Macroeconomic Theory II
Economics 306 – Spring 2006
In GELM 607 on Wednesday , at 06:10pm-08:00pm
In FNGR 207 on Wednesday , at 08:10pm-10:00pm
George Washington University
Professor Chao Wei
Office: Old Main 213
Phone: (202) 994-2374
Email: cdwei@gwu.edu
Office Hours: Wednesday 4:30 – 5:30 pm
Teaching Assistant: Yasya Babych
Old Main 217
Phone: (202) 994-6156
Email: ybabych@gwu.edu
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 on
business cycle facts. 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.
We will have two main sources of readings in the course. The first 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.biz.uiowa.edu/faculty/swilliamson/courses/2001/notes01.pdf
You may find it helpful to save the file first and then print it. This website also contains
many problem sets and answers. You will find them very helpful in doing some of the
assigned problem sets for this course.
The second source of readings is handouts and journal articles.
Suggested Readings
I have ordered an advanced intermediate textbook, also by Steve Williamson. This book
provides a simplified version of the basic macro model including both intuitive and
graphical presentations. Depending upon your background, this book can serve as the
transition from undergraduate to graduate analysis.
The books below may be helpful at various pints 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. Second
edition, 2001.
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.
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 optional. If you choose
not to take it, the final exam is worth 80% of the grade. There will be no makeup. If you
miss the midterm for any reason, the final 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.
Course Outline
1. Introduction to Dynamic Programming
Williamson notes Chapter 3.
Ljungqvist and Sargent (henceforth LS), Chapter 1,3
Stokey and Lucas (with Prescott), Chapter 2.1, 5
2. Choice under Uncertainty
Williamson notes Chapter 5.
LS Chapter 3
Stokey and Lucas (with Prescott), Chapter 2.2, 2.3
3. Consumption and Asset Pricing
Williamson notes Chapter 6
Handbook of Macroeconomics Chapter 19
4. Real Business Cycle Models
Campbell, JME 1994.
Romer, Chapter 4.
Handbook of Macroeconomics Chapter 14
5. Production-Based Asset Pricing Models
Jermann, JME 1998
6. New-Keynesian Models and Their Business Cycle and Asset Pricing Implications.