Intermediate Macroeconomics
14.05
Peter Temin
Spring 2008
TAs: Jose Tessada, tessada@mit.edu
Vasia Panousi, panousi@mit.edu
Alp Simsek, alpstein@mit.edu
This subject takes a fairly deep look at modern macroeconomics, expanding the
tools that are explained in 14.02. This course is a communications intensive subject, and
there is a 20-page paper required; it is worth 25% of the grade. Other requirements for the
course are 6 problem sets (15% credit), and three exams. Each exam is worth 20% credit
and comes after completion of each topic, starting early in the term. Some credit also will
be given for class-room participation (e.g., intelligent questions or intelligent answers).
Students may work together on the problem sets, but each student must submit his or her
own problem-set answers. Problem sets will be posted on the subject’s home page and
will be due on days marked on the syllabus with an asterisk (*). Late problem sets will not
be accepted. Using “bibles” of past problems will be dysfunctional, as problem sets are the
best practice for exams you can find.
The text for the course is David Romer, Advanced Macroeconomics, Third Edition
(New York: McGraw Hill, 2005). Additional readings are available from the class web site.
The reading list is given by weeks. A few other resources for the paper are listed at the
end of the syllabus.
The paper is due April 24, two weeks after the second exam. A rough draft of the
paper is due three weeks earlier, on April 3. Credit will be given for both the rough draft
and the paper. It is very important to meet the first of these deadlines if you want to meet
the second with a decent paper. The first TA, Jose Tessada, will help with problem sets
and exams. The other two, Vasia Panousi and Alp Simsek, will help with the required
paper. More details about the rough draft and the paper can be found at the end of the
syllabus.
UNIT 1 – THE LONG RUN
February 5
Introduction
V. V. Chari and Patrick J. Kehoe, “Modern Macroeconomics in Practice: How
Theory Is Shaping Policy,” Journal of Economic Perspectives, 20 (Fall 2006),
3-28. Online.
February 7 & 12
Solow Growth Model
David Romer, Advanced Macroeconomics, Chapter 1.
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Edward F. Denison, Why Growth Rates Differ (Washington, DC: Brookings
Institution, 1967), from Chap. 21, pp. 296-301, 319-345 only.
February 14*
NIA and Economic Growth
Charles I. Jones, “On the Evolution of the World Income Distribution,” Journal of
Economic Perspectives, 11 (Summer 1997), pp. 19-36. JSTOR.
Moses Abramovitz and Paul A. David, “American Macroeconomic Growth in the Era
of Knowledge-Based Progress: A Long-Run Interpretation,” in Stanley L.
Engerman and Robert E. Gallman (eds.), The Cambridge Economic History
of the United States, Volume 3 (Cambridge: Cambridge University Press,
2000), pp. 1-40 only.
Alwyn Young, "Lessons from the East Asian NICs: A contrarian view," European
Economic Review, 38 (April 1994), pp. 964-73. Science Direct.
February 21 & 26
New Growth Theory
David Romer, Advanced Macroeconomics, Chapter 3.
February 28* & March 4
Knowledge and Economic Growth
Daron Acemoglu, Simon Johnson, and James A. Robinson, “The Colonial Origins
of Comparative Development: An Empirical Investigation,” American
Economic Review, 91: 1369-87 only (December 2001), JSTOR.
Daron Acemoglu, Simon Johnson, and James A. Robinson, “An African Success
Story: Botswana,” Dani Rodrik (ed.), In Search of Prosperity: Analytic
Narratives on Economic Growth (Princeton, NJ: Princeton University Press,
2003).
Moses Abramovitz, “Catching Up, Forging Ahead, and Falling Behind,” Journal of
Economic History, 46: 385-406 (June 1986). JSTOR.
Peter Temin, “The Golden Age of European Growth Reconsidered,” European
Review of Economic History,” 6: 3-22 (April 2002). Online.
March 6
First Exam
Unit 2 – THE INTERMEDIATE RUN
March 11 & 13
Infinite-Horizon Models
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David Romer, Advanced Macroeconomics, Chapter 2A.
March 18 & 20*
Overlapping Generations Model
David Romer, Advanced Macroeconomics, Chapter 2B.
April 1 & 3
Social Security
Peter A. Diamond, “Social Security, the National Budget, and National Savings,”
MIT Department of Economics Working Paper 05-09.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=700383
Peter A. Diamond and Peter R. Orszag, “Saving Social Security,” Journal of
Economic Perspectives, 19 (Spring 2005), 11-32. IngentaConnect-AEA.
Martin Feldstein, “Structural Reform of Social Security,” Journal of Economic
Perspectives, 19 (Spring 2005), 33-55. IngentaConnect-AEA.
