Macroeconomic Theory II
Economics 306 – Spring 2009
In Mon 250 on Wednesday , at 06:10pm-08:00pm
In Mon 250 on Wednesday , at 08:10pm-10:00pm
George Washington University
Professor Chao Wei
Office: Monroe 317
Phone: (202) 994-2374
Email: cdwei@gwu.edu
Office Hours: Wednesdays 10:00 – 10:50
am and by appointment
Teaching Assistant: Alexander Kapinos
Phone: TBA
Email: kapinos@gwu.edu
Office Hours: TBA
Course Description
This is a second course in macroeconomics. We will cover range of topics including 1)
Introduction to dynamic programming in a deterministic, and then a stochastic
environment; 2) Consumption and asset pricing; 3) Real business cycle models. Time
permitting; we may be able to cover some of the following topics: Production-based
asset pricing models; New-Keynesian models and their business cycle and asset pricing
implications, and etc.
Suggested Readings
We will have two main sources of readings in the course. The first is lecture notes written
by me, which can be downloaded from the course website. The lecture notes will be
under constant revisions. You are encouraged to read the relevant journal articles or book
excerpts cited in the notes for extra clarifications. The second is material from the lecture
notes written by Steve Williamson. These notes are available at Steve Williamson’s
website at the University of Iowa. The website is
http://www.artsci.wustl.edu/~swilliam/courses/notes06.pdf
Some chapters of Williamson’s notes follow our teaching closely.
The books below may be helpful at various points in the semester, your graduate studies
and your career. I do not recommend you rush out to buy these books, although at a later
date you may consider purchasing one or two of them.
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Romer, David, Advanced Macroeconomics. New York: McGraw-Hill. Third
edition, 2006.
Ljungqvist, Lars and Thomas Sargent, Recursive Macroeconomic Theory, MIT
Press, 2004.
Lucas and Stokey with Prescott, Recursive Methods in Economic Dynamics,
Harvard University Press, 1989.
Blanchard and Fischer, Lectures on Macroeconomics, MIT, 1989.

Handbook of Macroeconomics, edited by John Taylor and Michael Woodford.
Course Requirements
There will be approximately 4 problem sets over the semester, a midterm exam and a
final exam. Problem sets are worth 20% of your grade, the midterm is worth 30% of the
grade and the comprehensive final is worth 50%. The midterm is required. Tentative
date for the midterm exam is March 11. There will be no makeup exam if you miss the
midterm for any reason. In this case, the final exam will be worth 80% of the grade.
The problem sets will not be accepted late. Studying in pairs or groups is highly
encouraged. If you work on the problem sets in a group, please turn in a single copy of
the answers with the names of the contributors. Each person will receive the same score.
(Personally I think that the optimal number of group members should be either 2 or 3. )
Any student who feels s/he may need an accommodation based on the impact of a
disability should contact Disability Support Services, Marvin Center 242, 202-994-8250.
The disability will be documented and I will support reasonable accommodations worked
out between that office and you.
Course Outline
1. Deterministic Dynamic Programming
Williamson notes Chapter 3.
Ljungqvist and Sargent (henceforth LS), Chapter 1,3
Stokey and Lucas (with Prescott), Chapter 2.1, 5
2. Stochastic Dynamic Programming
Williamson notes Chapter 5.
Romer Chapter 4
LS Chapter 3
Stokey and Lucas (with Prescott), Chapter 2.2, 2.3
3. Searching, Matching and Unemployment
LS Chapter 6
4. Consumption and Asset Pricing
Williamson notes Chapter 6.1.1
Romer Chapter 7
Blanchard and Fischer, Chapter 6, 10.1
Ljungqvist and Sargent (henceforth LS), Chapter 10.2, 16
Handbook of Macroeconomics Chapter 19
5. Real Business Cycle Models
Campbell, 1994, “Inspecting the Mechanism: An Analytical Approach to the
Stochastic Growth Model,” Journal of Monetary Economics 33, 463-506.
Hansen, Gary and Randall Wright, “The Labor Market in Real Business Cycle
Theory”.
Burnside, Craig and Martin Eichenbaum, 1996, “Factor-Hoarding and the
Propagation of Business-Cycle Models,” the American Economic Review, Vol
86, No. 5, 1154-1174.
Rebelo, Sergio, 2005, “Real Business Cycle Models: Past, Present and Future.”
Romer, Chapter 4.
Handbook of Macroeconomics Chapter 14
6. Production-Based Asset Pricing Models
Jermann, JME 1998
7. New-Keynesian Models and Their Business Cycle and Asset Pricing Implications.