Getting Advanced without Tears
A Companion to Macroeconomics (Research)
Time: Thursdays 10 a.m. to 12 a.m. from October 28th, 2010.
Place: Hauptgebäude (Main Building) M 101
Instructor: Jin CAO
Interlaken, Switzerland.
Announcements
The date and place for the final exam are available here.
Downloads
Class Notes
Chapter 1 (Last update: Oct. 11th, 2010)
Chapter 2 (Last update: Oct. 12th, 2010)
Chapter 3 (Last update: Oct. 12th, 2010)
Chapter 4 (Last update: Oct. 12th, 2010)
Chapter 5 (Last update: Nov. 17th, 2010) with slides
Chapter 6 (In progress)
Chapter 7 (Last update: Nov. 30th, 2010)
Chapter 8 (Last update: Jan. 4th, 2011)
Chapter 9 (Last update: Jan. 21st, 2011)
Chapter 10 (Last update: Jan. 21st, 2011)
Chapter 11 (In progress)
Chapter 12 (Last update: Jan. 29th, 2011)
Mathematical Appendix (Last update: Jan. 21st, 2010)
Problem Sets
Problem Set 1
Problem Set 2
Problem Set 3
Problem Set 4
Problem Set 5
Problem Set 6
Sample Exam
Calendar
February 10th, 2011
In the class, we'll discuss the implementation problem of monetary policy, pioneered by Barro & Gordon (1983), and the possible solutions to the problem. Then we'll have a brief evaluation of various policies.
Although we don't have much time to talk about the details in the new Keynesian approach, there are some easy questions designed for your fun. Find them out in Problem Set 6.
February 8th, 2011
In this class, we start introducing imperfections into the monetary models, and see why combining monopolistic competition with (nominal) rigidities (e.g. stickiness in price settings) makes money non-neutral, i.e. the nominal shocks may eventually have real impacts when there is coordinative failure in price setting or additional cost that deters the price adjustments. Then we will continue with optimal monetary policy.
February 3rd, 2011
What the optimal monetary policy the money-in-the-utility models typically imply -- the Friedman Rule -- may not be appealing for more general settings. To deal with these problems, we start introducing imperfections into the monetary models, and see why combining monopolistic competition with (nominal) rigidities (e.g. stickiness in price settings) makes money non-neutral, i.e. the nominal shocks may eventually have real impacts.
Further readings: Illing (1998).
January 25th, 2011
Homework No. 4 is due at 10:15.
In the tutorial, we'll try to motivate the agents' holdings of (fiat) money through a variety of incentives, e.g. seigniorage, money-in-the-utility, etc. We'll see the typical technical difficulties in monetary models, and some (not very) new policy implications. We'll examine what optimal monetary policy MIU models typically imply -- The Friedman Rule, and discuss why this rule may not be optimal for more general settings.
Further readings: Blanchard & Kiyotaki (1989).
January 20th, 2011
In the tutorial we'll continue to discuss how to price the risky assets from consumption motives. This leads to the famous equity premium puzzle, which is still stimulating tons of research papers each year. Then we'll move onward to the second theme of this semester --- money. As a first step, let's try to motivate the agents' holdings of (fiat) money through a variety of incentives, e.g. seigniorage, money-in-the-utility, etc. We'll see the typical technical difficulties in monetary models, and some (not very) new policy implications.
Further readings: Walsh (2010) Ch. 2--3.
Homework No. 4 (Due: 10:15, January 25th): Problem No. 1, 2, 3 from Problem Set 4.
January 18th, 2011
In this class, we'll go on with the sustainability of government debt (which again raised many hot debates --- the recent storm center is in Europe, regarding the future of Euro), and further, fundamentals of asset pricing under uncertainty.
Further readings: Walsh (2010) Ch. 2.
January 13th, 2011
Homework No. 3 is due at 10:15.
In this class, we'll go on with Tobin's q theory of capital adjustment cost: If the firms have to take some substantial adjustment costs when they are updating their capitals, the current price of adding one additional unit of capital exceeds one. Further, in a competitive market this price should also include all the future profit the firm can generate from this additional piece of capital. Then we'll discuss the sustainability of government debt.
Further readings: Cochrane (2005) Ch. 1, Campbell (1999).
January 6th, 2011
Happy New Year!
December 30th, 2010
Einen guten Rutsch!
December 21st, 2010
In this class, we'll go on with Tobin's q theory of capital adjustment cost. For the rest of the time, we'll have a short presentation on real business cycles. We can see that by just integrating what we've learned so far, a simple dynamic stochastic general equilibrium model can already do a spectacular job on explaining the real economy.
Further readings: Cochrane (2005) Ch. 1, Campbell (1999).
Homework No. 3 (Due: 10:15, January 13th): Problem No. 2, 4, 6, 7 from Problem Set 3.
December 16th, 2010
In this class, we'll discuss Samuelson-Diamond overlapping generation models, especially on dynamic inefficiency and redistribution policy. Then we'll go on with Tobin's q theory of capital adjustment cost.
Further readings: Obstfeld & Rogoff (1996) Ch. Appendix 2A.
