Problem Sets and Exams
Problem Set 1 (due October 1)
Problem Set 2 (due October 18)
Problem Set 3 (due November 8)
Problem Set 4 (due November 22)
Problem Set 5 (due at final exam)
Midterm (Fall 2003)
Final (Fall 2003)
Programs
1.) The program bigshow.m takes AR and
MA coefficients as input, and then plots a simulated time path, an impluse
response function, and the spectral
density. It calls the programs ss.m, tf.m,
impulse.m,
dimpulse.m,
shownew.m.
and
freq.m
2.) The program ex2.m solves the simple job
search model in question #6 in problem set 1. It calls the program valit.m.
(These programs were written by
Pierre Olivier-Weill, a Stanford graduate student at the time, now an NYU
professor)
3.) The file epdata.m
contains Mehra and Prescott's (1985, JME) data. The program hanjanbnd.m
uses this
data to compute and plot Hansen-Jagannathan
bounds. These are used to answer question 5 in problem set 3.
Note, hanjanbnd.m calls the program
PTIME.M
to do some data manipulations, so you need to download this too.
Papers
Methodological Issues
These 2 papers explain why macroeconomists worry so much
about "microfoundations" (i.e., why it is so important to explain macroeconomic
aggregates
in terms of the underlying preferences and technologies
of individual agents).
Lucas (1976), "Econometric Policy Evaluation:
A Critique", Carnegie-Rochester Conference Series on Public Policy
Sargent (1980), "Rational Expectations
and the Reconstruction of Macroeconomics", Quarterly Review (Minneapolis
Fed)
The next paper discusses the tension between positive
and normative approaches to macroeconomics. It points to a potential logical
inconsistency in the Lucas Critique.
It points out that the Lucas Critique may be unimportant
from a purely positive perspective in which government policy is made endogenous.
Sargent (1984), "Autoregressions, Expectations, and Advice", American Economic Review
Finally, Lucas provides some perspective on the importance
of understanding business cycles. He summarizes a research program
that he initiated in 1987 which attempts to
calculate the welfare costs of business cycles.
His original estimate suggested that business cycles have very small wefare
effects - orders of magnitude smaller than the welfare
effects of growth. The following article argues
that this original estimate is robust to a number of reasonable modifications.
Lucas (2003), "Macroeconomic Priorities", American Economic Review
Dynamic Optimization and Numerical Methods
The first paper provides a relatively intuitive exposition of continuous-time dynamic optimization. Stokey's covers the same material but is somewhat more rigorous.
Stokey (2003), "Introduction to Optimal Control", Unpublished notes
Unemployment
The next paper surverys the influential Mortensen-Pissarides
search model of equilibrium unemployment. It points to several empirical
shortcomings of the model, and argues that
the source of the problem lies in the Nash Bargaining
wage setting assumption.
Shimer (2004), "The Cyclical Behavior of Equilibrium Unemployment and Vacancies", Amer. Econ. Review (March 2005)
Moen extends the Mortensen-Pissarides model by introducing competitive wage setting, and argues that the resulting equilibrium is efficient.
Moen (1997), "Competitive Search Equilibrium",
Journal
of Political Economy
Mortensen & Wright (2002), "Competitive
Pricing and Efficiency in Search Equilibrium", International Economic
Review
Ljungqvist & Sargent (2005), "Jobs and
Unemployment in Macroeconomic Theory: A Turbulence Laboratory", mimeo
Growth Theory
The first 2 papers ignited the endogenous growth revolution.
Romer's model is based on learning-by-doing externalities. Lucas' model
is based on human capital. The third
paper is a nice survey of endogenous growth theory.
Lucas (1988), "The Mechanics of Economic
Development", Journal of Monetary Economics
Romer (1994), "The Origins of Endogenous
Growth", Journal of Economic Perspectives
The next paper points out that if the Solow model is true (with identical technologies across countries) there should be HUGE incentives for capital to flow into poor countries
Lucas (1990), "Why Doesn't Capital Flow from Rich to Poor Countries?", American Economic Review
The next two papers argue that it is impossible to explain
the cross-sectional distribution of income levels unless you assume that
technology levels differ.
Parente and Prescott offer political economy-based
models to explain why technology does not diffuse across countries.
Prescott (1998), "Needed: A Theory of
Total Factor Productivity", International Economic Review
Parente & Prescott (1999), "Monopoly
Rights: A Barrier to Riches", American Economic Review
Asset Pricing
Dynamic Optimal Taxation
The last paper reconciles Barro's (1979) tax-smoothing
model with Lucas and Stokey's (1983) model. Based on Permanent-Income
logic, Barro predicted that debt and taxes should
follow random walks. Lucas and Stokey's model predicts
that tax rates should reflect the serial correlation structure of government
expenditures. The key difference between these
models is that Barro assumes only state non-contingent
debt, whereas Stokey and Lucas assume effectively complete markets. By
ruling out state-contingent debt in Lucas and
Stokey's model, Aiyagari et al show that Ramsey taxes
contain a near unit root, closely resembling the predictions of Barro's
model. However, to obtain this result, exogenous
restrictions on government asset holdings must be imposed.
Atkeson, Chari & Kehoe (1999), "Taxing
Capital Income: A Bad Idea", Minneapolis Fed Quarterly Review
Aiyagari, Marcet, Sargent & Seppala (2002), "Optimal
Taxation without State-Contingent Debt", Journal of Polit. Economy
Incomplete Markets
Aiyagari (1994), "Uninsured Idiosyncratic
Risk and Aggregate Saving", Quarterly Journal of Economics