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Syllabus
Course title:
Macroeconomic Theory 1
Instructors: Zsófia Bárány and Attila Rátfai Email: baranyzs@ceu.edu; ratfaia@ceu.edu Office: office hour by appointment
Credits: 4 CEU credits (8 ECTS) Term: Fall 2021
Course level: MA
Prerequisites: This is a compulsory, core class for first-year MA in Economics students
Course description
This course gives a graduate level introduction to fundamental issues in modern macroeconomics.
The first half of the course is taught by Zsófia Bárány and covers long-run growth and inequality issues if time permits. The second half of the course is taught by Attila Rátfai and covers consumption, savings and asset pricing, investment in physical capital and inventories. These topics provide the foundation for more advanced issues in macroeconomics. The interplay between economic theory and data analysis is emphasized throughout.
Learning outcomes
Students will be able to construct and critique some important macroeconomic models and modeling techniques. This will help them to understand and evaluate a broad spectrum of problems in macroeconomics.
Teaching methods and learning activities
The class will involve a mix of lectures, seminars, and homework assignments. Specifically, learning objectives will be reached through
- Interactive lectures, where the instructor will present theoretical models, and often the students will present the relevant empirical evidence. Questions, comments, and discussions with the students about the models is essential.
- Seminars, which will focus on working through the problem sets, and discussing difficult points in the lectures.
- Group presentations, each group will present one empirical paper to the rest of the class during the lectures.
Reading list
See below. Revised later as the course proceeds. Lecture outlines are provided throughout.
Assessment
2 In both parts of the course there will be one group presentation (P), which gets a 10% weight in the course grade. There will also be 2 homework assignments (H) in each part of the course, these will get a 5% weight each. The midterm exam (M) will cover the material from the first half of the course, while the final exam (G) will cover the second half. The course grade (G) is determined by the
following formula, G = 0.3F+0.3M+0.05H11+0.05H12+0.05H21+0.05H22+0.1P1+0.1P2. Class attendance is mandatory.
If students experience any problem with the course, they are strongly encouraged to talk to one of the lecturers as early as possible, in order to address them before it becomes too late.
Course schedule and materials
1. Long-Run Growth and Development (7 lectures)
For this part of the course several textbooks can be useful. Daron Acemoglu’s textbook
’Introduction to Modern Economic Growth’ (DA), Princeton University Press, is the main
reference, but covers the topics much more in depth and more technically than what is required for this course. Barro and Sala-i-Martin, ’Economic Growth’ (BSM), MIT Press, is another excellent reference, which contains the essence of the material. Finally, David Romer’s ’Advanced
Macroeconomics’ (DR), McGraw-Hill/Irwin, also covers most of the theory.
1.1. Growth facts and the Solow model
- DA Chapters 1-3, BSM Introduction & Chapter 1, DR Chapter 1
- Charles I. Jones (1997), On the Evolution of the World Income Distribution, Journal of Economic Perspectives Vol. 11, pp. 19-36.
- Xavier Sala-I-Martin (1997), I Just Ran Two Million Regressions, American Economic Review P&P Vol. 87, No. 2, pp. 178-83
- Robert Jr Lucas (1990), Why doesn’t capital flow from rich to poor countries?, American Economic Review, Vol. 80, No. 2., pp. 92-96
1.2. The neoclassical growth model
- DA Chapters 5 & 8, BSM Chapter 2 & 3, DR Chapter 2 Part A 1
- N. Gregory Mankiw, David Romer, David N. Weil (1992): A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, Vol. 107, No. 2, pp. 407-37
- Robert E. Hall, Charles I. Jones (1999): Why Do Some Countries Produce So Much More Output Per Worker Than Others?, Quarterly Journal of Economics, Vol. 114, No. 1, pp. 83- 116
- Chang-Tai Hsieh, Peter J. Klenow (2010): Development Accounting, American Economic Journal: Macroeconomics, 2(1): 207-23.
- Charles I. Jones, Paul M. Romer (2010): The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital, American Economic Journal: Macroeconomics, 2(1): 224-45.
- Francesco Caselli (2005): Accounting for Cross-Country Income Differences (Parts 1 & 2), Handbook of Economic Growth, in: Philippe Aghion and Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741 Elsevier.
3 1.3. Overlapping generations models
- DA Chapter 9, DR Chapter 2 Part B
- Andrew B. Abel, N. Gregory Mankiw, Lawrence H. Summers, Richard J. Zeckhauser (1989), Assessing Dynamic Efficiency: Theory and Evidence, Review of Economic Studies, Vol. 56, No.
1, pp. 1-19.
- Philippe Weil (2008), Overlapping Generations: The First Jubilee Page, The Journal of Economic Perspectives Vol. 22, pp. 115-134.
1.4. Endogenous growth
- DA Chapter 13.1, BSM Chapter 6
- Paul M. Romer (1990): Endogenous Technological Change, Journal of Political Economy, Vol.
