prescott, Ed and Finn Kydland (1996)."The Computational Experiment: An Econometric Tool,"
                                  Journal of Economic Perspectives , 10: 69-85.
                                 Available at: http://ideas.repec.org/a/aea/jecper/v10y1996i1p69-85.html
                             (c) Lecture Notes: Introduction to Real Business Cycle Theory.
                             (d) [Optional] Hansen, Gary and Randall Wright (1992). "The Labor Market in Real Business Cycle Theory,"
                                  Federal Reserve Bank of Minneapolis Quarterly Review. http://minneapolisfed.org/research/qr/qr1621.html
                             (e) [Optional] Andolfatto, David (1996). "Business Cycles and Labor Market Search," American Economic Review,
                                  March 1996, 86(1): 112-132.

[8] Money and Monetary Policy. An alternative view of the business cycle; a role for monetary policy; the Taylor rule.
             Readings: Chapter 8-9, Andolfatto (2004).

[9] Growth and Development. The Malthusian growth model; the Solow growth model; accounting for world income disparity;
            a theory of TFP.
            Readings: Chapter 10, Andolfatto (2004).
                            Barriers to Riches, Parente and Prescott (1999).


Old Outline (Spring 2003)

[1] RBC Methodology. The RBC revolution that occurred in the 1980s popularized the idea that one could usefully interpret
      macroeconomic phenomena in the context of general equilibrium theory. Led by Ed Prescott and others, the RBC literature
      developed a methodology for computing numerical versions of their models that were capable of delivering quantitative
      answers to the questions they posed. In this section of the course, I will demonstrate the RBC methodology within the context
      of a simple (static) GE model and then quickly build up to the point where you will be capable of solving and simulating
      the benchmark RBC model.

      Readings:
      (a) Long Jr., John and Charles Plosser (1983). "Real Business Cycles," Journal of Political Economy,
           91(1): 39-69. Available at Jstor .
      (b) Prescott, Ed and Finn Kydland (1996)."The Computational Experiment: An Econometric Tool,"
           Journal of Economic Perspectives , 10: 69-85.
           Available at: http://ideas.repec.org/a/aea/jecper/v10y1996i1p69-85.html
      (c) Lecture Notes: Introduction to Real Business Cycle Theory.
      (d) Hansen, Gary and Randall Wright (1992). "The Labor Market in Real Business Cycle Theory,"
            Federal Reserve Bank of Minneapolis Quarterly Review. http://minneapolisfed.org/research/qr/qr1621.html

        [2] Redistribution Policy in a Dynamic Setting.  
   
                Readings:
                (a) Andolfatto, David and James Redekop (2000). " Redistribution Policy in a Model with Heterogeneous Time-Preference. "
                (b) Andolfatto, David, Chris Ferrall and Paul Gomme (2000). " Lifecycle Learning, Earning, Income and Wealth. "
                  

        [3] Asset Pricing.

                Readings:
                (a) Mehra, Rajnish and Ed Prescott (2003). " The Equity Premium in Retrospect. " NBER Working Paper 9525.
                (b) McGratten, Ellen and Ed Prescott (2003). " Average Debt and Equity Returns: Puzzling? "
                      Federal Reserve Bank of Minneapolis Staff Report 313.
                (c) Barsky, Robert (1989). "Why Don't the Prices of Stocks and Bonds Move Together?" American Economic Review,
                        Volume 79, pp. 1132-45. (Available on Jstor).


        [4] Monetary and Fiscal Policy in an OLG Model.

                Readings:
                (a) Andolfatto, David (2003). "Fiscal Policy in the OLG Model.
                (b) Andolfatto, David (2003). "Monetary Policy in the OLG Model. "

Assignments

              

             GAUSS Code
                Solving and simulating a simple "static" business cycle model. Download .
                Solving the optimal growth model (Method 1). Download .
           

 
 

 




Assorted Readings

Old Midterm Exams

Old Assignments