The University of Hong Kong
ECON6012 Macroeconomics Theory
Fall 2009 (Preliminary)
Instructor: Kaiji Chen Class: Wed 6:45-9:45PM
Office: KKL 915 Place: LE2
Office Tel 2857-8506
Email: kaijic@hku.hk
Office Hour: 2:00-4:00PM, Wednesday
1 Course Objectives
This is a first course in dynamic macroeconomic theory. It is based on general equilibrium theory
and consists of several self-contained modules. In each module we will combine the learning of
techniques with a particular topic. This should motivate to learn the techniques and makes it
possible to apply the techniques in assignments and projects.
The objective of this class is not just to make you familiar with formal analytical tools, but also
provide framework to explore a broad set of economic questions quantitatively. After the course,
students will be expected to be familiar with the workhorse models in macroeconomics, write
simple codes in MATLAB, and apply these techniques to interesting questions in
macroeconomics, financial economics, monetary economics, and public finance.
1.1 Course Intended Learning Outcomes (CILOs)
By the end of the course, students should be able to:
CILO01
CILO02
Understand the techniques and application of the dynamic macroeconomic
theory.
Familiar with the workhorse models in macroeconomics and apply these
techniques to questions in macroeconomics.
1.2 Alignment of program ILOs and course ILOs
Program ILOs
Acquisition and internalization of knowledge of economics & finance
Application and integration of knowledge
Developing global outlook
Mastering communication skills
Inculcating leadership
Course ILOs
CILO01, CILO02
CILO01, CILO02
CILO01, CILO02
CILO01, CILO02
2 Prerequisites
Students taking this course are assumed to be familiar with neoclassical growth theory and
intermediate microeconomic theory (e.g. Hal R. Varian, Intermediate microeconomics)
2.1 Course Evaluation
Your final grade for this course will be evaluated by
Problem sets 20%
Take-home Project 30%
Final Exam 50%
Some of the problem sets involve using Matlab for numerical computation and simulation. I
encourage students to study in groups. However, the homework assignments that you hand in
must be your own work. Students are strongly encouraged to finish the problem sets before the
deadline is due. The take-home project will entail calibrating theoretical models using aggregate
data, as well as the numerical computation and simulation. The final exam date will be announced
in due course.
2.2 Teaching and Learning Activities (TLA)
TLA1
Lecture
Instructor will give lectures on major concepts and issues.
TLA2
Consultation
Instructor holds weekly consultation hours to answer
students’ questions.
2.3 Alignment Among Course Intended Learning Outcome, Teaching and Learning
Activities and Assessment Tasks:
Learning Outcome
Teaching and learning activity (TLA)
Assessment
CILO01
TLA1, TLA2
Problem Sets, Take-home project, Final Exam
CILO02
TLA1, TLA2
Problem Sets, Take-home project, Final Exam
3 Course Readings
Our main text will be Stephen Williamson’s Notes on Macroeconomic Theory and several
outstanding sets of lecture notes written by Dirk Krueger. These will be supported by a few
articles. Parts of Daron Acemoglu’s and David Romer’s textbooks might provide additional
perspectives on the material. For advanced students Per Krusell’s lecture notes might prove
interesting.
The required readings will be marked * in the Lecture Plan. In addition, all material explicitly
covered in the lecture notes, to be posted online before each lecture, will also be expected known
before the final exam. Please note that the set of required readings might be modified during the
semester, in which case we will update this document on the course webpage.
3.1 Books and prepared lecture notes
1. Daron Acemoglu: Introduction to Modern Economic Growth. Princeton
2. Dirk Krueger: Dynamic Fiscal Policy (ref: Krueger-DFP) http://www.wiwi.unifrankfurt.de/Professoren/krueger/teaching/ws0506/fiscal/GoetheFiscalTotal.pdf
3. Dirk Krueger: Quantitative Macroeconomics (ref: Krueger-QM) http://www.wiwi.unifrankfurt.de/Professoren/krueger/teaching/QuantMacro.pdf
4. Per Krusell: Lecture Notes for Macroeconomics.
http://www.econ.yale.edu/smith/econ510a/book.pdf
5. David Romer (latest edition): Advanced Macroeconomics. McGraw-Hill. (Older versions
of this book can be used)
6. Stephen Williamson: Notes on Macroeconomic Theory.
http://www.biz.uiowa.edu/faculty/swilliamson/courses/2001/notes01.pdf
7. A version with figures is available from Tony Smith’s web-page:
8.
http://www.econ.yale.edu/smith/econ510a/notes99.pdf
Matlab Primer http://www.cs.cmu.edu/afs/cs.cmu.edu/misc/matlab/common/www/matlab_primer.pdf
4 Course Webpage
The webpage to this course is http://www.sef.hku.hk/~kaijic/econ6012.html.
All relevant course materials, including the syllabus, lecture notes, and problem sets will be
uploaded onto this website.
5 Course Outline
1. Business cycles. Use a stochastic production economy to study business cycle fluctuations.
2. Accounting for large deviations from balanced growth (Great Depression)
3. Asset pricing and equity premium puzzles
4. Introducing heterogeneity: Overlapping generations and fiscal policy
6 Lecture Plan
For each lecture, the starred reference is required reading. The non-starred references give
additional useful material for the more advanced study of the topic.
1. September 2nd
Introduction, Overview of the class.
