Homepage for Econ 502
Masters-Level Macroeconomic Theory

Last Updated: 10 January 2012 Latest Course Offering: Fall 2011 Course Instructor: Professor Leigh Tesfatsion Department of Economics Iowa State University Ames, Iowa 50011-1070 http://www.econ.iastate.edu/tesfatsi/ tesfatsi AT iastate.edu 502 Syllabus (Topics&Assignments) In-Class Student-Moderated Discussions General Macro/Financial Resources

Course Meeting Time and Place: MW 1:10-3, 274 Heady F 1:10-2, 274 Heady Instructor's Office and Office Hours: Office: 375 Heady Hall Hours: Wed 3:00-5, and by appointment. Teaching Assistant (TA): Mr. Donggyu Yi (4-2177) dgyi AT iastate.edu TA's Office and Office Hours: Office: 280D Heady Hall Hours: Friday 2:10-4, and by appointment.

Homepage Contents:

Course Objectives Course Topics Credits and Required Course Materials Grade Policy

In-Class Discussion Policy Take-Home Exercise Policy Midterm and Final Exam Policy Disability Statement

Course Objectives

Macroeconomists study the structure of national economies, the performance of these economies over time, and the role played by governments in the determination of this performance. The current economic crisis is the greatest challenge faced by macroeconomists and financial economists since the Great Depression. Most failed to see the crisis coming. The key issue is why, and what this portends for the future practice of macroeconomics.

This course will take a careful critical look at macroeconomic theorizing over the past forty years. From Keynes' General Theory (1936) through the early 1970s, macroeconomic models primarily consisted of highly aggregated relationships for consumption, investment, and other key economic activities using some version of the IS-LM framework. Since the early 1970s, however, macroeconomic theorists have developed a variety of models based more explicitly on microeconomic foundations, rational individual choice under uncertainty, and intertemporal optimization.

The micro-based models currently being used by macroeconomic theorists can roughly be divided into three basic forms:

1. Dynamic stochastic general equilibrium (DSGE) models that typically incorporate: (i) infinitely-lived representative consumers who maximize their expected intertemporal lifetime utility subject to individual budget constraints, technology constraints, and aggregate resource constraints; (ii) a central bank that sets interest rates in accordance with a monetary policy rule; (iii) monopolistically competitive firms; and (iv) sticky prices. The models are typically solved locally by taking first-order Taylor approximations of rational expectations equilibrium conditions around a non-stochastic steady-state growth path, and the responses of the endogenous variable solutions to small perturbations in exogenous variables (including shock terms) are then studied.
2. N-period lived overlapping generations models that incorporate successive overlapping generations of mortal (N-period lived) agents. Typically agents are assumed to exhibit rational expectations and price-taking behaviors, the population growth rate is assumed to be constant, and prices are assumed to flexibly adjust to ensure continual market clearing (demand=supply).
3. Agent-based macroeconomic models in which trade networks, prices, employment rates, growth rates, and other macroeconomic regularities arise over time from the repeated distributed interactions of heterogeneous microeconomic agents with adaptation and learning capabilities.

Following a background review of aggregate macroeconomic modeling, this course will critically compare and contrast these alternative approaches to micro-based macroeconomic modeling for logical coherence, tractability, empirical relevance, and policy implications. Particular attention will be paid to three important modeling features in relation to recent economic events: microfoundations modeling of economic growth; expectations modeling; and the modeling of market coordination mechanisms.

Course Topics

1. Introduction
2. Aggregate Macroeconomic Modeling: A Microfoundations Critique
3. Economic Growth: A Microfoundations Approach
4. Treatment of Expectations in Macroeconomic Models
5. Dynamic Stochastic General Equilibrium Models and Taylor Rules
6. Macroeconomic Modeling of Endogenous Coordination

Credits and Required Course Materials

• Credits: 4 credits

• Prerequisites: Intermediate macro and micro theory, intermediate calculus, and basic matrix algebra.

• Required Course Packet:
  

  Class Lecture Notes for Economics 502: Fall 2011, a packet of lecture materials (406pp) prepared by the instructor. Shrink-wrapped three-hole-punched copies of this packet are available for purchase from Copyworks (105 Welch Avenue, Ames, 292-3630) for a price of $15.75. A discount coupon for a three-ringed notebook should be included with each packet. Copyworks is typically open 24 hours each day of the week.

  NOTE: If packet copies are sold out, alert Copyworks and additional copies will be made on a short turn-around basis.

