Syllabus for Econ 502
Masters-Level Macroeconomic Theory

Syllabus Last Updated: 20 December 2009
Latest Course Offering: Fall 2009

Course Instructor:
Professor Leigh Tesfatsion
Department of Economics
Iowa State University
Ames, Iowa 50011-1070
(515) 294-7318 (Secretary)
http://www.econ.iastate.edu/tesfatsi/
tesfatsi AT iastate.edu

502 Homepage (Course Structure & Grading Policy)
In-Class Student-Moderated Discussions
General Macro/Financial Resources

Course Meeting Time and Place:
TR 11-1, 272 Heady
F 12:10-1, 272 Heady

Instructor's Office and Office Hours:
Office: 375 Heady Hall
Hours: Fridays 10-12 and by appointment.

Teaching Assistant (TA):
Ms. Miyoung Oh
Tel: 294-5452
my153 AT iastate.edu

TA's Office and Office Hours:
Office: Heady 75
Hours: Wed 10-11am, 3-4pm and by appointment.

Syllabus Contents:

Required Course Materials (for Purchase)

Basic Recommended Source Materials (On-Line, Library)

Topics, Discussion Questions, and Readings

Please Note: A double asterisk ** means that a reading contains basic required material for answering exam questions and exercises. A single asterisk * means that a reading contains recommended material of a more general contextual nature that may be useful for answering exam questions and exercises.

All readings with double and single asterisks are listed in a suggested reading order. Each of these readings can be obtained either in the required course packet, as a class hand-out, on-line, or in the Parks Library. The form of availability for each reading is indicated after its citation information. Suggested readings for more specialized study are also given for each topic area.

Updated or new materials (required or recommended readings, discussion questions, exercises, exam guides,...) may be added to the on-line syllabus at a later time. Such materials will be marked on the syllabus with an "updated" or "new" icon, respectively, for at least one week, and their inclusion will also be announced in class.

Finally, in the readings cited below, the expression op. cit. is an abbreviation for the Latin expression opere citato, which means "in the work cited (above)."

I. INTRODUCTION

  1. COURSE OVERVIEW

    Key Questions for In-Class Discussion:

    Required Readings:

    **Important Note:**
    The following five perspectives by well-known economists present five distinctly different views regarding the development of macroeconomics since the publication of Keynes' General Theory of Employment, Interest, and Money in 1936. At this point all that is required is that you skim the articles to get a general sense of what is claimed. More careful readings of these articles should then be done at a later time after we have covered more of the discussed topics in class.

    [**] Michael Woodford, "Revolution and Evolution in Twentieth Century Macroeconomics (pdf, 119K), presented at the conference Frontier of the Mind in the Twenty-First Century, Library of Congress, Washington, D.C., June 1999. ON-LINE

    [**] N. Gregory Mankiw, "The Macroeconomist as Scientist and Engineer" (pdf,102K), Journal of Economic Perspectives, Vol. 20, No. 4, Fall 2006, 29-46. ON-LINE
    Note: See, also, Mankiw's blog page for economics students.

    [**] Edmund S. Phelps, "Macroeconomics for a Modern Economy" (pdf,128K), Nobel prize lecture, Stockholm, Sweden, December 10, 2006. ON-LINE

    [**] David Colander, "Introduction", emphasis on pp. 1-16, in David Colander (ed.), Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, Cambridge University Press, Cambridge, UK, 2006. HAND-OUT

    [**] Axel Leijonhufvud, "Episodes in a Century of Macroeconomics", pp. 27-45 in David Colander (ed.), Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, Cambridge University Press, Cambridge, UK, 2006. HAND-OUT
    Note: For an on-line study that covers some of the same ground, see Leijonhufvud's article "Agent-Based Macroeconomics" (pdf,93K), Chapter 36 (pp. 1626-1637) in L. Tesfatsion and K. Judd (Eds.), Handbook of Computational Economics, Volume 2: Agent-Based Computational Economics, Handbooks in Economics Series, North-Holland/Elsevier, 2006. ON-LINE

    Other Suggested Readings and Websites

  2. EMPIRICAL CHARACTERISTICS OF THE U.S. ECONOMY

    Key Questions for In-Class Discussion:

    ** Take-Home Exercise 1: Construction of Macroeconomic States (pdf,28K). Due: Tuesday, September 1, 11:00am (beginning of class).