98, No. 5, Part 2, pp. S71-S102
- Charles I. Jones (1995): R&D-Based Models of Economic Growth, Journal of Political Economy, Vol. 103, No. 4, pp. 759-84.
- Charles I. Jones (1995): Time Series Tests of Endogenous Growth Models, Quarterly Journal of Economics, Vol. 110, No. 2, pp. 495-525.
- Daron Acemoglu and Joshua Linn (2004): Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry, Quarterly Journal of Economics, Vol. 119, No. 3, pp.
1049-1090
2. Long-run inequality trends (4 lectures)
2.1. The skill premium and directed technical change
- Lawrence F. Katz and Kevin M. Murphy (1992): Changes in Relative Wages, 1963-1987:
Supply and Demand Factors, Quarterly Journal of Economics, Vol. 107, No. 1
- Daron Acemoglu and David H. Autor (2011): Skills, Tasks and Technologies: Implications for Employment and Earnings, Handbook of Labor Economics Volume 4, Orley Ashenfelter and David E. Card (eds.), Amsterdam: Elsevier, 2011, especially parts 3.1-3.3
- DA Chapter 15.1-15.3
- Daron Acemoglu (2002): Directed Technical Change, Review of Economic Studies, Vol. 69., No. 4., pp. 781-809
- Walker Hanlon (2015): Necessity is the Mother of Invention: Input Supplies and Directed Technical Change, Econometrica, Vol. 83, No. 1, pp. 67-100
2.2. Structural change
- Berthold Herrendorf, Richard Rogerson, Akos Valentinyi: Growth and Structural
Transformation, Handbook of Economic Growth, vol. 2B. North Holland, Amsterdam and New York, pp. 855-941 (Chapter 6).
- Kongsamut, Rebelo and Xie (2001): Beyond Balanced Growth, Review of Economic Studies, Vol. 68, pp. 869-82.
- Rachel L. Ngai and Pissarides (2007): Structural Change in a Multisector Model of Growth, American Economic Review, Vol. 97, No. 1, pages 429-4431.6
3. Consumption and Savings (6 lectures)
4 LC/PIH with Certainty, Stochastic Version of PIH & Empirical Application, Interest Rate and Savings, Asset Pricing, Precautionary Savings, Liquidity Constraints, Durable Goods, Incomplete Optimization
*Romer (2001): Advanced Macroeconomics, Ch 7
Deaton (1992): Understanding Consumption, Princeton U Press
Browning and Crossley (2001): The Life Cycle Model of Consumption and Saving, JEP Carroll (2001): A Theory of the Consumption Function, with and without Liquidity Constraints, JEP
Laibson (1998): Life-Cycle Consumption and Hyperbolic Discount Functions, EER Attanasio (1999): Consumption, Handbook of Macroeconomics, Ch 11
Campbell (1999): Asset Prices, Consumption and the Business Cycle, Handbook of Macroeconomics, Ch19
Gourinchas and Parker (2001): The Empirical Importance of Precautionary Saving, AER Hall (1978): Stochastic Implications of the Life Cycle, Permanent Income Hypothesis, JPE Meghir (2004): A Retrospective on Friedman’s Theory of Permanent Income, Economic Journal
4. Investment and Inventories (6 lectures)
Cost of Capital, Investment Tax Credit, Q Theory, Irreversible Investment, Lumpiness and Uncertainty, Financial Imperfections, Inventory Accumulation
Blanchard and Fischer (1994): Lectures on Macroeconomics, Ch 6.4
Hubbard (1994): Investment under Uncertainty: Keeping One’s Option Open, 1-3, JEL Romer (2001): Advanced Macroeconomics, Ch 8
Caballero (1999): Aggregate Investment, Handbook of Macroeconomics, Ch 12 Chirinko (1993): Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications, JEL
Dixit and Pindyck (1994): Investment under Uncertainty, Princeton University Press, Ch 1 Hall (2000): The Stock Market and Capital Accumulation, AER
Ramey and West (1999): Inventories, Handbook of Macroeconomics, Ch 13
Short bios of the instructors
Attila Rátfai is an Associate Professor at the Department of Economics and Business, Central European University, and the Head of the MA in Economics Program. His current research focuses on the aggregate implications of heterogeneity and inaction in micro-level pricing behavior and on the nature of international business cycle fluctuations. He received his Ph.D. from the University of Michigan, Ann Arbor.
Zsofia Barany is an Assistant Professor at the Department of Economics and Business, Central European University. Her main research interest as a macroeconomist is the relationship between growth, technological change, education, and its impact on the labour market. Her research tends to combine micro-level data with macro models and aims at understanding the driving forces behind long-run trends in the evolution of labour market outcomes, such as inequality, or job polarization, taking into account individual heterogeneity. Her work has been published in the Journal
5 of Labor Economics and the American Economic Journal: Macroeconomics. In September 2018, she was awarded a prestigious 4-year ANR grant for her project on Technology and Polarization of Employment (TOPAZE). She holds a PhD and an MSc from the London School of Economics (LSE).
