Economics: Familiarity with an intermediate macroeconomics text such as Robert Barro, Macroeconomics: A Modern Approach, 2008, 1st edition, Thomson South-Western; or N. Gregory Mankiw, Macroeconomics, Worth Publishers or any other intermediate undergraduate macroeconomic textbook.
Mathematics: Familiarity with calculus at the level of Alpha C. Chiang, Fundamental Methods of Mathematical Economics, McGraw Hill and basic differential equations. Dynamic optimization will be introduced during the course. A useful reference for some mathematical concepts is the textbook: Simon, C. & Blume, L. Mathematics for Economists.
Educational Goals
The aim of this module is to introduce students to the workhorse models of modern dynamic macroeconomics. The first part is focused on long-run dynamics. It covers the Solow model, the Ramsey Neoclassical growth model, endogenous growth and the OLG model. The second part is focused on short-run fluctuations. It covers Real Business Cycle theories, in which business cycle fluctuations are an efficient response to real shocks, savings decisions under uncertainty and the consumption Capital Asset Pricing Model, and New Keynesian theories, in which business cycle fluctuations may be inefficient due to the existence of nominal rigidities.
Aims
The module introduces the main theoretical contributions within each set of topics and critically assesses their strength and limitations in the light of the empirical evidence.
Learning outcomes
On successful completion of the course you will:
1. be familiar with the empirical evidence concerning the issues covered in the course;
2. understand the most important economic theories explaining cross-country income differences, income growth, business cycle fluctuations and the effects of stabilization policies;
3. be able to use the models introduced in class to answer policy questions.
Part 1 – Deterministic Models
1. Introduction: Basic facts about economic growth and cross-country income differences
2. The Solow growth model
3. Micro-foundations of macro-models and dynamic optimization
4. The Neoclassical growth model and applications
5. Growth with overlapping generations
6. Endogenous growth
Part 2 – Stocastic Models
1. The Real Business Cycle (RBC) model
2. Consumption under uncertainty and the consumption Capital Asset Pricing Model (CAPM)
3. Fiscal and monetary policy in the Real Business Cycle model: theory and evidence
4. The New-Keynesian (NK) model
5. Monetary policy in the New-Keynesian model