April 8
Lucas Model
David Romer, Advanced Macroeconomics, Chapter 6A.
April 10* & 15
Consumption
David Romer, Advanced Macroeconomics, Chapter 7.
April 17
Second Exam
UNIT 3 – THE SHORT RUN
April 24 & 29
Keynesian Models and Great Depression
David Romer, Advanced Macroeconomics, Chapter 5.
Paul Krugman, “A Model of Balance-of-Payments Crises,” Journal of Money, Credit
and Banking, 11 (August 1979), pp. 311-25.
http://www.jstor.org/view/00222879/di963087/96p0293k/0
Peter Temin, “The Great Depression,” New Palgrave Dictionary of Economics, 2nd
ed., forthcoming.
May 1* & 6
Unemployment
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David Romer, Advanced Macroeconomics, Chapter 9.
Stephen Nickell, “Unemployment and Labor Market Rigidities; Europe versus North
America,” Journal of Economic Perspectives, 11 (Summer 1997), pp. 55-74.
JSTOR.
May 8*
Inflation and Monetary Policy
David Romer, Advanced Macroeconomics, Chapter 10.
May 13 & 15
International Imbalance
Olivier Blanchard, Francesco Giavazzi, and Filipa Sa, “International Investors, the
U.S. Current Account, and the Dollar,” Brookings Papers on Economic
Activity, 2005, 1-49. Project Muse.
Sebastian Edwards, “Is the U.S. Current Account Deficit Sustainable? If Not, How
Costly Is Adjustment Likely to Be?” Brookings Papers on Economic Activity,
2005, 211-71. Project Muse.
Exam Period
Third Exam
The paper for 14.05
This paper should be a research paper that is about 20 pages long, double-spaced
(on numbered pages), and with a bibliography of works consulted. It should demonstrate
both your understanding of the subject and your ability to write in English. A rough draft is
due on April 10. The draft will count toward your grade, about 10% of the grade, leaving
the other 15% for the final paper. The draft also will be the basis on which you can get
feedback from a TA. A rough draft is helpful both in writing and getting feedback; a
second draft always beats a first draft. You also may want to consult the Writing Center at
MIT, 3-3090, if you are writing an essay in English for the first time.
The paper should be a comparison of economic growth in two countries in the last
half of the twentieth century. One country should be the country you live in, or from which
your parents came, or with which you have other strong attachments. The other country
should be chosen to provide a good contrast with this one. Feel free to discuss the choice
of country with your TAs. You should describe and analyze economic growth in the two
countries in the last half of the 20th century. The aim of the paper should be to use the
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theories learned in 14.05 to explain the events you choose. Comparing and contrasting
two countries should provide enough movements of interest for our theories to explain.
The paper should start by showing the results of using growth accounting for your
chosen countries. Questions posed by this account will be the motivation for much of your
paper. You should bring this calculation with you when you discuss your paper with a TA.
Late papers will be penalized on a steep sliding scale that makes it worth your while to
submit the paper on time rather than trying to wait a week to improve it. The draft will be
evaluated partly by how well it indicates the paper to come.
Like any good paper, yours should have a beginning, a middle, and an end. The
beginning should state clearly the topic of the paper and what you are planning to do. It
should be rewritten after the rest of the paper is finished to make sure it fits the paper as
written and presents a good case for someone to read the paper. In particular, the
beginning should explain what theories you are employing in your analysis. The middle of
the paper should contain your description of events in the two countries and your analysis
of them. This part can contain diagrams and data as needed to show what you are
explaining or how you are explaining it. It is the longest and most substantial part of the
paper. The end of the paper should summarize your argument, state your conclusions,
and draw any implications of your analysis that you think warranted.
Plagiarism is a major problem when writing research papers under time pressure.
You should avoid plagiarism at all costs. If you are in doubt about whether you are over
the line of acceptable behavior, you are too close to the edge. Omit the questionable
passage and draw back from the edge. Provide full citations for all sources you consult in
your work. Feel free to quote from them, but indicate clearly when you are quoting.
The following books may be useful in addition to the material on the syllabus.
Ha-Joon Chang, Kicking Away the Ladder—Development Strategy in Historical
Perspective (London: Anthem Press, 2002).
William Easterly, The Elusive Quest for Growth: Economists’ Adventures and
Misadventures in the Tropics (Cambridge, MA: MIT Press, 2001).
Data for a wide variety of countries are available from the Penn World Tables
(PWT). The PWT can be found online at http://datacentre2.chass.utoronto.ca/pwt/, where
you can access the newest version (version 6.1) as well as an older version (version 5.6)
which contains date on the capital stock. The official website is
http://pwt.econ.upenn.edu/, where you can find the newest data (version 6.2) available
plus some more help documents but data on capital stocks is not available.
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