Econ 503
Macroeconomic Theory
Stephen L. Parente
Fall 2012
Syllabus
Office: 118 DKH
Office Hours: Monday, 9:00-10:30, and by appointment
Office Phone: 244-3625
E-mail: parente@illinois.edu
Course Homepage: https://netfiles.uiuc.edu/parente/econ503/econ503.html
Teaching Assistant: The TA for the course is Joao Bernardo Aurelio-Duarte
E-mail: aurelio2@illinois.edu
Office Hours: Monday 3-5 PM, and by appointment
Recitation: Friday, 10-11:50 AM 215 DKH
Course Objective: The goal of this course is twofold. The first goal is technical in nature.
More specifically, the course will teach you some standard tools and models that
currently dominate macroeconomics. The second goal is more substantive in nature. In
particular, the course will demonstrate how macroeconomists apply dynamic general
equilibrium methods to derive quantitative answers to questions about which we are
currently ignorant.
References:
The main material for the course consists of lecture notes written by several prominent
macroeconomists, such as Per Krusell, Randy Wright, Dirk Krueger and Victor RiosRull. Additionally, there are some supplemental journal articles. Textbooks play a minor
role in the course. Nevertheless, I have placed at the bookstore
Ljungqvist, L. and T. Sargent. Recursive Macroeconomic Theory. Cambridge:
MIT Press (2004).
The Ljungqvist and Sargent book is a comprehensive book, and so an excellent resource
for a huge number of topics.
For lighter reads that will make you into a well-rounded and informed economists, I
recommend
White, L. The Clash of Ideas, http://mercatus.org/person/working_papers/17178?page=1
Snowden, B. and H. Vane. Conversations with Leading Economists. Northampton,
MA: Edgar Elgar Press (1999).
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Some other useful macro books you might want to add to your professional library are:
Stokey, Nancy, Robert E. Lucas, with Edward Prescott. Recursive Methods for
Economic Dynamics. Cambridge: Harvard University Press (1989).
Cooley, Thomas. Frontiers of Business Cycle Research. Princeton: Princeton
University Press, (1995).
Farmer, Roger. The Macroeconomics of Self-Fulfilling Prophecies. Cambridge, Ma:
MIT Press (1993).
Mathematical Preliminaries:
Most of the mathematics that you need for the course were covered in the math camp that
you took with Pr. Cho. Concepts that I feel are important to the course or that were not
covered sufficiently in the camp will be taught either in class or recitation. You may want
to review Chapters 12, and 16-21 in Simon and Blume’s book, Mathematics for
Economists.
Grading:
Your grade will be based on a series of problem sets, a midterm and a final exam. The
midterm and final will each contribute 45 percent to your grade; the problem sets make
up the remaining 10 percent.
Problem Sets and Old Exams:
Problem sets, and past exams are posted on the course webpage.
Academic DishonestyThe University takes serious violations of academic dishonesty. The penalty for
Academic dishonesty will be an F for the particular assignment/exam and potentially an F
for the course. Students are advised to consult the LAS Student Handbook for definitions
of academic dishonesty.
Examination Schedule:
The midterm will be scheduled around the first part of October. The final examination
is scheduled for Wednesday, December 19th 1:30-4:30 PM
Some Additional Advice:
I encourage you to work with your classmates. My experience, both as a graduate student
and as a teacher, is that going over your lecture notes and problem sets with your
classmates is an important way by which learning occurs. Note, that whereas you are
encouraged to discuss problem sets and their solutions, the work you hand in must be
your own!
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Course Outline/Reading List
I.
Econ 503
Introduction to Macroeconomics
White, Lawrence Clash of Ideas
Lucas, R.E. and T. Sargent. 1979. After Keynesian Macroeconomics, Federal
Reserve Bank of Mineapolis Review (Spring).
Krusell Chapter 1
II.
The Solow Model –
Krusell 2
III.
Dynamic Optimization – Sequence Approach in Robinson Crusoe
Economies
A. Finite Horizon – Krusell 3.1.1
B. Infinite Horizon – Krusell 3.1.2
IV.
Competitive Equilibrium
A. Sequential Competitive Equilibrium
Krusell 5.1.1, 5.1.2, 5.1.4, Krueger 2.2.5
B. Arrow Debreu Economies and Welfare Theorems
Krusell 5.1.3, Krueger 2.2.1-2.2.3, 7; Parente GE Notes
C. Negeshi Algorithm Krueger, 2.2.4
Negeshi, T. 1960. “Welfare Economics and Existence of an
Equilibrium for a Competitive Economy”. Metroeconometrica 12:
92-97.
Kehoe, T.J. 1989. “Intertemporal General Equilibrium Model”s. In
F. Hahn, editor, The Economics of Missing Markets, Information,
and Games. Clarendon Press, 1989, 363-393.
C. Heterogeneity and Aggregation –
Parente GE notes
Chatterjee, S. 1994. “Transitional Dynamics and the distribution of
wealth in a Neoclassical Growth Model”. Journal of Public
Economics (54): 97-119.
V.
Uncertainty
Krusell 6, Krueger 6, Ljungqvist and Sargent Chapter 8
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VI.
Deviations from Arrow- Debreu
A. Overlapping Generations Model
Krusell 7, Wright OLG Notes, Ljungqvist –Sargent 9
Samuelson, P. 1958. “An Exact Consumption Loan Model
of Interest with or Without the Social Contrivance of Money”,
Journal of Political Economy 66: 467-482.
Tirole, J. 1985. “Asset Bubbles and Overlapping
Generation”s, Econometrica 53:1071-1100.
B. Monopolistic Competition.
Krugman, P. 1979. ‘Increasing Returns, Monopolistic
Competition”, and International Trade, Journal of International
Economics 9:469-79.
VII. Dynamic Programming
A. Mathematics of Dynamic Programming
Wright DP Note; Krueger 4, 5; Ljungqvist and Sargent 1,3,4
B. Social Planner Problem
Krusell 3.2, and 3.3, Krueger 3.2.2.
VIII. Recursive Competitive Equilibrium
Krusell 5.2, Rios-Rull 1-3, Krueger 3.3.4
IX.
Economic Policy
Krusell 10, Sargent and Ljungqvist 11 and 15
X.
Business Cycles
Krusell 11
Prescott, Edward C. 1998 “Business Cycle Research: Methods and
Problems.” Federal Reserve Bank of Minneapolis Working Paper 590
(October).
Prescott. National Income and Product Accounts Notes.
Prescott, Edward C. 2004 “Why do Americans Work So Much More than
Europeans?” Federal Reserve Bank of Minneapolis Quarterly Review 28: 1
(July).
Cooley, Thomas R. and Edward C. Prescott. 1995. “Economic Growth and
Business Cycles.” In Frontiers of Business Cycle Research, edited by Thomas
Cooley: Princeton: Princeton University Press, 1-39. (Not Downloadable.)
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