Graduate macroeconomics 2 - Syllabus 2012
Topic 1 - Covered in lecture 1, problem sets 1 & 2
Business cycle facts, basic model, equivalence of centralized and decentralized economy, solution
methods: special cases, log-linearizing, stochastic dynamic programming
Readings:
Stock and Watson (1999): Business Cycle Fluctutations in US Macroeconomics Time Series, in Taylor
and Woodford, Handbook of Macroeconomics, Vol 1A, Ch1, Section 3.
Campbell (1994): Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth
Model, Journal of Monetary Economics, 33, 463-506
*Ljungqvist and Sargent (2000): Recursive Macroeconomic Theory, MIT Press, Chapter 2 and 3
*Stokey, Lucas and Prescott (1989): Recursive Methods in Economic Dynamics, Harvard University
Press, parts of Chapter 5 and 10
*Blanchard and Fisher (1989): Lectures on Macroeconomics, MIT Press, Chapter 2
Topic 2 - Covered in lectures 2 & 3, problem sets 3, 4 & 5
The labor-leisure choice
Readings:
Romer (2001): Advanced Macroeconomics, second edition, Chapter 4.
King and Rebelo (1999): Resuscitating Real Business Cycles, in Taylor and Woodford, Handbook of
Macroeconomics, Vol 1B, Ch14
*Uhlig (1999): A Toolkit for Analyzing Nonlinear Stochastic Models Easily, in Marimon and Scott,
Computational Methods for the Study of Dynamic Economies, Oxford
*Prescott (1986): Theory Ahead of Business Cycle Measurement, Quarterly Review, Federal Reserve
Bank of Minneapolis, Fall 1986, 9-22
*Basu and Fernald (2000): Why is Productivity Procyclical? Why Do We Care?, NBER W7940,
October 2000
Topic 3 - Covered in lecture 4
Introducing money, cash in advance model, money in utility model
Readings:
Walsh (2010): Monetary Policy and Theory, Chapter 2 and 3
Blanchard and Fisher (1989): Lectures on Macroeconomics, MIT Press, section 4.3-4.7 and 10.2
Topic 4 - Covered in lectures 5 & 6, problem sets 6 & 7
New Keynesian business cycles, markups, imperfect competition, sunspot equilibria, sticky prices,
Calvo pricing
Readings:
Rotemberg and Woodford (1995): Dynamic General Equilibrium Modesl with Imperfectly
Competitive Product Markets, in Cooley, Fronties of Business Cycle research, Chapter 9
Dotsey and King (2006): Pricing, Production, and Persistence, Journal of the European Economic
Association, MIT Press, vol. 4(5), pages 893-928, 09
Christiano, Eichenbaum and Evans (2005): Nominal Rigidities and the Dynamic Effects of a Shock to
Monetary Policy, Journal of Political Economy, vol 113, no 1
Clarida, Gali, and Gertler (1999): The Science of Monetary Policy: A New Keynesian Perspective,
Journal of Economic Literature, vol. 37, pp. 1661-1707.
*Chari, Kehoe, and McGrattan (2000), Sticky Price Models of the Business Cycle: Can the Contract
Multiplier Solve the Persistence Problem, Econometrica, vol. 68, pp. 1151-79
*Calvo (1983): Staggered Prices in a Utility-Maximizing Framework, Journal of Monetary
Economics, vol. 12, pp. 383-98.
Topic 5 - Covered in lecture 7, problem set 8
Consumption, aggregation, idiosyncratic shocks, autarky, complete markets, permanent income
hypothesis, certainty equivalence, precautionary savings, prudence, borrowing constraints, natural debt
limit
Readings:
Mace (1991): Full Insurance in the Presence of Aggregate Uncertainty, Journal of Political Economy
Cochrane (1991): A Simple Test of Consumption Insurance, Journal of Political Economy
Hall (1978): Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and
Evidence, Journal of Political Economy
Deaton (1991): Saving and Liquidity Constraints, Econometrica
Carroll (1997): Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis, Quarterly
Journal of Economics
*Blundell and Preston (1998): Consumption Inequality and Income Uncertainty, Quarterly Journal of
Economics
Topic 6 - Covered in lecture 8, problem set 9
Equilibrium with agents facing heterogeneous labor income risk, risk-free asset and borrowing
constraints, Consumption, invariant distribution of wealth, magnitude of precautionary savings, wealth
inequality, efficiency and constrained efficiency, aggregate uncertainty
Readings:
Aiyigari (1994): Uninsured Idiosyncratic Risk and Aggregate Saving, Quarterly Journal of Economics
Huggett (1993): The Risk-free Rate in Heterogeneous-agent Incomplete-insurance Economies, Journal
of Economic Dynamics and Control
Topic 7 - Covered in lecture 9
Dynamic taxation, Ramsey taxation, zero capital income tax, Mirrlees taxation, informational
problems, new dynamic public finance, inverse Euler equation
Readings:
Chamley (1986): Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives,
Econometrica
Atkeson, Chari, and Kehoe (1999): Taxing Capital Income: A Bad Idea, Federal reserve Bank of
Minneapolis Quarterly Review
Conesa, Kitao, and Krueger (2009): Taxing Capital? Not a Bad Idea after All!, American Economic
Review
Golosov, Tsyvinski, and Werning (2006): New Dynamic Public Finance: A User's Guide