ECON40002 Advanced Macroeconomics Semester 1 2021 Mei Dong Office hours: Wednesdays 13:00–14:00 Office: FBE 340 or by appointment Phone: 8344 1209 Email:
[email protected] The tutor for this course will be Daniel Tiong 〈
[email protected]〉. Course description This course is an advanced introduction to macroeconomics. By that, I mean the course will cover core topics in macroeconomics — long run economic growth, business cycle fluctuations, unemployment, inflation, optimal stablization policy, etc — but will do so using relatively formal economic models. By the end of the course you will have learned how to set up, solve, and work with simple quantitative versions of these models on a computer. The first half of the course will cover models of long-run economic growth and real business cycles, models that are essentially ‘frictionless’ and so do not generally admit any interesting role for macroeconomic policy. Nonetheless, these models serve as important theoretical benchmarks. In the second half of the course we will study various kinds of frictions, including labor market frictions that give rise to unemployment, trading frictions that rationalize the essential role of money, nominal rigidities that give rise to monetary non-neutralities, and financial market frictions that can amplify exogenous shocks and also serve as an endogenous source of volatility. For completeness, here’s the official handbook entry written for an earlier incarnation of the course: This subject presents recent developments in macroeconomics. There will be a mix of theory and applications. The main theories to be covered may include overlapping gen- erations models, dynamic optimisation, real business cycle theory, intertemporal open economy models and the theory of economic growth. Various theories will be illustrated using examples drawn from domestic and international policy issues, as appropriate. Course material There is no textbook that covers all topics in the course. The textbook that best suits our need is Advanced Macroeconomics: Syllabus 2 David Romer (2012): Advanced Macroeconomics. 5th Edition. McGraw-Hill. The course will also draw on various journal articles and working papers. I will post copies of these articles and all other course material to the LMS. Timetable Lectures: Mondays 12:30-14:00 and Wednesdays 11:30-13:00 Tutorials There will be weekly tutorials starting in the second week of classes. Tutorials are an integral and VERY important part of the subject. They will be used to complement and supplement the lectures and other reading materials. I would urge you to do the tutorial preparation before tutorials. Tutorial solutions will be made available after each weeks tutorials. Recorded lectures Audio and video recordings of lectures delivered in this subject will be made available for review. These recordings allow you to revise lectures during the semester, or to review them in preparation for the end of semester exam. You can access recorded lectures by clicking on the Lecture Capture menu item on the LMS page for this subject. Please note that for live classes, recordings are not a substitute for attendance; rather they are designed for revision. On rare occasions the recordings can fail to take place due to technical reasons. In such cases, a substitute recording will be made available. Email protocol Please note that we are only able to respond to student emails coming from a University email address. Please do not use personal email addresses such as Yahoo, Hotmail or even business email addresses. Emails from non-University email addresses may be filtered by the Universitys spam filter, which means that we may not receive your email. All correspondence relating to this subject will only be sent to your University email address. Note that you must first activate your University email address before you can send or receive emails at that address. You can activate your email account at this link: http://accounts.unimelb.edu.au/. While academic staff endeavor to address queries received via email, it is more appropriate to resolve substantive questions during lectures and tutorials and/or during normal consultation hours. With this in mind, we encourage students to attend all lectures and tutorials and to familiarise themselves with the consultation hours offered by the lecturers and tutors in this subject. Advanced Macroeconomics: Syllabus 3 Assessment The grade for this course will be based on: Task Due date Weight Problem set #1 10am, Wednesday March 24 5% Problem set #2 10am, Wednesday April 14 5% Problem set #3 10am, Wednesday May 5 5% Problem set #4 10am, Wednesday May 19 5% Group presentation in class, beginning Monday May 3 15% Final exam final exam period 65% Problem sets (20%). There will be four problem sets over the course of the semester. The problem sets may be done in groups subject to the following rules: All members of a group submit a single solution and will be given the same mark. No more than 4 students may make up a group. Students may choose to work and hand in an assignment on their own. No two groups may hand in the same assignment. Group presentation (15%). There will be a single 30-minute presentation of a research article related to the course material. These presentations will be done in ≈ 8 groups of ≈ 4 students. The presentations will be scheduled in the latter part of the semester, beginning Monday May 3. Final exam (65%). There will be a closed-book final exam covering the whole course. Assignment submission Assignment submission is completed using the LMS Assignment Submission link for all written as- signments. Please note that you are required to keep a copy of your assignment after it has been submitted as you must be able to produce a copy of your assignment at the request of teaching staff at any time after the submission due date. Late submission If you are unable to complete an assignment by the due date due to circumstances outside of your control, you should apply for an assignment extension in the first instance. Applications for extensions should be made directly to the Faculty of Business and Economics: Advanced Macroeconomics: Syllabus 4 http://fbe.unimelb.edu.au/students/bcom/current-students/assessment. Please note that assignment extensions cannot be granted after