Masters in Economics
Department of Economics
Econ. 501. Macroeconomic theory
College of Business Administration
Prof. Mohammad El-Sakka
Course Description: This course is an examination of macroeconomic theory. The course starts
discussing economic growth theories and policies. The second section will analyze real business
cycles models and macroeconomic fluctuations. Then the course will proceed with topics on
unemployment and inflation, and concludes with a discussion of budget deficits and their role in
the analysis of macroeconomic fiscal policies.
The following are the topics to be covered using David Romer’s Advanced Macroeconomics
book.
Chapter 1 THE SOLOW GROWTH MODEL
1.1 Some Basic Facts about Economic Growth
1.2 Assumptions
1.3 The Dynamics of the Model
1.4 The Impact of a Change in the Saving Rate
1.5 Quantitative Implications
1.6 The Solow Model and the Central Questions of Growth Theory
1.7 Empirical Applications
1.8 The Environment and Economic Growth
6
6
10
15
18
23
27
30
37
Chapter 3 ENDOGENOUS GROWTH
101
3.1 Framework and Assumptions
3.2 The Model without Capital
3.3 The General Case
3.4 The Nature of Knowledge and the Determinants of the Allocation of Resources to R&D
3.5 The Romer Model
3.6 Empirical Application: Time-Series Tests of Endogenous Growth Models
3.7 Empirical Application: Population Growth and Technological Change since 1 Million B.C.
3.8 Models of Knowledge Accumulation and the Central Questions of Growth Theory
Problems 145
102
104
111
116
123
134
138
143
Chapter 5 REAL-BUSINESS-CYCLE THEORY
5.1 Introduction: Some Facts about Economic Fluctuations
5.2 An Overview of Business-Cycle Research
5.3 A Baseline Real-Business-Cycle Model
5.4 Household Behavior
5.5 A Special Case of the Model
5.6 Solving the Model in the General Case
5.7 Implications
5.8 Empirical Application: Calibrating a Real-Business-Cycle Model
5.9 Empirical Application: Money and Output
5.10 Assessing the Baseline Real-Business-Cycle Model
189
189
193
195
197
201
207
211
217
220
226
Chapter 10 UNEMPLOYMENT
10.1 Introduction: Theories of Unemployment
10.2 A Generic Efficiency-Wage Model
10.3 A More General Version
10.4 The Shapiro–Stiglitz Model
10.5 Contracting Models
10.6 Search and Matching Models
10.7 Implications
456
456
458
463
467
478
486
493
10.8 Empirical Applications
498
Chapter 11 INFLATION AND MONETARY POLICY
11.1 Inflation, Money Growth, and Interest Rates
11.2 Monetary Policy and the Term Structure of Interest Rates
11.3 The Microeconomic Foundations of Stabilization Policy
11.4 Optimal Monetary Policy in a Simple Backward-Looking Model
11.5 Optimal Monetary Policy in a Simple Forward- Looking Model
11.6 Additional Issues in the Conduct of Monetary Policy
11.7 The Dynamic Inconsistency of Low-Inflation Monetary Policy
11.8 Empirical Applications
11.9 Seignorage and Inflation
513
514
518
523
531
537
542
554
562
567
Chapter 12 BUDGET DEFICITS AND FISCAL POLICY
12.1 The Government Budget Constraint
12.2 The Ricardian Equivalence Result
12.3 Ricardian Equivalence in Practice
12.4 Tax-Smoothing
12.5 Political-Economy Theories of Budget Deficits
12.6 Strategic Debt Accumulation 607
12.7 Delayed Stabilization 617
12.8 Empirical Application: Politics and Deficits in
Industrialized Countries 623
12.9 The Costs of Deficits 628
12.10 A Model of Debt Crises 632
Problems 639
584
586
592
594
598
604
TEXT BOOKS
Required:
1. Required Text: David Romer, Advanced Macroeconomics. 4th edition. New York,
McGraw-Hill ISBN-13: 978-0073511375
2. Wendy Carlin and David Soskice (2005) Macroeconomics: Imperfections, Institutions and
Policies " ISBN-13: 978-0-19-877622-2
3. Some selected readings and papers will be distributed during the class.
Recommended Texts: Robert J. Barro and Xavier Sala-i- Martin, Economic Growth, MIT Press
STUDENT EVALUATION SYSTEM
Students are evaluated based on their level of achievement in the following:
Exams
There will be three in-class examinations including the final. These tests will be multiple choice,
numerical, and essay questions. The tests and quizzes will carry a total of 100 points. The
weights are follows.
Mid term 1
20 points
Presentations
20 points
Participation
10 points
Short papers
20 points
Final
30 points
Total
100
Plagiarism and cheating are strictly prohibited by university policies as well as academic ethics.
Grading System
Grade will be assigned based on the following scale:
73% < Mark < 77%
77% < Mark < 80%
80% < Mark < 83%
83% < Mark < 87%
87% < Mark < 90%
90% < Mark < 95%
95% < Mark < 100%
C
C+
BB
B+
AA
OFFICE HOURS
There will be three weekly office hours a week took place in the teacher's office in the second
floor in the faculty building. Students could also meet the instructor by making special
appointment if the announced office hours are not suitable for him/her. Making phone calls
with the teacher is strictly prohibited except in urgent circumstances.
Absenteeism:
Students are required to attend classes regularly. There are formal penalties for missing classes
according to the University's rules.
Tardiness:
Student who arrives late will be first notified and prevented from attending the class if such
conduct continues.
Make up policy
Students who miss an exam as a result of illness or other extenuating circumstances (verifiable
documentation of the circumstances must be provided) may ask for make-up exam or may
request to add it to the final exam grades.
Note: Mobile phones must be kept silent during lectures.