Data: Decomposition of Growth and Cycles; Business Cycle Facts
• Krueger-QM, Chapter 2*
• Kydland and Prescott [1990]*
2. September 9th
Dynamic Programming
• Dynamic optimization: Sequential methods
---Krusell Chapter 3.1*
• Dynamic optimization: Recursive methods
---Krusell Chapter 3.2*
---Williamson Chapter 3*
3. September 16th
Stochastic Neoclassical Growth Model and Consumption Theory
• Probability theory and easy introduction Markov processes
---Krusell Chapter 6.1*
• Stochastic neoclassical growth model
---Krusell Chapter 6.21*
---Williamson Chapter 5.2*
• Consumption theory
---Williamson Chapter 6.1*
4. September 23rd
Business Cycle Model with Divisible Labor Supply
• Endogenous labor supply
---Li [1999]
• Standard Model
---Acemoglu Chapter 17.3*
---Hansen and Wright [1992]*
5. September 30th
Business Cycle Model with Indivisible Labor Supply
• Labor Lottery
---Krueger-QM Chapter 9
• A Full Blown Model with Indivisible Labor
---Hansen and Wright [1992]
---Chang and Kim [2005]*
6. October 14th
The Great Depression from a Neoclassical Perspective
• Cole and Ohanian [1999]*
• Kehoe and Prescott [2002]
7. October 21st
Asset Pricing
• Williamson Chapter 6.2*
• Krusell Chapter 9.1
• Romer Chapter 7.5
8. October 28th
The equity premium puzzles
• Williamson Chapter 6.2*
• Krusell Chapter 9.2 and 9.3
• Romer Chapter 7.5
9. November 4th
Overlapping Generations Model
• Acemoglu: Chapter 9.1*-9.3*
• Krusell Chapter 7.1
10. November 11th
The Golden Rule and Dynamic Inefficiency
• Acemoglu: Chapter 9.4*-9.5* and Chapter 17.5*
• Krusell Chapter 7.2
11. November 18th
Ricardian Equivalence
• Krueger-DFP Chapter 4.2*
12. November 25th
Consumption, Labor and Capital Taxation
• Krueger-DFP Chapter 4.3*
References
• Yongsung Chang and Sun-Bin Kim. On the aggregate labor supply. Federal
Reserve Bank of Richmond Economic Quarterly, pages 21.37, Winter 2005.
http://troi.cc.rochester.edu/~ychang14/papers/EQ.pdf.
• Harold Cole and Lee Ohanian. The great depression in the united states
From a neoclassical perspective. Federal Reserve Bank of Minneapolis, Quarterly Review,
23(1):2.23, 1999. http://minneapolisfed.org/research/QR/QR2311.pdf.
• Gary Hansen and Randy Wright. The labor market in business cycle theory.
Federal Reserve Bank of Minneapolis, Quarterly Review, 16(2):1.12, 1992.
http://minneapolisfed.org/research/QR/QR1621.pdf.
• Timothy Kehoe and Edward Prescott. Great depressions of the twentieth
Century. Review of Economic Dynamics, 5:1.18, 2002.
http://www.econ.umn.edu/~tkehoe/papers/depressions.pdf.
• Finn E. Kydland and Edward C. Prescott. Business cycles: Real facts and a
Monetary Myth. Federal Reserve Bank of Minneapolis, Quarterly Review,
14(2):3.18, Spring 1990.
http://minneapolisfed.org/research/QR/QR1421.pdf.
•
Victor E. Li. Can market-clearing models explain U.S. labor market fluctuations? Federal
Reserve Bank of St. Louis Review, pages 35.49, July
1999.
http://research.stlouisfed.org/publications/review/99/07/9907vl.pdf
ACADEMIC CONDUCT
The University Regulations on academic dishonesty will be strictly enforced! Please check the
University Statement on plagiarism on the web: http://www.hku.hk/plagiarism/
Academic dishonesty is behavior in which a deliberately fraudulent misrepresentation is employed in
an attempt to gain undeserved intellectual credit, either for oneself or for another. It includes, but is
not necessarily limited to, the following types of cases:
a.
Plagiarism - The representation of someone else’s ideas as if they are one’s own. Where the
arguments, data, designs, etc., of someone else are being used in a paper, report, oral
presentation, or similar academic project, this fact must be made explicitly clear by citing the
appropriate references. The references must fully indicate the extent to which any parts of the
project are not one's own work. Paraphrasing of someone else's ideas is still using someone
else’s ideas, and must be acknowledged.
b. Unauthorized Collaboration on Out-of-Class Projects - The representation of work as solely
one's own when in fact it is the result of a joint effort.
c. Cheating on In-Class Exams - The covert gathering of information from other students, the
use of unauthorized notes, unauthorized aids, etc.
d. Unauthorized Advance Access to an Exam - The representation of materials prepared at
leisure, as a result of unauthorized advance access (however obtained), as if it were prepared
under the rigors of the exam setting. This misrepresentation is dishonest in itself even if there
are not compounding factors, such as unauthorized uses of books or notes.
Where a candidate for a degree or other award uses the work of another person or persons
without due acknowledgement:
1. The relevant Board of Examiners may impose a penalty in relation to the seriousness of the
offence;
2. The relevant Board of Examiners may report the candidate to the Senate, where there is
prima facie evidence of an intention to deceive and where sanctions beyond those in (1) might
be invoked.