Advanced Macroeconomics 2400-M1PPZMAKa

Part I: Intertemporal Macroeconomics
1. Introduction to intertemporal macroeconomics. The aim of this lecture is to present a dynamic approach to macroeconomics using simple general equilibrium models. course hours: 2, hours of student’s self study 4.
2. Consumption. The aim of this lecture is to present the intertemporal approach to consumption decisions using two- and multi-period models. course hours: 2, hours of student’s self study: 4.
3. Investment. The aim of this lecture is to compare the predictions of the neoclassical investment theory with the q- theory. course hours: 2, hours of student’s self study: 4.
4. Government sector and fiscal policy. The aim of this lecture is to review the role of government in the economy, public goods, ways of financing public expenditure in finite and infinite time horizon models. course hours: 2, hours of student’s self study: 4.
5. Neoclassical growth model. The aim of the lecture is to review the neoclassical growth model and its empirical implications such as conditional and unconditional convergence. course hours: 2, hours of student’s self study: 4.
6. Ramsey-Cass-Koopmans (RCK) model. The aim of the lecture is to present the RCK model using the phase diagram and study the behavior of the saving rate. course hours: 2, hours of student’s self study: 4.
7. Fiscal policy in Ramsey-Cass-Koopmans model. The aim of the lecture is to discuss the impact of various changes in fiscal policy. course hours: 2, hours of student’s self study: 4.
8. Overlapping generations model. The aim of the lecture is to show an alternative to the RCK model, and study the effects of the social security system. course hours: 2, hours of student’s self study: 4.
9. Introduction to new growth theory. The aim of this lecture is to review the first generation of endogenous models including AK and Romer models. course hours: 2, hours of student’s self study: 4.
10. Lucas-Uzawa model. The aim of this lecture is to present a two-sector grwoth model with special attention to the role of human capital. course hours: 2, hours of student’s self study: 4.

Part II: Monetary Economics
1. Monetary Growth Theory I: The Tobin Model. The aim of the lecture is to introduce the concept of money non-superneutrality and to show that inflation may raise the steady-state level of income if it leads to the portfolio substitution effect. Course hours: 1; hours of student’s self-study: 1.
2. Monetary Growth Theory II: Money in the Utility Function. The aim of the lecture is to present the Sidrauski's model of money in the utility function. Course hours: 2; hours of student’s self-study: 4.
3. Monetary Growth Theory III: Cash-in-Advance Constraint. The aim of the lecture is to analyze money superneutrality when money plays its role as medium of exchange and various transactions are subject to the CIA constraint. The second objective is to discuss empirical research devoted to the link between inflation and long-run growth rates. Course hours: 2; hours of student’s self-study: 4.
4. Classical and Keynesian Macroeconomic Theory. The aim of the lecture is to present the classical and keynesian macroeconomic models in a formal way and to prepare grounds to discuss the new models in keynesian and classical tradition. Course hours: 2; hours of student's self-study: 4.
5. Flexible Prices and the Role of Expectations. The aim of the lecture is to present the Cagan's model of money and prices and the Lucas' misperception theory. Course hours: 2; hours of student’s self-study: 4.
6. Nominal Rigidities. The aim of the lecture is present the Calvo's model of staggered price contracts. Then the resulting price setting policy is used in the derivation of the New Keynesian Phillips curve. The latter is combined with the new IS curve to allow the analysis of the short run money non-neutrality. Course hours: 3; hours of student’s self-study: 4.
7. Money Demand. The aim of the lecture is to survey the classical version of the quantity theory of money, the Keynesian liquidity preference theory and Friedman's modern quantity theory, the Baumol-Tobin model and Tobin's theory of liquidity preference. Course hours: 3; hours of student’s self-study: 4.
8. Rules vs Discretion Debate. The aim of the lecture is to discuss the time inconsistency problem and the solutions to inflation bias. Course hours: 2; hours of student’s self-study: 4.
9. Monetary Policy Rules and Instruments. The aim of the lecture is to present monetary policy rules followed by monetary authorities in practice: Taylor rule and inflation targeting. The second objective is to discuss the optimal choice of monetary instrument and the constraints that uncertainty and lags impose on the central bank policy. Course hours: 3; hours of student’s self-study: 4.

