Econ 531 Stephen L. Parente Macroeconomic Theory Fall 2017 11:00-12:50 PM 325 DKH Syllabus Office: 118 DKH Office Hours: Tuesday, Thursday 12:30-1:30, and by appointment Office Phone: 244-3625 E-mail: parente@illinois.edu Course Homepage: https://publish.illinois.edu/parente/courses/econ531/ Teaching Assistant: The TA for the course is Diogo Baerlocher E-mail: dcarval2@illinois.edu Office Hours: Tuesday, Thursday 2-3 PM, and by appointment Recitation: Friday, 8-9:20 AM 322 DKH Course Objective: The goal of this course is twofold. The first goal is technical in nature. More specifically, the course will teach you some standard tools and models that currently dominate macroeconomics. The second goal is more substantive in nature. In particular, the course will demonstrate how macroeconomists apply dynamic general equilibrium methods to derive quantitative answers to questions about which we are currently ignorant. References: The main material for the course consists of lecture notes written by several prominent macroeconomists, such as Per Krusell, Randy Wright, Dirk Krueger and Victor Rios- Rull. Additionally, there are some supplemental journal articles. These lecture notes and articles can be found via the course homepage. The Krusell notes are probably the most relevant, as we shall more or less cover topics in the order that he does. We will use some chapters in Ljungqvist, L. and T. Sargent. Recursive Macroeconomic Theory. Cambridge: MIT Press (2004). The Ljungqvist and Sargent book is a comprehensive book, and so an excellent resource for a huge number of macro topics. You will make extensive use of it in the second semester with Pr. Zhao. As it can be ordered easily on-line, I have not requested that the University bookstore stock it. Some other useful macro textbooks you might want to add to your professional library are: Stokey, Nancy, Robert E. Lucas, with Edward Prescott. Recursive Methods for Economic Dynamics. Cambridge: Harvard University Press (1989). 1
Cooley, Thomas. Frontiers of Business Cycle Research. Princeton: Princeton University Press, (1995). Farmer, Roger. The Macroeconomics of Self-Fulfilling Prophecies. Cambridge, Ma: MIT Press (1993). Romer, David. 2006. Advanced Macroeconomics, New York, NY, The McGraw Hill Companies. For lighter reads that will make you into a well-rounded and informed economists, I recommend White, L. (2012) The Clash of Economic Ideas, New York: Cambridge University Press Snowden, B. and H. Vane. Conversations with Leading Economists. Northampton, MA: Edgar Elgar Press (1999). Mathematical Preliminaries: Most of the mathematics that you need for the course were covered in the math camp that you took with Pr. Cho. Concepts that I feel are important to the course or that were not covered sufficiently in the camp will be taught either in class or recitation. You may want to review Chapters 12, and 16-21 in Simon and Blume s book, Mathematics for Economists. Grading: Your grade will be based on a series of problem sets, a midterm and a final exam. The midterm and final will each contribute 45 percent to your grade; the problem sets make up the remaining 10 percent. The midterm will be scheduled around the first half of October. The final examination is scheduled for Tuesday, December 19 th 1:30-4:30 PM Problem Sets and Old Exams: Problem sets, and past exams are posted on the course webpage. Some Additional Advice: I encourage you to work with your classmates. My experience, both as a graduate student and as a teacher, is that going over your lecture notes and problem sets with your classmates is an important way by which learning occurs. Note, that whereas you are encouraged to discuss problem sets and their solutions, the work you hand in must be your own! ACADEMIC DISHONESTY- The University takes serious violations of academic dishonesty. The penalty for Academic dishonesty will be an F for the particular assignment/exam and potentially an F for the course. Students are advised to consult the LAS Student Handbook for definitions of academic dishonesty. 2
