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Spring Semester 2005 School of Economics Masters Economic Theory II: Macroeconomics (SOCEM006) PRELIMINARIES Introduction This unit is designed to provide training in modern, advanced macroeconomic theory. It will draw on material from Economic Theory I: Microeconomics (SOCEM007) for ingredients such as general equilibrium theory and game theory. It aims to familiarize students with the workhorse models economists use to think about long term growth and business cycle fluctuations. Considerable attention is paid as well to economic policy issues such as the effectiveness of fiscal and monetary policies and inflation. The unit is compulsory for all students on the MAs in Economics, Economics & Finance, Environmental Economics, Experimental Economics, Industrial Economics and Political Economy. Unit Objectives • To give students a broad understanding of the modern literature in macroeconomic theory, and an ability to appraise its strengths and weaknesses. • To foster technical skills in economic theory. • To inculcate the ability to communicate technical arguments in macroeconomic theory. Administration and Contact The unit will be taught and convened by Dr. Giulio Fella. You are welcome to see me during office hours 10-11 on Thursdays or email me at g.fella@qmul.ac.uk We will start the course with three lectures each week and one seminar. Depending on pace, we may switch to two lectures per week and one seminar at some point. Seminars meet in three groups. Teaching will stop at the end of Week 11. There will be a University Examination in the Summer Examination period. Website To access the unit website please do the following. On your first visit, you will have to register for UEA’s ’blackboard’web interface (unless you have already done so). If you have any problems, step-by-step help is available by going to: http://www.uea.ac.uk/ltg/blackboard/welcome.html You will find administrative information about the unit there, including a downloadable version of this handout, and other announcements about the unit. Additional materials will be added during the course of the semester. LECTURE OUTLINE A summary of the lecture programme is as follows: Week 1-3: Weeks 4-5: Week 6: Week 7: Weeks 8-9: Weeks 10-11: Accounting for income and growth differences, neoclassical and endogenous growth approaches; Endogenizing the saving rate (Ramsey model), fiscal policy effectiveness (Ricardian equivalence); Business cycle I: Real Business Cycle theory; Business cycles II: Nominal rigidities; Microfoundations of nominal rigidities: asymmetric information, wage and price stickiness and imperfectly competitive macroeconomics; New Classical macroeconomics: rational expectations, monetary policy, inflation and policy games. Details of assessment, recommended reading and the seminar programme are given below. ASSESSMENT The unit is assessed by a University examination, during the Summer examination period, and by coursework which is due during the Spring Semester teaching period. Further details are as follows: University Examination The exam will count for 60% of the unit grade. It will potentially cover any aspect of the unit and will contain a mixture of essay questions and exercise-style questions. It will be of two hours duration. Coursework All coursework will be marked using the assessment criteria set out in Appendix C of the MA Course Guide. Students will be asked to submit in turns solutions to the weekly problem sets. These will be marked. At the end of the course each student will have submitted two sets of solutions each of them counting for 20% of the unit grade. Essay questions in the problem sets are designed to test your ability to develop a sustained and rigorous argument. In assessing them, we will look for evidence that you have read and understood the relevant literature, and that you can write cogently and critically about theoretical issues, using formal models and mathematical tools. Two Warnings Late submission – Solutions to the problem sets will not be accepted after the relevant problem set has been discussed in class. Work failing to meet deadlines without good cause will receive a mark of zero. ‘Good cause’ will be determined in the first instance by the unit convenor (Giulio Fella). You are strongly advised to email the course convenor in advance if you expect not to be able to meet the deadline. Plagiarism- Plagiarism is the copying or very close paraphrasing of published or unpublished work, including the work of another student or material from the internet, without the use of quotation