Department of Economics Carleton University Econ 6021 W Economic Theory: Macroeconomics 2018 Winter

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1 Department of Economics Carleton University Econ 6021 W Economic Theory: Macroeconomics 2018 Winter Instructor: Minjoon Lee minjoon.lee@carleton.ca Office: D892 Loeb Building Office Hours: Friday 10:30 AM 12:00 PM (Tentative) Schedule Lectures: Monday 2:35 PM 5:25 PM (Southam Hall 315) Prerequisities ECON 5021 (or equivalent) and ECON 6019 Course Description This is a Ph.D. level macroeconomic theory course. The course covers growth models, microfoundations for macroeconomics, and business cycle models. The course also covers basic programming using MATLAB, a software that is commonly used in macroeconomic research. Resources 1) Textbook This course does not have a required textbook, but the following books are good references: Barro, R. and X. Sala-i-Martin (BS), Economic Growth, 2 nd ed., MIT Press, Acemoglu, D. (ACE), Introduction to Modern Economic Growth, Princeton University Press, Ljungqvist, L. and T. Sargent (LS), Recursive Macroeconomic Theory, 3 rd ed., MIT Press, Romer (ROMER), D., Advanced Macroeconomics, 4 th ed., McGraw-Hill, ) CULearn This course will make use of CULearn. I will post materials including problem sets and answer keys. I will also use CULearn to send announcements to the class as needed. Please make sure that you are set up on CULearn prior to the course start date. 1

2 3) Computer Programs This course requires programming with MATLAB. MATLAB is available under the universitywide license. Course Outline (Tentative) I. Growth theories Solow model Continuous time optimization Ramsey model Overlapping generations model (time permitting) II. Micro-foundations for macroeconomics Discrete time optimization Consumption o PIH/RW, Asset pricing, risk premium puzzle Investment o Q-theory, adjustment cost III. Busyness cycle models (Representative-agent) Real business cycle models Heterogeneous agent models Exams 1) Midterm exam There will be one mid-term exam on February 26 (in class). Students who can document a compelling reason for missing the midterm exam will be excused and the weight of the midterm will be automatically added to the final exam. There will be no deferred midterm exam. 2) Final exam The final exam will take place during the Winter term examination period at a time and place set by the University. The final exam covers the materials taught after the Midterm. Problem Sets There will be four problem sets. The problem sets are due at the beginning of the class on the following days: Problem set 1: January 29 Problem set 2: February 12 2

3 Problem set 3: March 19 Problem set 4: April 9 The grading is based on effort and completeness, not on accuracy of the answers. Each assignment will be graded on a scale of {0,1,2}. In answering the questions, students are expected to show their work, i.e. write down key logical steps as well as final answers. Late submission will not be accepted. If you fail to submit a problem set and do not provide proper documentation, you will be assigned a mark of zero. Evaluation Problem sets : 20% Midterm : 40% Final : 40% Important Notes 1) Remarking Any request for the remarking of a midterm exam or problem set must be submitted in writing within two weeks of that exam first being returned to the class. The request should contain a detailed explanation of why you feel you should receive a higher mark. Please note that remarking will apply to the entire assignment/exam, not just the contentious question. As a result, the revised mark maybe higher than, lower than or the same as the original mark. Exams or problem sets completed in pencil or erasable ink will not be regraded. 2) Plagiarism Please be aware that plagiarism is a serious offence at Carleton and should be recognized and avoided. For further information on how to do so, see Pammett on Plagiarism and Paraphrasing at 3) Accommodation Requests Accommodation Requests: Students with disabilities requiring academic accommodations in this course must contact a coordinator at the Paul Menton Centre (PMC) for Students with Disabilities to complete the necessary Letters of Accommodation. After registering with the PMC, students should make an appointment to meet and discuss their needs with the instructor as early in the term as possible. Please note the Fall-term deadline for submitting completed forms to the Paul Menton Centre for accommodation at the April Exam is March 9,