• Other Required and Recommended Readings:

  The course packet (above) is the only required purchase for Econ 502. Other required and recommended readings will be made available either on-line, through closed reserve, or as hand-outs. See the Econ 502 Syllabus for a detailed annotated listing of all required and recommended readings for Econ 502.

Grade Policy

• Grades for the course will be based on assigned moderation duties for an in-class discussion (10 points), assigned take-home exercises (at least 50 points), one midterm exam (70 points), and a final comprehensive exam (100 points). General contributions to class discussion will count for extra credit in case of a borderline grade.

In-Class Discussion Policy

Since basic lecture notes for Econ 502 are available in advance in course packet form, class discussion will be stressed in place of traditional lectures. Students will be expected to study assigned readings prior to attending the class in which they are discussed. Key discussion questions will be identified in advance for each class meeting, and students should come to class prepared to participate in a discussion of these questions.

In addition, the class will be divided into discussion groups. Each of these groups will be assigned a small number of discussion questions focusing on some controversial aspect of the regular course materials, plus a class presentation date. On or before their assigned class presentation date, each discussion group will be asked to distribute a hand-out to all class members that presents their response to their assigned discussion questions. On the class presentation date, the discussion group members will be expected to lead a one-hour class discussion based on this hand-out. Discussion groups will be given a group performance rating (from 0 to 10 points), which will count as part of each discussion group member's course grade.

Take-Home Exercise Policy

As indicated at the top of each assigned take-home exercise sheet, these exercises must be received by me by the beginning of class on each due date in order to be counted as part of a student's cumulative course points. Late assignments will not be accepted for formal grading -- no exceptions. The reason for this policy is that exercise answers will be discussed in class on each due date; the passing out of an exercise answer key and/or the beginning of the discussion of the answers (whichever comes first) will be the effective dividing line between on-time and late assignments. The bag of collected exercises will be sealed at this time.

If you must miss class on a due date, you can still ensure your exercise is in on time by one of the following means: (a) have someone else carry the exercise to class for handing in; hand in (or have someone else hand in) the exercise directly to the TA or to the instructor prior to the start of class on the due date (e.g., during office hours); or (c) put (or have someone else put) the exercise under the Heady 375 office door of the instructor no later than ten minutes prior to the start of class on the due date. Please note that putting exercises in the department mail box of the instructor or TA, or emailing answers to the instructor or TA, are not among these listed options because there is no set time that mailboxes and/or email will be checked.

The intent of this policy is to help ensure that student grading is fair and accurate. Your cooperation is appreciated.

Midterm and Final Exam Policy

The midterm exam for Econ 502 (Fall 2011) will be held on Wednesday, October 12, 1:10-3pm, in the regular class meeting room.

The final exam for Econ 502 (Fall 2011) is tentatively scheduled to be held Friday, December 16, 9:45-11:45 a.m., in the regular class meeting room, in accordance with the Fall 2011 final exam schedule for ISU.

Each exam will be a closed-book exam covering all required materials assigned prior to the date of the exam. These required materials will include:

1. all in-class lectures, discussions, and exercises moderated by the instructor;
2. all in-class student-moderated discussions;
3. all take-home exercise assignments;
4. all (**)-syllabus readings; and
5. all (**)-readings assigned for the in-class student-moderated discussion group exercises.

Each exam will consist of a selection of problems designed to test your ability to think through macroeconomic issues using basic economic tools and concepts covered in the required course materials assigned prior to the date of the exam.

Test packets will be provided at each exam, so students do not need to bring paper or blue books to the exams. No use of calculators or other electronic devices will be permitted during the exam.

Absence from either the midterm or final exam will result in a grade of zero unless the instructor agrees there are verified extenuating circumstances such as a major medical emergency. In the latter case, the course grade will be determined on the basis of other work completed; no make-up exams will be scheduled. Any student missing both the midterm exam and the final exam will be asked to withdraw from the course.

To get a more concrete idea of what to expect on the midterm and final exams, please refer to the midterm and final exam review materials provided in the Econ 502 Syllabus Section on Midterm and Final Exam Review Materials.

Disability Statement

If you have a disability and require accommodations for this course, please contact the instructor early in the semester so that your learning needs can be appropriately met. You will need to provide documentation of your disability to the Disability Resources (DR) office, located on the main floor of the Student Services Building, Room 1076, 515-294-6624.

Copyright © 2012 Leigh Tesfatsion. All Rights Reserved.