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

  3. MACRO MODELING: ALTERNATIVE APPROACHES

    Key Questions for In-Class Discussion:

    ** Take-Home Exercise 2: Modeling with Simultaneous Equations (pdf,28K). Due: Friday, September 11, 12:10 (beginning of class).

    Required Readings:

    Recommended Reading:

    Other Suggested Readings and Websites

II. AGGREGATE MACROECONOMIC MODELING: A MICROFOUNDATIONS CRITIQUE

  1. THE BASIC IS-LM MODEL

    Key Questions for In-Class Discussion:

    ** Take-Home Exercise 3: Short-Run Effects of Deficit Increases. Due: Friday, September 18, 12:10 (beginning of class).

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

  2. AGGREGATE SUPPLY AND PRICE ADJUSTMENT

    Key Questions for In-Class Discussion:

    [** ] Take-Home Exercise 4: Dynamic Effects of Deficit Increases in a Sticky-Price Model. Due: Friday, September 25, 12:10 (beginning of class).

    [** ] Take-Home Exercise 5: Dynamic Effects of Deficit Increases in a Flexible-Price Model. Due: Friday, October 2, 12:10 (beginning of class).

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

  3. CRITIQUES OF AGGREGATE MACROECONOMIC MODELING: SUMMARY OVERVIEW

    Key Questions for In-Class Discussion:

    Required Reading:

III. ECONOMIC GROWTH: A MICROFOUNDATIONS APPROACH

  1. GROWTH OVERVIEW

    Key Questions for In-Class Discussion:

    Required Reading:

    Recommended Readings:

    Other Suggested Readings and Websites

  2. BASIC ECONOMIC GROWTH MODELING CONCEPTS

    Key Questions for In-Class Discussion:

    [** ] First In-Class Student-Moderated Discussion: "Wither Macroeconomics? Implications of the Global Financial Crisis for Macroeconomics as a Science" (pdf,27K). Scheduled for: October 20, 2009, 11-12:20pm.

    Required Readings:

    Recommended Readings:

  3. BASIC SOLOW-SWAN DESCRIPTIVE GROWTH MODEL

    Key Questions for In-Class Discussion:

    [**] Take-Home Exercise 6: From Verbally Stated Growth Problem to Quantitative Growth Model, Due: Friday, October 23, 12:10 (beginning of class). HAND-OUT

    [**] Take-Home Exercise 7: Long-Run Impact of Taxes in a Simple One-Sector Descriptive Growth Model, Due: Friday, October 30, 12:10 (beginning of class). HAND-OUT

    Required Readings:

    Recommended Readings:

  4. BASIC OPTIMAL GROWTH MODEL

    Key Questions for In-Class Discussion:

    [** ] Second In-Class Student-Moderated Discussion: "Promoting Cross-Country Growth and Development: Do Universal Principles Exist?" (pdf,26K). Scheduled for: Thursday, November 5, 2009, 11-12:20pm.

    [**] Take-Home Exercise 8: Optimal Growth and Dynamic Stochastic General Equilibrium (DSGE) Models (pdf,44K). Due: Tuesday, November 10, 11:00 AM (beginning of class). HAND-OUT

    Required Readings:

    Recommended Readings:

  5. BASIC OVERLAPPING GENERATIONS MODEL

    Key Questions for In-Class Discussion:

    • What are the key defining properties of the n-period lived overlapping generations (OG) model of an economy?
    • What important classes of economic problems can be addressed using this type of model?
    • Why is it that the trading activities of private agents in the basic OG economy do not necessarily result in Pareto efficient or even productively efficient outcomes?

