Macroeconomic Theory II
COURSE AND CONTACT INFORMATION
Course: Economics 306
Semester: Spring 2010
Time: Wednesdays, 6:10 – 8:30 pm
Location: Mon 250
Course Website: http://home.gwu.edu/~cdwei/econ306.html
INSTRUCTOR
Name: Chao Wei
Campus Address: Monroe 317
Phone: (202) 994-2374
E-mail: cdwei@gwu.edu
Office hours: Wednesdays, 10:00 – 11:00 am and by appointment
Teaching Assistant: Alexander Kapinos
Location: Monroe 374:
Email: kapinos@gwu.edu
Office Hours: Tuesdays 1 – 3 pm
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) Search Models, 3) Consumption and asset pricing; 4) Real business
cycle models. Time permitting; we may be able to discuss computational aspects of the
models.
COURSE PREREQUISITE(S)
Econ 305
TEXTS
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 State University of Washington. 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.






Ljungqvist, Lars and Thomas Sargent, Recursive Macroeconomic Theory, MIT
Press, 2004.
Adda, Jerome and Russell Cooper, Dynamic Economics: Quantitative Methods
and Applications, MIT, 2003.
Lucas and Stokey with Prescott, Recursive Methods in Economic Dynamics,
Harvard University Press, 1989.
Romer, David, Advanced Macroeconomics. New York: McGraw-Hill. Third
edition, 2006.
Blanchard and Fischer, Lectures on Macroeconomics, MIT, 1989.
Handbook of Macroeconomics, edited by John Taylor and Michael Woodford.
LEARNING OUTCOMES:
As a result of completing this course, students will be able to:
1. Identify state and control variables, and formulate Bellman equations to capture
the main elements of recursive dynamic models.
2. Derive the first order conditions with respect to each optimizing variable, and
describe the economic intuition behind each condition.
3. Have tools to read more sophisticated macro literature on their own.
GRADING



Four problem sets (20 %)
Midterm exam (30 %),
Final exam (50 %);
The date for the midterm exam is March 10.
The date for the midterm exam is May 5. .
CLASS POLICIES



Midterm exams are mandatory. 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.)
University Policy on Religious Holidays:
1. Students should notify faculty during the first week of the semester of
their intention to be absent from class on their day(s) of religious
observance;
2. Faculty should extend to these students the courtesy of absence without
penalty on such occasions, including permission to make up examinations;
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
ACADEMIC INTEGRITY
I personally support the GW Code of Academic Integrity. It states:: “Academic
dishonesty is defined as cheating of any kind, including misrepresenting one's own work,
taking credit for the work of others without crediting them and without appropriate
authorization, and the fabrication of information.” For the remainder of the code, see:
http://www.gwu.edu/~ntegrity/code.html
SUPPORT FOR STUDENTS OUTSIDE THE CLASSROOM
DISABILITY SUPPORT SERVICES (DSS)
Any student who may need an accommodation based on the potential impact of a
disability should contact the Disability Support Services office at 202-994-8250 in the
Marvin Center, Suite 242, to establish eligibility and to coordinate reasonable
accommodations. For additional information please refer to: http://gwired.gwu.edu/dss/
UNIVERSITY COUNSELING CENTER (UCC) 202-994-5300
The University Counseling Center (UCC) offers 24/7 assistance and referral to
address students' personal, social, career, and study skills problems. Services for students
include:
- crisis and emergency mental health consultations
- confidential assessment, counseling services (individual and small group), and
referrals
http://gwired.gwu.edu/counsel/CounselingServices/AcademicSupportServices
SECURITY
In the case of an emergency, if at all possible, the class should shelter in place. If the
building that the class is in is affected, follow the evacuation procedures for the building.
After evacuation, seek shelter at a predetermined rendezvous location.