Part III: Labor Economics
1. Basic neoclassical concepts of the labor market. The aim of the lecture is to revise basic concepts of neoclassical economics applied to labor market, labor supply, labor demand, equilibrium wages and institutions. Course hours: 2, students' self-study hours: 2.
2. Labor market regularities in the short and long run. The aim of this lecture is to present basic regularities (stylized facts) of the labor market functioning in the long and short run in developed and developing countries. Course hours: 1, students' self-study hours: 1.
3. Human capital theory and education. The aim of this lecture is to present links between education and labor market from the perspective of the human capital theory. Course hours: 2, students' self-study hours: 3.
4. Equilibrium unemployment rate – NAIRU model. The aim of this lecture is to present the model of the NAIRU – non-accelerating inflation rate of unemployment and the analysis of the determinants of equilibrium unemployment rate and it's short run and long run changes. Course hours: 2, students' self-study hours: 2.
5. Basic model of efficiency wages. The aim of this lecture is to present and analyse basic version of efficiency wages theory to explain why wages might be set over the market-clearing level. Course hours: 2, students' self-study hours: 2.
6. Shapiro-Stiglitz model of efficiency wages. The aim of this lecture is to analyse Shapiro-Stiglitz model, and explain the concept of principal-agent problem of imperfect monitoring of workers' effort. Course hours: 3, students' self-study hours: 3.
7. Wage bargaining and unions. The aim of this lecture is to present and analyse insiders-outsiders model and wage negotiations process, as well as the role of labor unions and their influence on the labor market performance. Course hours: 2, students' self-study hours: 2.
8. Search and matching theory. The aim of this lecture is to present search and matching theory of the labor market and the flow concept into the labor market. Course hours: 4, students' self-study hours: 4.
9. Empirics of the labor market. The aim of this lecture is to present empirical methods and findings regarding verification of labor market theory. Course hours: 2, students' self-study hours: 2.

Type of course

obligatory courses

Prerequisites (description)

Official requirements Knowledge of rules of differentiation of functions of many variables Knowledge of rules of dynamic optimization Knowledge of models of economic growth and business cycles at the intermediate level Ability to interpret the results of regression analysis Introductory guidelines Macroeconomics II Calculus Econometrics

Learning outcomes

EXPERTISE
Upon the lecture completion a student:
- knows the basic methods used in macreoconomic modeling
- knows determinants of GDP components
- knows consumption theory
- knows investment theory
- knows neoclassical and new growth theories
- knows different taxes and their side effects
- know benefits and shortcomings of different social security systems
- knows and explains the long-run money superneutrality
- is able to recognize the obstacles to the conduct of monetary policy arising from uncertainty and lags
- is able to provide explanation for the short-run money non-neutrality
- is able to analyze unemployment by means of various theoretical approaches
- understands the concept of equilibrium unemployment rate and is able to analyse its short and long run fluctuations
- is aware of labor market imperfections and inefficiency arising from the nature of wage setting, negotiations, unions and externalities of jobs and workers search and matching

SKILLS
Upon the lecture completion a student:
- is able to interpret macroeconomic phenomena by referring to advanced theoretical models
- is able to understand and interpret determinants of economic growth in developed and developing countries
- is able to use advanced business cycle models to explain the dynamics of prices and output
- is able to assess monetary policy from the perspective of its short and long run consequences
- is able to recommend an optimal choice of monetary policy instruments and strategies
- is able to analyse the influence of various factors on the labour market performance in the short run and in the long run
- is able to recognize the influence of institutional factors on the labor market performance
- is able to analyse the links between education and demand for qualifications and labor market using human capital theory
- is able to recommend policy instruments and strategies to improve labor market performance and reduce the sources of inefficiency

KW01, KW02, KW03, KW04, KU01, KU02, KU03, KU04, KU05, KU06, KU07, KK01, KK02, KK03

Assessment criteria

The assessment is based on the results of the midterm exam and the final exam. The midterm exam will be held after Part I of the course (Intertemporal Macroeconomics) and the final exam after Parts II (Monetary Economics) and III (Labor Economics) of the course. The midterm exam and the two parts of the final exam will be composed of analytical and numerical problems. Students choose 1 out of 2 questions pertaining to all three parts of the course, that is answer 1 question at the midterm exam and 2 questions at the final exam. All questions are worth 10 points. To pass students need to collect 15 points and to collect at least 3 points from the midterm exam and each part of the final exam. If the the total number of points is less than 15 (or is grater than 15 but the number of points collected at any part of the exam is lower than 3), the students can take the retake exam pertaining to those part of exam (midterm or final) at which the number of collected points was smaller than 5.