marks and due acknowledgement. This is regarded as a serious offence by the University. Work which contains substantial sections of such material will receive a mark of zero and work which contains even small elements of plagiarised material will be penalised. Note that plagiarism can seriously damage your chances of passing the MA, because of the effect of a zero mark on your overall average. If in doubt about what constitutes plagiarism, you should consult the unit convenor. PREREQUISITES Economics: Familiarity with an intermediate macroeconomics text such as N. Gregory Mankiw, Macroeconomics, Worth Publishers or J. Bradford DeLong, Macroeconomics, McGraw Hill or any other intermediate undergraduate macroeconomic textbook. Graduate macro gets pretty technical and it is very easy to lose sight of the broader picture. An undergraduate textbook is a good companion to keep you on track. I personally strongly recommend Mankiw. It is very comprehensive and modern in its approach. Mathematics: Familiarity with linear algebra, basic calculus at the level of Alpha C. Chiang, Fundamental Methods of Mathematical Economics, McGraw Hill. Linear difference and differential equations will be introduced during the course, but you are advised to get familiar with the topic in advance. READING The following is the basic textbook for the course and you are strongly advised to buy it. David Romer, Advanced Macroeconomics, 2nd edition, 2001, McGraw-Hill. Other useful books are listed below. Jones is excellent on growth and slighly easier than Romer. On the same topic, Barro and Sala-i-Martin is more advanced, but its Chapter 1 is very accessible. Blanchard and Fischer is the classic text, for all the other parts of the course. It is more advanced than Romer, but it is definitely worth consulting. For the part on ad-hoc static analysis, Branson or Mankiw are useful alternatives. Sargent provides the best treatment I know of. It is very rigorous and can be worth careful reading. It is quite exacting, though. Begg and Sheffrin are good introductions to the rational expectation literature. Robert J. Barro and Xavier Sala-i-Martin, Economic Growth, McGraw Hill. Olivier J. Blanchard and Stanley Fischer, Lectures on Macroeconomic Theory, MIT Press. David K. H. Begg, The Rational Expectation Revolution in Macroeconomics, Johns Hopkins University Press. William H. Branson, Macroeconomic Theory and Policy, Harper Collins. Charles Jones, Introduction to Economic Growth, Norton. Thomas J. Sargent, Macroeconomic Theory, Academic Press. Steven M. Sheffrin, Rational Expectations,Cambridge University Press. You are not expected to read everything on the following list. The starred (*) readings constitute essential material, while non-starred ones will be referred to in passing and can be explored at your leisure. Doubly-starred (**) readings are more recent paper on the frontier of the debate on a topic. Topics: The Real Side of the Economy 1. Accounting for cross-country income and growth differences. *Romer, Ch. 1.7 or better *Barro and Sala-i-Martin, Introduction (I.1-I.2 only) and Ch. 10.4 or Jones, Ch. 1 *Krugman, Paul “The Myth of Asia’s Miracle”, http://web.mit.edu/krugman/www/myth.html **Caselli, Francesco “The Word Technology Frontier”(2004), http://personal.lse.ac.uk/casellif/papers/wtf1.pdf 2. Exogenous growth with exogenous saving: Solow Growth Model *Romer, Ch. 1 or *Barro and Sala-i-Martin, Ch. 1.1-1.2 or Jones, Ch. 2 **Hall, Robert and Charles Jones (1999), “Why Do Some Countries Produce So Much More Output per Worker than Others?”, Quarterly Journal of Economics. 114, 83-116. Mankiw, Gregory, David Romer and David N. Weil (1992) “A Contribution to the Empirics of Economic Growth”, Quarterly Journal of Economics 107, 407-437. Solow, Robert M. (2000), Growth Theory: An Exposition, Oxford University Press, Chs. 1-3. 3. Endogenous Growth in the Solow Model *Romer, pp. 116-117 and Barro and Sala-i-Martin Ch. 1.3.1 *Romer Ch. 3 or Jones Ch. 5 **Acemoglu, Daron, Philippe Aghion and Fabrizio Zilibotti (2004), http://www.iies.su.se/~zilibott/aaz0625homepage.pdf Barro, R. and Sala-i-Martin, Chs. 4-7. Grossman, G. and Helpman, E. Innovation and Growth in the Global Economy, MIT Press, 1991. Chs. 3, 4 & 9. Lucas, R.E. "Why Doesn`t Capital Flow from Rich to Poor Countries?" AER P&P 1990, Vol.80, pp.92-6. Romer, Paul (1986), “Increasing Returns and Long Run Growth,” Journal of Political Economy 94, 1002-37. Romer, Paul (1990), “Endogenous Technical Change,” Journal of Political Economy 98, S71-S102. ... - tailieumienphi.vn
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