    [**] ANSWER OUTLINE for take-Home Exercise 9: Social Security in Overlapping Generations Economies with Storage (pdf,75K). Due: Friday, November 20, 12:10 AM (beginning of class). ON-LINE

    Required Readings:

    • [**] L. Tesfatsion, "The Basic Pure-Exchange Overlapping Generations Economy". PACKET

    • [**] L. Tesfatsion, "Game Theory: Basic Concepts and Terminology" (pdf,35K). PACKET

    Recommended Readings:

    • [ *] G. Becker, "Family Economics and Macro Behavior" American Economic Review 78 (March 1988), 1-13 (Presidential Address).

    • [ *] Romer, op. cit., "overlapping generations" sections of chapter titled "Infinite Horizon and Overlapping Generations Models" (advanced discussion).

IV. TREATMENT OF EXPECTATIONS IN MACROECONOMIC MODELS

  1. RATIONAL VS. ADAPTIVE EXPECTATIONS

    Key Questions for In-Class Discussion:

    Required Reading:

    Recommended Readings:

    Other Suggested Readings and Websites

  2. IMPLICATIONS FOR POLICY CHOICE OVER TIME

    Key Questions for In-Class Discussion:

    [**] Take-Home Exercise 10: Policy Implications of Rational Expectations. Due: Friday, December 4, 12:10 PM (beginning of class). HAND-OUT

    Required Readings:

    • [**] L. Tesfatsion, "Notes on the Lucas Critique, Time Inconsistency and Related Issues" (pdf,92K). PACKET

    Recommended Readings:

    • [ *] F. S. Mishkin,"The Rational Expectations Revolution", A review article of Preston J. Miller, ed., The Rational Expectations Revolution: Readings from the Front Line," Journal of International and Comparative Economics, Volume 5, 1996 (pdf,1026K). ON-LINE

    • [ *] Peter Howitt, "Monetary Policy and the Limitations of Economic Knowledge", pp. 347-367 in David Colander (Ed.), Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, Cambridge University Press, Cambridge, UK, 2006.

    • [ *] K. Hoover, The New Classical Macroeconomics..., op. cit., Chapter 8: "Econometrics and the Analysis of Policy" (pp. 185-202).
      Note: This interesting chapter examines the Lucas Critique and provides an assessment of contrasting attempts to apply new classical macro principles to the econometric analysis of policy.

    Other Suggested Readings and Websites

V. DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODELS AND TAYLOR RULES

  1. RECENT DEVELOPMENTS IN DSGE MODELING

    Key Questions for In-Class Discussion:

    [** ] Third In-Class Student-Moderated Discussion: "What's the Post-Crisis Scoop on Dynamic Stochastic General Equilibrium Models -- Retain, Revise, or Reject?" (pdf,23K). Scheduled for: Tuesday, December 1, 2009, 11-12:20pm.

    Required Reading:

    Recommended Reading:

  2. TAYLOR RULES AND CENTRAL BANK MONETARY POLICY

    Key Questions for In-Class Discussion:

    Required Readings:

    Recommended Readings:

VI. MACROECONOMIC MODELING OF ENDOGENOUS COORDINATION

  1. COORDINATION ISSUES FOR MACROECONOMIES

    Key Questions for In-Class Discussion:

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

  2. CONSTRUCTIVE MODELING OF ENDOGENOUS COORDINATION:
    AGENT-BASED MACROECONOMICS

    Key Questions for In-Class Discussion:

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

  3. ILLUSTRATIVE APPLICATION

    Key Questions for In-Class Discussion:

    Required Readings:

    Recommended Readings:

    Other Suggested Readings and Websites

MIDTERM AND FINAL EXAM REVIEW MATERIALS

Important Caution: Please keep in mind that the readings, exercises, and course packet materials for this year's Econ 502 may differ in various ways from the materials assigned for Econ 502 in previous years, and these differences may be reflected in differences in the form and content of the exams. The exam study guides and practice exams provided below from past years are for general guidance only.

Indeed, the Econ 502 course topics substantially changed in Fall 2005 relative to previous years. Consequently, to avoid confusion, no practice exams are presented from years prior to 2005.

Midterm Exam:

Final Exam:

Copyright © 2009 Leigh Tesfatsion. All Rights Reserved.