General Economic Theory: Macroeconomics
Econ 511b, Spring 2002, first half
Instructor: Prof. Giuseppe Moscarini
28 Hillhouse Avenue, Room 310
tel. and voice mail 432-3596
giuseppe.moscarini@yale.edu
Office hours: Wednesday 4-6 pm
Time: Monday-Wednesday 10:30-11:50
Place: 28 Hillhouse Avenue, Room B8.
www.econ.yale.edu/~mosca/teaching.htm
TA: TBA
In the first half of the term, from January 14 to February 20, we will address the main theoretical
and empirical issues concerning economic growth and aggregate fixed business investments, as
well touch upon search and unemployment.
The major credit hurdle for this half of the term is a final exam, scheduled on Tuesday, February
25, from 10:30am to 12:30pm. This exam counts for 85% of the score. The remaining 15% of
the score will come from five weekly assignments. The resulting total score from this first half of
the term will be averaged with the score from the second half of the term, taught by Prof. Stefan
Krieger, to obtain your final grade for 511b.
You can work on the assignments in groups if you wish; no more than five people per group
please. In order to get credit you must hand in your own handwritten copy of the solutions and
write on it clearly your name and the names of the people in your group (distinguish yourself
from the others). Working on the assignments is key to succeed in the final exam, because only
those who solve problems understand the material (ancient wisdom). The long-run gains from
being able to solve problems on your own exceed by orders of magnitude the gains from freeriding on your colleagues; thus, you should try to tackle the problems yourself first and then
compare your solution to those of your colleagues.
The references indicated below go beyond what you will see in class. The topics that we will
discuss in class are indicated by a smiling face (). Occasionally, additional hand-outs will be
distributed in class. A reading packet is available for sale from Audubon Copy (48 Whitney
Avenue). It includes the papers that I have listed below. The symbol  appended to some of the
papers indicates that you can download them legally and for free: from any Yale IP address log
on www.jstor.org, and follow the instructions using the references I give you below for the
journal, volume, issue, pages etc. However, remember that you cannot use University printing
resources for this purpose.
As of textbooks, we can be happy with: David Romer, Advanced Macroeconomics, Mc GrawHill, 2001, 2nd Edition, that you should have from the Fall term.
A) Economic Growth
A.1 Stylized Facts and Data Sources
Summers, Robert and Alan Heston, “The Penn World Table (Mark 5): An Expanded Set of
International Comparisons, 1950-1988”, Quarterly Journal of Economics, May 1991: 327-368
A.2 Neoclassical Growth Theory: A Quick Review
Romer Chapt. 1
Romer Chapt. 2 part A
Burmeister, Edwin and Rodney Dobell, Mathematical Theories of Economic Growth, 1970,
MacMillan.
A.3 New (“Endogenous”) Growth Theories
 Ak Models
Rebelo, Sergio, “Long-Run Policy Analysis and Long-Run Growth”, 1991, Journal of Political
Economy, June: 500-521. 
 General Knowledge Spillovers
 Romer, Paul, “Increasing Returns and Long-Run Growth”, 1986, Journal of Political
Economy, 1002-1037 
 Human Capital Spillovers
Romer 3.8-3.9
 Lucas, Robert E. Jr., “On the Mechanics of Economic Development”, 1988, Journal of
Monetary Economics, July: 3-42.
Public Expenditure
Barro, Robert, “Government Spending in a Simple Model of Economic Growth”, 1990, Journal
of Political Economy, Oct. 
 Quality Ladders
 Aghion, Philippe and Peter Howitt, “A Model of Growth through Creative Destruction”,
1992, Econometrica: 323-351. 
Grossman, Gene, and Elhanan Helpman, Innovation and Growth in the Global Economy, 1991,
MIT Press. Ch. 4.
Aghion, Philippe and Peter Howitt, Endogenous Growth Theory, 1997, MIT Press.
Horizontal Product Differentiation: Expanding Product Varieties
Romer, Paul, “Endogenous Technological Change”, 1986, Journal of Political Economy,
October. 
Grossman, Gene and Elhanan Helpman, Innovation and Growth in the Global Economy, 1991,
MIT Press. Ch.. 3.
Learning by Doing
Arrow, Kenneth, “The Economic Implications of Learning by Doing”, 1962, Review of
Economic Studies, June: 155-173 
Young, Alwyn, “A Tale of Two Cities: Factor Accumulation and Technical Change in Hong
Kong and Singapore”. In: O.J. Blanchard, S. Fischer, NBER Macroeconomics Annual, 1992.
Cambridge University Press.
A.4 The Empirical Growth Literature
 Durlauf, Steven and Danny Quah, “The New Empirics of Economic Growth”, CEP
Discussion Paper 384, 1998. Later published in the Handbook of Macroeconomics / vol. 1, edited
by John B. Taylor and Michael Woodford._ Amsterdam ; New York : North-Holland : Elsevier,
1999.