Bibliography

Part I
Required – lecture notes
Additional:
1. Barro R.J., 1997, Macroeconomics, The MIT Press, Cambridge M.A., ch. 2, Work effort, production and consumption - the economics of Robinson Crusoe, 59-90, ch. 3, The behavior of households with markets for commodities and credit, 91-132.
2. Romer D., 1999, Advanced Macroeconomics, McGraw-Hill, ch. 7, Consumption.
3. Romer D., 1999, Advanced Macroeconomics, McGraw-Hill ch. 8., Investment.
Sala-i-Martin X., 2005, Internal and external adjustment costs in the theory of fixed investment, http://www.columbia.edu/~xs23.
Hall R., Jorgenson D., 1967, Tax policy and investment behavior, American Economic Review 57, 391-414.
Hayashi F., 1982, Tobin's marginal q and average q: A neoclassical interpretation, Econometrica 50, 213-224.
4. Romer D., 2005, Advanced Macroeconomics, McGraw-Hill, ch.11., Budget deficit and fiscal policy.
5. Romer D., 2005, Advanced Macroeconomics, McGraw-Hill, ch. 1, The Solow growth model.
Barro R.J., Sala-i-Martin X., 2004, ch. 1, Growth models with exogenous saving
rates, The neoclassical model of Solow and Swan, 14-38.
Islam N., 1995, Growth empirics: A panel data approach, Quarterly Journal of
Economics 110, 1127-1170.
Mankiw N.G., Romer D., Weil D.N., 1992, A contribution to the empirics of
economic growth, Quarterly Journal of Economics 107, 407-437.
6. Barro R.J., Sala-i-Martin X., 2005, ch. 2, Growth models with consumer optimization, 59-95.
Romer D., 2005, Advanced Macroeconomics, ch. 2, Infinite horizon and overlapping generations.
7. Blanchard O.J., Fischer S., 1989, Lectures on Macroeconomics, ch. 2, Consumption and investment: Basic infinite horizon models, section 2.3, Government in the decentralized economy, 52-58.
8. Blanchard O.J., Fischer S., 1989, Lectures on Macroeconomics, ch. 3, The
overlapping generations model, section 3.2, Social security and capital
accumulation, 110-114.
9. Barro R.J., Sala-i-Martin X., 2004, ch. 1, Growth models with exogenous saving rates, Models of endogenous growth, 61-71.
Barro R.J., Sala-i-Martin X., 2004, ch. 4, One sector model of endogenous growth,
205-232.
Rebelo S., 1991, Long-run policy analysis and long-run growth, Journal of Political
Economy 99, 500-521
Romer P., 1986, Increasing returns and long run growth, Journal of Political
Economy 94, 1002-1037.
10. Barro R.J., Sala-i-Martin X., 2004, ch. 5., Two-sector models of endogenous growth,
239-271.
Lucas R.E., 1988, On the mechanics of economic development, Journal of Monetary
Economics 22, 3-42.
11. Barro R.J., Sala-i-Martin X., 2004, ch. 6, Technological change: Models with an
expanding product variety, 285-313.
Grossman G., Helpman E., 1993, Innovation and growth in the global economy, MIT
Press, Cambridge MA, ch. 3, Expanding product variety, 45-76.
12. Barro R.J., Sala-i-Martin X., 2004, ch. 7, Technological change: Models with
improvements in the quality of products, 317-343.
Grossman G., Helpman E., 1993, Innovation and growth in the global economy,
MIT Press, Cambridge MA, ch. 4, Rising product quality, 86-109.

Part II
REQUIRED – lecture notes
ADDITIONAL:
Traditional Keynesian theory:
Romer D., Advanced Macroeconomics, chapter 5.1

The Lucas imperfect information model:
Romer D., Advanced Macroeconomics, chapter 6.1-6.2

New Keynesian Phillips Curve
Gali, J., Gertler, M., 1999. Inflation dynamics: A structural econometric analysis. Journal of
Monetary Economics 44, 195-222.

MIU model:
Walsh, C.E., Monetary Theory and Policy, chapter 2.2

CIA model:
Walsh, C.E., Monetary Theory and Policy, chapter 3.2, 3.3.1

Money demand:
Handa, J., Monetary Economics, chapter 4, 5
(the book’s call number in the faculty’s library is 998B)

Rules vs discretion debate:
Walsh, C.E., Monetary Theory and Policy, chapter 8

Monetary policy strategy:
Bofinger, P., Monetary Policy. Goals, Institutions, Strategies, and Instruments, chapter 8, 10.

Part III
REQUIRED: lecture notes and slides
ADDITIONAL:
Bagliano F., Bertola G. (2004) Models for Dynamic Macroeconomics, Oxford University Press, pp. 188–211.
Ball L., Mankiw N.G. (2002) ’The NAIRU in Theory and Practice’, NBER Working Paper No. 8940.
Blanchard O., Katz L. (1997) ’What Do We Know and Do Not Know About the Natural Rate of Unemployment?’, Journal of Economic Perspectives , Vol. 11, No. 1, pp. 51-72.
Cahuc P., Zylberberg A. (2004) Labor Economics, MIT Press.
Layard R., Nickell S., Jackman R. (1991) Unemployment. Macroeconomic Performance and the Labour Market, Oxford University Press.
Lindbeck, Snower (2001) 'Insiders versus Outsiders', Journal of Economic Perspectives, Vol. 15, No. 1, pp. 165-188.
Romer D. (2006) Advanced Macroeconomics, McGraw-Hill/Irwin.
Shapiro, Stiglitz (1984) 'Equilibrium Unemployment as a Worker Discipline Device', American Economic Review , Vol. 74, pp. 433-444.
Yellen J. L. (1984) 'Efficiency Wage Models of Unemployment', American Economic Review , Vol. 74, pp. 200-205.

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