Macroeconomic Theory I (MA)

NYU Department of Economics, Fall 2012 Stefano Eusepi and Nria Quella

General Information
Schedule: Lecture: Monday and Tuesday, 6.20-8.20pm Recitation: Monday and Tuesday, 8.25-9.55pm Location: Monday Class: Silver 414, Tuesday Class: Meyer Hall 122 Instructors:1 Stefano Eusepi, Federal Reserve Bank of New York (se51@nyu.edu) Nuria Quella, Stony Brook University (naq2001@nyu.edu) Teaching assistant: Xu Jianhuan, New York University (xujh03@gmail.com) Office Hours: By appointment Requirements: Four problem sets worth 50o% of the final grade. One in-class final worth 50% of the final grade. Students can work on problem sets in groups up to four people but each student should write up her/his own solutions. Please, list all the names of the people in a group. The final exams are scheduled for Tuesday 12/18 (8:00-9:50pm) and Monday 17/12 (8:00-9:50pm). Notice that there can be no changes to the date of the exams, as it is set by the University. Web-page: This class uses the NYU Blackboard system. If you sign up for the class, the relevant information will be accessible under the academics tab when you log onto http://home.nyu.edu. You need an NYU email account to log on to this site.
1

The views expressed in the course material as well as in class do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Please, correspond with us via our NYU e-mail accounts only. We will not reply to e-mails sent to our Federal Reserve Bank accounts.

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Macroeconomic Theory (MA), Fall 2012, syllabus

Schedule
The class is taught in two parallel sessions, Monday and Tuesday nights, 6.20-8.20pm. The same material will be covered in each session in the same week. To facilitate travel during the Thanksgiving week, we have scheduled no classes on 11/19 and 11/20. We will make up the Tuesday class on 12/14. You are welcome to attend either of the two sessions. However, when you decide to attend the session that you are not registered for, please notify the instructor.

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Monday

Tuesday 09/04 09/11 09/18 09/25 10/02 10/09 10/16 10/23 10/30 11/06 11/13 11/20 11/27 12/04 12/11

Monday lecturer Quella Quella Quella Quella Quella Quella Quella Quella Quella Quella No Class Quella Quella Quella

09/10 09/17 09/24 10/01 10/08 10/15 10/22 10/29 11/05 11/12 11/19 11/26 12/03 12/10

Tuesday lecturer No Class Eusepi Eusepi Eusepi Eusepi Eusepi Eusepi Eusepi Eusepi Eusepi Eusepi No Class Eusepi Eusepi Eusepi

Material (tentative schedule)

covered

The Houseold, part 1 The Houseold, part 2 The Firm General Equilibrium Economic Growth No classes scheduled Business cycles, part 1 Business cycles, part 2 Monetary Policy, part 1 Monetary Policy, part 2 Thanksgiving week Financial Crisis Fiscal Policy Unemployment

Course Material
Textbook: There is no required textbook. Course notes will be available on BlackBoard. You may find some of the material covered rather math intensive. If that is the case, you are advised to use as a reference Chiang, Alpha (1984), Fundamental Methods of Mathematical Economics, third edition, McGraw-Hill. Further useful textbooks references are Barro, Robert J. (2007), Macroeconomics: A Modern Approach, Thomson South Western (Advanced undergraduate level) Williamson, Stephen (2011), Macroeconomics Pearson (Advanced undergraduate level)

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Macroeconomic Theory (MA), Fall 2012, syllabus

Wickens, Michael (2008), Macroeconomic Theory: A Dynamic General Equilibrium Approach Princeton University Press (Introductory graduate level) Reading material: Additional relevant readings will be posted on Blackboard during the term.

Course Description
This course focuses on the core issues studied by macroeconomists. The course purpose is threefold. First and foremost, it is meant to introduce students to the main questions addressed in modern macroeconomics. It relates these questions to empirical regularities, explained and unexplained, in the data. Secondly, it aims to introduce students to the analytical toolkit used in contemporary macroeconomic research. The emphasis will be on the study of microeconomic foundations and decisions that underlie the behavior of macroeconomic aggregates observed in the data. Finally, it will provide an introduction to some of the classic and recent academic articles that have shaped, and are shaping, the science of macroeconomics. The main questions that will be addressed are: What determines the realization of macroeconomic aggregates, like output, consumption, unemployment, wages, inflation, and the interest rate? How do we measure these aggregates? Why do economies grow? What are the possible sources of economic fluctuations? How can government policies affect the growth and fluctuations of modern market economies?

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Macroeconomic Theory (MA), Fall 2012, syllabus Course outline

The course consists of seven parts: 1. 2. Introduction: We preview the main questions that macroeconomists address. We study the construction of macroeconomic aggregates and the main economic indicators. We read up on what leading economists in the profession consider the 'Core of practical macroeconomics that we can all agree on'. The basic microfoundations: We study the static and dynamic versions of the firm's profit maximization problem that is used to determine labor demand and investment. We study the static and dynamic version of the consumer's utility maximization problem that is used to determine labor supply and savings. Examples in this part are: o o o o o 3. What determines the differences in unemployment rates in the U.S. and E.U.? How do consumers respond to a change in the income tax rate? What is the fundamental value of a stock? How do fluctuations in the stockmarket affect consumption? What makes computers such a special capital good?

The concept of general equilibrium We consider what will be the macroeconomic outcome if the firms and consumers that we consider interact in competitive markets. The character of the joint determination of all variables in general equilibrium is illustrated using comparative statics in the steady state. Long run economic growth We consider how productivity growth is the engine of the upward trend in output per capita. We use growth accounting and look at the determinants of output per capita in more detail. Growth accounting is the method used to measure productivity growth. We consider the behavior of the model solved in the previous part when productivity growth is introduced. The resulting framework is known as the neoclassical growth model. We discuss what might underlie the persistent productivity growth that we observe in the data. Examples in this part are: o o o o The historical behavior of real GDP per capita in the U.S. Decomposing the sources of U.S. growth using growth accounting. A cross-country comparison of levels of real GDP per capita. Are the levels of real GDP per capita of countries converging towards each other?

The concepts of steady state and transitional dynamics are introduced. 4.

5.

Real business cycles We study the stylized facts of U.S. business cycles and the concept of detrending. We consider the real business cycle hypothesis, which is that shocks to productivity are the main source of economic fluctuations.

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Macroeconomic Theory (MA), Fall 2012, syllabus

We use calibration techniques to simulate our model economy and replicate some of the main business cycle phenomenon in the context of our simple model. Examples in this part are: o o o o 6. 7. A historical study of U.S. business cycles and the main economic time series. How does the 2001 recession compare to previous ones? We use benchmark facts to calibrate the parameters of the model. Computer simulations to see how business cycle fluctuations depend on model parameters.

Monetary and Fiscal Policy We study the determinants of money demand and supply We examine the role of the Central Bank in determining the Federal Funds Rate We consider the effects of a fiscal expansion on the main macroeconomic aggregates We discuss the recent financial crisis and the response of fiscal and monetary policy Unemployment We discuss the dynamics of unemployment in the U.S.

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