Disability Accommodations To obtain disability related academic adjustments and/or auxiliary aids, students with disabilities must contact the course instructor and the Disability Resources and Educational Services (DRES) as soon as possible. To contact DRES you may visit 1207 S. Oak St., Champaign, call 333 4603 (V/TTY), or e mail a message to disability@uiuc.edu." Emergency Planning Emergency Response Recommendations The Department of Homeland Security and the University of Illinois at Urbana- Champaign Office of Campus Emergency Planning recommend the following three responses to any emergency on campus: RUN > HIDE > FIGHT Only follow these actions if safe to do so. When in doubt, follow your instincts you are your own best advocate! Important University Dates: Last Day to Drop October 20 Fall Break 11/18-11/26 Last Day of Classes 12/13 Final Exam December 19 th 1:30-4:30 PM 3
Course Outline/Reading List Econ 531 I. Introduction to Macroeconomics Krusell 1&2 White, Lawrence Clash of Ideas Lucas, R.E. and T. Sargent. 1979. After Keynesian Macroeconomics, Federal Reserve Bank of Mineapolis Review (Spring). Olivier Blanchard, Further Thoughts on DSGE Models Paul Romer The Trouble with Macroeconomics Randall Wright On the Future of Macro: A New Monetarist Perspective II. The Solow Model Krusell 3 Solow, R. 1956. A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics. (70) 64-91. Solow, R. 1957. Technical Change and the Aggregate Production Function. The Review of Economics and Statistics. 39: 312-320 III. Dynamic Optimization Sequence Approach in Robinson Crusoe Economies A. Sequence Approach a. Finite Horizon - Krusell 4.1.1 b. Infinite Horizon - Krusell 4.1.1 B. Dynamic Programming - Wright DP Notes, Krueger 4, 5. Krusell, 4.2, 4.3, Ljungvist and Sargent 1, 3 & 4, IV. Competitive Equilibrium A. Sequential Competitive Equilibrium - Krusell 5.1.1, 5.1.2, 5.1.4, Krueger 2.2.5 B. Arrow Debreu Economies and Welfare Theorems - Krusell 5.1.3, Krueger 2.2.1-2.2.3, 7; Parente GE Notes C. Negeshi Algorhithm Krueger 2.2.4 Negeshi, T. 1960. Welfare Economics and Existence of an Equilibrium for a Competitive Economy. Metroeconometrica 12: 92-97. Kehoe, T.J. 1989. Intertemporal General Equilibrium Model s. In F. Hahn, editor, The Economics of Missing Markets, Information, and Games. Clarendon Press, 1989, 363-393. 4
D. Heterogeneity and Aggregation Parente GE notes, Violante Notes Chatterjee, S. 1994. Transitional Dynamics and the distribution of wealth in a Neoclassical Growth Model. Journal of Public Economics (54): 97-119. E. Recursive Competitive Equilibrium Krusell 5.2, Rios-Rull 1, 2 & 3 V. Uncertainty - Krusell 6, Krueger 6, Ljungqvist and Sargent Chapter 8 VI. Deviations from Arrow- Debreu A. Overlapping Generations Model - Krusell 7, Wright OLG Notes, Ljungqvist Sargent 9 Samuelson, P. 1958. An Exact Consumption Loan Model of Interest with or Without the Social Contrivance of Money, Journal of Political Economy 66: 467-482. Tirole, J. 1985. Asset Bubbles and Overlapping Generation s, Econometrica 53:1071-1100. B. Monopolistic Competition. Krugman, P. 1979. Increasing Returns, Monopolistic Competition, and International Trade, Journal of International Economics 9:469-79. VII. Business Cycles, Deductive and Inductive Inference Krusell 10 Prescott, Edward C. 1998 Business Cycle Research: Methods and Problems. Federal Reserve Bank of Minneapolis Working Paper 590. Prescott. National Income and Product Accounts Notes. Prescott, Edward C. 2004 Why do Americans Work So Much More than Europeans? Federal Reserve Bank of Minneapolis Quarterly Review 28. Cooley, Thomas R. and Edward C. Prescott. 1995. Economic Growth and Business Cycles. In Frontiers of Business Cycle Research, edited by Thomas Cooley: Princeton: Princeton University Press, 1-39. (Not Downloadable.) VIII. Frictional Labor Markets - Krusell 11 IX. Economic Policy - Krusell 13 5