the assignment due date. Late assignments, where approval for late submission has not been given, will not be accepted. If an extension is for more than 10 days, you should apply for Special Consideration at STOP1. Special consideration Students who have been significantly affected by illness or other serious circumstances during the semester may be eligible to apply for Special Consideration. The following website contains detailed information on the rules governing Special Consideration: https://students.unimelb.edu.au/your-course/manage-your-course/exams-assessments-and-results/special- consideration. Plagiarism and collusion Plagiarism (failure to cite your sources correctly and completely) and collusion (unauthorised collab- oration with another person to prepare an assessment task) are considered academic misconduct and attract severe penalties. More information is available on the Universitys Academic Integrity website via http://go.unimelb.edu.au/rha6. Advanced Macroeconomics: Syllabus 5 Lecture Schedule Lecture 1 Introduction and course overview. Introduction to advanced macroeconomics and introduction to growth theory. Lectures 2–8. Growth theory and dynamic optimization. Solow-Swan growth model in continuous time: qualitative dynamics, comparative statics, quantitative implications and applications. Ramsey-Cass-Koopmans neoclassical growth model in discrete and continuous time: introduction to dynamic optimization, phase diagram and qualitative dynamics, log-linearization, solution by method of undetermined co- efficients, introduction to Matlab and Dynare. Simple model of R&D and growth and the Romer endogenous growth model. Lectures 9–12 Real business cycles. Motivating facts about business cycle fluctuations, stochastic growth model, elastic labor supply and employment fluctuations, balanced growth and standard parameterizations, calibration, impulse response functions and simulations, building intuition for the core RBC mecha- nisms, quantitative implications and evaluation. Lectures 13–14 Unemployment and labor market frictions. McCall’s model of job search, reservation wage; Mortensen- Pissarides model of search unemployment, labor market flows and Beveridge curve, matching, vacan- cies and unemployment, job creation and destruction, wage bargaining, quantitative implications and applications. Lectures 15–16 Monetary theory with microfoundations. Microfounded models of money: Kiyotaki-Wright model, Trejos-Shi-Wright model and Lagos-Wright model, search frictions, inflation, welfare, monetary policy. Lectures 17–19 Monetary economics using new Keynesian models. Imperfect competition and nominal rigidities, the basic new Keynesian model and a forward-looking Phillips curve, optimal monetary policy in the basic new Keynesian model, liquidity traps and the zero lower bound. Advanced Macroeconomics: Syllabus 6 Lectures 20–22 Financial frictions in macroeconomic models. Diamond-Dybvig model, bank runs old and new, Kiyotak-Moore model of credit cycles. Lectures 23–24 Pandemics in macroeconomic models. Basic SIR model, embedding SIR model into a macroeconomic model, effects of COVID-19 on Australian economy, fiscal policy responses, monetary policy responses. Advanced Macroeconomics: Syllabus 7 Group Presentations The class will be divided into ≈ 10 groups with each group consisting of ≈ 4 students. Each group will be allocated a paper on which they are to make a 30-minute presentation. Guidelines Here are some general guidelines for preparing your presentations: • You should structure the presentation as if you were the author of the paper, and you want to disseminate the findings of your paper to an audience that is unfamiliar with your research area but has an excellent undergraduate education in economics. • Tasks should be distributed evenly among group members. • Each group should choose ≈ 2 students who will be responsible for delivering the presentation. All students are expected to contribute to the preparation of the presentation and to be prepared to answer questions on the presentation. • Each group should plan to meet with me at least once prior to your presentation. There should probably be one meeting about 2 weeks before your presentation to go over any questions you have regarding your paper and then a second meeting a few days before your presentation to go over your slides. Final exam The final exam will include at least one True/False question on each of the papers that are presented in class. These questions will generally focus on three aspects: • What is the research question that this article seeks to address? • What is the research methodology used by in this article? • What is the conclusion that this article reaches? To help in studying for the final exam, I will post each group’s presentation slides to the LMS. Advanced Macroeconomics: Syllabus 8 Papers for group presentations The schedule of papers is listed below. These papers are all posted to the LMS. Presentations will take place at the beginning of each lecture starting on Monday May 3. Growth and innovation. (1) Song, Z, K. Storesletten and F. Zilibotti (2011): Growing like China, American Economic Review, 101, 196-233. (2) Acemoglu, D, U. Akcigit, H. Alp, N. Bloom and W. Kerr (2018): Innovation, reallocation and growth, American Economic Review, 108(11) 3450-91. Search frictions and the macroeconomy. (3) Bai, Y., J. Rios-Rull and K. Storesletten (2019): Demand shocks as technology shocks, working paper. (4) Berentsen, A., G. Menzio and R. Wright (2011): Inflation and unemployment in the long run, American Economic Review, 101(1), 371-98. Financial frictions. (5) Gertler, M. and N. Kiyotaki (2015): Banking, liquidity, and bank runs in an infinite horizon economy, American Economic Review, 105(7), 2011-43. (6) Brunnermeier, M. and Y. Sannikov (2014): A macroeconomic model with a financial sector, American Economic Review, 104(2), 379-421. COVID-19 and the macroeconomy. (7) Eichenbaum, M., S. Rebelo and M. Trabandt (2020): The macroeconomics of epidemics, Work- ing Paper 26882, National Bureau of Economic Research. (8) Kapan, G., B. Moll and G. Violante (2020): The great lockdown and the big stimulus: tracing the pandemic possibility frontier for the U.S., working paper.
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