 Growth Accounting and the Solow Residual
Solow, Robert, “Technical Change and the Aggregate Production Function”, 1957, Review of
Economics and Statistics.
Romer 1.6-1.7
 - and - Convergence, Conditional convergence, Convergence Clubs
Sala-i-Martin, Xavier, “The Classical Approach to Convergence Analysis”, 1996, The Economic
Journal, July, 106.
Quah, Danny, “Empirics for Economic Growth and Convergence”, 1996, European Economic
Review, 40: 1353-1375.
 Tests
Barro, Robert, “Economic Growth in a Cross-Section of Countries”, 1991, Quarterly Journal of
Economics, May: 407-443.
 Mankiw, N. Gregory, David Romer and David Weil, 1992, “A Contribution to the Empirics
of Economic Growth”, Quarterly Journal of Economics, May: 407-437
Durlauf and Quah,. Cit.
Quah, Danny, “Galton’s Fallacy and Tests of the Convergence Hypothesis”, 1993, The
Scandinavian Journal of Economics, no. 4: 427-443.
B) Investment
Two excellent recent surveys of the macro and empirical micro literatures on Investment will
serve as main references, in addition to Romer, for this section on Investment. These are:
 Caballero, Ricardo, “Aggregate Investment”. In: Handbook of Macroeconomics Vol. 1 /
edited by John B. Taylor and Michael Woodford._ Amsterdam ; New York : North-Holland :
Elsevier, 1999.
 Bond, Stephen and John Van Reenen, “Microecometric Models of Investment and
Employment”, 1999. Mimeo Nuffield College, Oxford University.
B1. Definitions and Stylized Facts
Caballero, cit.
B2. The Accelerator and the Neoclassical Theory
Romer 8.1
Hall, Robert and Dale Jorgenson, “Tax Policy and Investment Behavior”, 1967, American Econ.
Review, June, 391-414.
Caballero, cit.
Bond and Van Reenen, cit.
B3. Convex Adjustment Costs and q Theory
 q Theory Under Certainty
Tobin, James, “A General Equilibrium Approach to Monetary Theory”, Journal of Money,
Credit and Banking, Feb. 1969
Romer 8.2-8.5
Abel, Andrew, “Dynamic effects of permanent and temporary tax policies in a q model of
investment”. 1982, Journal of Monetary Economics, no. 9: 353-373
Hayashi, Fumio. “Tobin’s Marginal q and Average q: a Neoclassical Interpretation”,
Econometrica, 1982, 50, pp. 213-224. 
 q Theory Under Uncertainty
Romer 8.6 (first half of the section)
Abel, Andrew and Olivier Blanchard. “The present value of profits and cyclical movements in
investments”. Econometrica, 1986, vol. 54, no. 2, pp. 249-273. 
Bond and Van Reenen, cit.
B4. Non Convex Adjustment Costs and Irreversibility
 Uncertainty and Irreversibility: the “Real Option” Approach
 Dixit, Avinash, and Robert Pindyck. Investment under Uncertainty. Princeton University
Press, 1994. Chapt. 1, § 1,2,3, and all of Chapt.2.
 Fixed Adjustment Costs, (S,s) Policies and Aggregation
Caballero, Ricardo and John Leahy “Fixed costs: the demise of marginal q”, NBER WP, March
1996.
Caballero, Ricardo, Eduardo Engel and John Haltiwanger, “Plant Level Adjustment and
Aggregate Investment Dynamics,” BPEA 2, Macroeconomics, 1995, 1-54.
Caballero, cit.
B5. Contract Theories of Investment
 Agency Theories: Costly State Verification and Optimal Monitoring.
Romer 8.7
Hart, Oliver. Firms, Contracts and Financial Structure. Oxford University Press, 1995.
Appendix to Chapt. 5.
 Empirical Tests of Agency Theories
Romer 8.8 second part
Fazzari, S., G. Hubbard and B. Petersen “Financing Constraints and Corporate Investments”.
Brookings Papers on Economic Activity 2, 1988.
Bond and Van Reenen, cit.
Incomplete Contracts and the Property Rights Approach
Hart, Oliver. Firms, Contracts and Financial Structure. Oxford University Press, 1995. Ch. 1-2.
C) Unemployment
I will spend a couple of lecture on just one theory of unemployment, the one I like best and that
is being most successfully integrated into dynamic stochastic general equilibrium models of the
macroeconomy. I am referring to equilibrium search theory, for which the following references
suffice:
Romer 9.8
 Chapters 1-3 of: Pissarides, Christopher, 2000, Equilibrium Unemployment Theory, 2nd
edition, MIT Press.