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Macroeconomics_II_Syllabus_Winter_2022

Syllabus of Macro II

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10 views3 pages

Macroeconomics_II_Syllabus_Winter_2022

Syllabus of Macro II

Uploaded by

karankumar4
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Course title: Macroeconomics II

Number of credits: 4
Type of course: Core
Course scheduling: Winter Semester
Number of lecture hours: 56 (approximately)
Evaluation: Mid semester: 40%; Term paper/ assignment: 10%; End semester: 50%
Course Instructor: Meeta Keswani Mehra

The course introduces students to new developments in growth theory, their possible
extensions and popular applications. There is also a separate module on real business cycles. It
broadly covers growth models with exogenous savings, models with consumer optimization, and
models of endogenous growth with extensions to inclusion of knowledge spillovers, public
goods/ infrastructure, and human capital. Next an introduction to select developments in
macroeconomics over the recent years in terms of the use of the optimal growth models is
provided. The main applications are the use of the infinite horizon consumer optimization to
savings and investment in the open economy, and applying overlapping-generations models to
social security and altruism. Further, there is a module on demand for money, and finally an
introduction to the theory of short run economic fluctuations, with focus on real business cycles
to explain the cyclical behavior of employment and output.

Introduction to growth theory


Importance and motivation to study growth; empirical regularities about economic
growth, history of modern growth theory.
Introduction (B&SM)

Growth models with exogenous saving rates


• The Solow-Swan model
Basic structure; model solutions without and with markets, steady state, golden rule
of capital accumulation and dynamic inefficiency, transitional dynamics, comparative
statics, extensions to technical progress and physical and human capital, application
to convergence, poverty traps and growth accounting
Chp 1 (B&SM), Chp 1 (DR).
• The A-K model
Motivating the precincts of endogenous growth, basic structure of the A-K model
with exogenous savings; endogenous growth and transitional dynamics
Chp 1 (B&SM)

Growth models with endogenous savings


• Dynamic optimization in continuous time: optimal control theory in the context of
growth models
Appendix A.3 (B&SM), Part 3 Chp 7 (AC), Part II Sections 1-7 (K&S)
• The Ramsey-Cass-Koopman’s model of consumer optimization
Basic model structure for the decentralized market economy; transitional dynamics;
balanced growth path and golden rule capital stock, comparative statics, comparison
with social planner’s solution; extension to include government purchases and open
economy context.

1
Chps 2 & 3 (B&SM), Chp 2 Part 1 (DR), Chp 2 Sections 2.1-2.2 (B&F).

• The Diamond’s overlapping generations model


Model setup, dynamics of the decentralized economy, balanced growth path,
possibility of dynamic inefficiency of the market economy, extending the model to
include government and characterizing the command optimum.
Chp 2 Part B (DR), Chp 3 Section 3.1 (B&F), Appendix 3.8 Chp 3 (B&SM), Chp 6
Section 6.3 (MW).

Models of endogenous growth


• The A-K model (with endogenous savings)
Model structure; market equilibrium; transitional dynamics.
• The learning-by-doing and knowledge spillovers model
Motivating the role of learning-by-investing and knowledge spillovers; characterizing
the balanced growth path and the transitional dynamics; Pareto non-optimality and
policy implications.
• Model of public good/ infrastructure and endogenous growth.
• Models with human-capital (one-sector and two-sector models)
Basic one sector model with both physical and human capital; models with two
sectors of production (with differing technologies for production and education); the
Uzawa-Lucas model; steady state analysis; transitional dynamics.
Chp 4-5 (B&SM), Chp 3 (MW).
• Romer’s model of product variety

Investment and Saving in the Open Economy


Application of the basic Ramsey model to investment and savings in the open economy;
q-theory of investment; characterizing the steady state and the dynamics with respect to
behavior of consumption, investment, capital stock, and current account balance; effect of
productivity shocks to the current account.
Chp 2 Section 2.4 (B&F), Chp 2, Section 2.7 (MW)

Altruism, Social Security and Capital Accumulation


Application of Diamond’s market economy model to incorporate altruism; application to
social security (fully funded schemes versus pay-as-you go systems) and implications for
capital accumulation.
Chp 3 Sections 3.1 and 3.2 (B&F), Chp 6 Section 6.3 (MW)

Demand for Money


The overlapping generations model without and with money; cash-in-advance model of
demand for money; money in the utility function (Sidrauski model); money as an
intermediate good (Ljungqvist and Sargent model).
Chp 4 (B&F), Chp 8 Sections 8.1-8.8 (MW), Lecture notes by Blanchard at the MIT Open
courseware site http://ocw.mit.edu/NR/rdonlyres/4A31EDC7-DD5F-46AC-8A3A-
8A522A44367D/0/slides06.pdf.

2
Real business cycle dynamics
Basic theory of fluctuations; a baseline real-business cycle model; intertemporal
substitution in labor supply by households, intra-temporal trade-off between consumption
and labor supply; consumption and labor supply with uncertainty; explanation for output
and employment fluctuations for special and general cases of the model
Chp 5 (DR), Chp 2 Section 2.5 (MW).

Readings
1. Barro, Robert J and Sala-i-Martin, Xavier (B&SM). Economic Growth. Second Edition.
Prentice Hall, India. 2004. Introduction, Chps 1, 2, 3, 4, 5, Appendix A.3.
2. Blanchard, Olivier Jean and Fischer, Stanley (B&F). Lectures on Macroeconomics. 1996.
Prentice Hall of India. Chps. 2, 3 & 4.
3. Blanchard, Olivier. Introducing Money. Lecture notes at the MIT Open courseware site
http://ocw.mit.edu/NR/rdonlyres/4A31EDC7-DD5F-46AC-8A3A
8A522A44367D/0/slides06.pdf
4. Chiang, Alpha C (AC). Elements of Dynamic Optimization. 1992. Waveland Press Inc. USA.
Part III, Ch7.
5. Kamien, Morton I, and Schwartz, Nancy L (K&S). Dynamic Optimization: The Calculus of
Variations and Optimal Control in Economics and Management. Second Edition. North
Holland, London. 1993. Part II: Sections 1-7.
6. Romer, David (DR). Advanced Macroeconomics. Second Edition. McGraw-Hill
International Edition (Economics Series). 2001. Chp 1, 2 &5.
7. Wickens, Michael (MW). Macroeconomic Theory: A Dynamic General Equilibrium
Approach. 2008. Princeton University Press. Princeton and Oxford. Chps 2, 3, 6 & 8
8. Any other journal papers as suggested.

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