4 Reading List (Ones with underline should be the most helpful for this course.) Solow Model o BS, Chapter 1, Section 1 and 2. o ROMER, Chapter 1. o ACE, Chapter 2. o Solow, Robert M. (1956), A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70, Continuous Time Optimization o ACE, Chapter 7, Section 1-5. Ramsey Model o BS, Chapter 2, Section 1 6. o ROMER, Chapter 2, Part A. o ACE, Chapter 8, Section 1-9. Overlapping Generations Model o ACE, Chapter 9, Section 1-9. Discrete Time Optimization o LS, Chapter 3 and 4. Consumption o ROMER, Chapter 8. o Hall, Robert E. (1978), Stochastic Implications of the Life-Cycle-Permanent Income Hypothesis: Theory and Evidence, Journal of Political Economy, 86, o Hansen, Lars Peter and Kenneth J. Singleton (1982), Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models, Econometrica, 50, o Campbell, John Y. and N. Gregory Mankiw (1989), Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence, NBER Macroeconomics Annual, 4, o Kimball, Miles S. (1990), Precautionary Saving in the Small and in the Large, Econometrica, 58, o Laibson, David (1997), Golden Eggs and Hyperbolic Discounting, Quarterly Journal of Economics, 112, o Lockwood, Lee M. (2012), Bequest Motives and the Annuity Puzzle, Review of Economic Dynamics, 15, o Ameriks, John, Joseph Briggs, Andrew Caplin, Matthew D. Shapiro and Christopher Tonetti (2015), Long-Term Care Utility and Late in Life Saving, NBER Working Paper No

5 Investment o ROMER, Chapter 9. o Tobin, James (1969), A General Equilibrium Approach to Monetary Theory, Journal of Money, Credit, and Banking, 1, o Hayashi, Fumio (1982), Tobin s Marginal q and Average q: A Neoclassical Interpretation,, Econometrica, 50, o Summers, Lawrence H. (1981), Taxation and Corporate Investment: A q-theory Approach, Brookings Papers on Economic Activity, 12, o Abel, Andrew and Janice Eberly (1994), A Unified Model of Investment under Uncertainty, American Economic Review, 84, o Caballero, Ricardo J. and John V. Leahy (1996), Fixed Costs: The Demise of Marginal q, NBER Working Paper No Real Business Cycle Models o ROMER, Chapter 5. o Solon, Gary, Robert Barsky, and Jonathan A. Parker (1994), Measuring the Cyclicality of Real Wages: How Important is Composition Bias, Quarterly Journal of Economics, 109, o Prescott, Edward C. (1986), Theory Ahead of Business-Cycle Measurement, Carnegie-Rochester Conference Series on Public Policy, 25, o Kydland, Finn E. and Edward C. Prescott (1982), Time to Build and Aggregate Fluctuations, Econometrica, 50, o Backus, David K., Patrick J. Kehoe, and Finn E. Kydland (1992), International Real Business Cycles, Journal of Political Economy, 100, o Brunside, Craig, Martin Eichenbaum, and Sergio Rebelo (1995), Capital Utilization and Returns to Scale, NBER Macroeconomic Annual, 10, o Hansen, Gary D. (1985), Indivisible Labor and the Business Cycle, Journal of Monetary Economics, 16, o Rogerson, Richard (1988), Indivisible Labor, Lotteries and Equilibrium, Journal of Monetary Economics, 21, o Beaudry, Paul and Franck Portier (2006), Stock Prices, News, and Economic Fluctuations, American Economic Review, 96, o Barsky, Robert B. and Eric R. Sims (2011), News Shocks and Business Cycles, Journal of Monetary Economics, 58, Heterogeneous Agent Models o LS, Chapter 16 and 17. o Huggett, Mark (1993), The Risk-Free Rate in Heterogeneous-Agent Incomplete- Insurance Economies, Journal of Economic Dynamics and Controls, 1993, o Aiyagari, S. Rao (1994), Uninsured Idiosyncratic Risk and Aggregate Saving, Quarterly Journal of Economics, 109,

6 o Bewley, Truman (1977), The Permanent Income Hypothesis: A Theoretical Formulation, Journal of Economic Theory, 16, o Krusell, Per and Anthony A. Smith Jr. (1998), Income and Wealth Heterogeneity in the Macroeconomy, Journal of Political Economy, 106, o Kaplan, Greg, Benjamin Moll, and Giovanni L. Violante (2016), Monetary Policy According to HANK,, NBER Working Paper No