December 9th, 2010
In this class, we'll continue with applications of Ramsey-Cass-Koopmans model. First we will explain employment dynamics as a result of labor-leisure choice. For those who are interested in quantitative analysis (which we skipped in the warming-up session, Section 6.2), here explains why the speed of convergence is higher for Ramsey-Cass-Koopmans model with endogenous labor supply in Problem 4 d). Then we will see how we can explain the origin of institutions by introducing heterogeneity in the standard Ramsey-Cass-Koopmans model.
Further readings: Barro & Sala-i-Martin (2004) Ch. 3.2, 3.8 / Blanchard & Fischer (1989) Ch. 3.1, Obstfeld & Rogoff (1996) Ch. Appendix 2A.
December 1st, 2010
The tutorial will take place at 14:15--15:45, Room 305, Ludwigstrasse 28, front building.
In this class, we'll continue with several applications of Ramsey-Cass-Koopmans model. First we will present an alternative version, decentralized version of Ramsey-Cass-Koopmans model and explain why it may not be identical to the planner's problem. An example is decentralized version of Ramsey-Cass-Koopmans model with distortionary tax. Then we will see how to extend the standard Ramsey-Cass-Koopmans model to explain real world stories: Endogeneous labor supply and Max Weber's theory on the origin of capitalism. For those who are interested in quantitative analysis (which we skipped in the warming-up session, Section 6.2), here explains why the speed of convergence is higher for Ramsey-Cass-Koopmans model with endogenous labor supply in Problem 4 d).
Further readings: Barro & Sala-i-Martin (2004) Ch. 3.2, 3.8 / Blanchard & Fischer (1989) Ch. 3.1.
November 30th, 2010
Homework No. 2 is due at 10:15.
In this session, we will start with some extensions of Ramsey-Cass-Koopmans model, such as Ramsey-Cass-Koopmans model with technological progress (Problem No. 3 from Problem Set 2), and discuss about how to ensure a model's self-consistency by looking at the transversality condition. Then we'll continue with policy analysis using Ramsey-Cass-Koopmans model, raising the concept of rational expectation equilibrium (REE). Then we compare central planner's solution with decentralized equilibrium, and see the flaws that people are likely to make --- Especially under distortionary tax. Then we'll see some extensions of Ramsey-Cass-Koopmans model, such as Ramsey-Cass-Koopmans model with endogenous labor supply, or explaining the origin of institutions by Ramsey-Cass-Koopmans model with heterogenous agents.
Further readings: Barro & Sala-i-Martin (2004) Ch. 3.2, 3.8 / Blanchard & Fischer (1989) Ch. 3.1.
November 25th, 2010
In this class, we'll finish exercises on dynamic optimization. Problem 5 from Problem Set 1 is another excellent example of using perturbation method, which makes an elegant and beautiful proof. Then, we will continue with exercises on Ramsey-Cass-Koopmans model, and see how to apply the model on policy analysis. To make everything easier, we will start with unanticipated policy changes.
Further readings: Barro & Sala-i-Martin (2004) Ch. 3.1.
Homework No. 2 (Due: 10:15, November 30th): Problem No. 2, 3, 4, 5 from Problem Set 2.
November 23rd, 2010
In this class, we are going to finish all the exercises on dynamic optimization, then continue with exercises on Ramsey-Cass-Koopmans model, and see how to apply the model on policy analysis. However, things become complicated when the policy change has been anticipated by the agents.
November 18th, 2010
We will discuss a couple of applications of Solow-Swan model in Problem Set 1. Problem 1, shows that Solow-Swan model, albeit simple, is so far (the only) perfect match to all of the regularities in economic growth. Problem 2 is a very recent extension of Solow-Swan model, explaining the cross-country productivity differences via introducing human capital. Then we are going to continue with the application for Hamiltonian, Problem No. 2 -- 5, in Problem Set 1.
Further readings: One can consult Barro & Sala-i-Martin (2004) Ch. 2 / Romer (2006) Ch. 2 Part A for policy analysis using Ramsey-Cass-Koopmans Model.
Suggested exercises: Problem No. 6 from Problem Set 1, and Problem No. 1, 3 from Problem Set 2.
November 11th, 2010
Homework No. 1 is due at 10:15.
We will continue with the qualitative and quantitative methods for analyzing the dynamics of an economic system. Then we'll discuss a couple of applications of Solow-Swan model in Problem Set 1. Problem 1, shows that Solow-Swan model, albeit simple, is so far (the only) perfect match to all of the regularities in economic growth. Problem 2 is a very recent extension of Solow-Swan model, explaining the cross-country productivity differences via introducing human capital. we are going to continue with the rest of the exercises, Problem No. 2 -- 5, in Problem Set 1.
November 4th, 2010
We continue with dynamic optimization, extending the Theorem of Lagrange / Kuhn-Tucker Theorm in a dynamic framework, prove the dynamic control theory and apply it on Ramsey-Cass-Koopmans problem. Further, we present the qualitative and quantitative methods for analyzing the dynamics of an economic system.
November 2nd, 2010
We continue with the simple partial equilibrium model, Solow-Swan model, and get some flavor on economic dynamics. Then we extend the Theorem of Lagrange / Kuhn-Tucker Theorm in a dynamic framework, prove the dynamic control theory and show how to work with it.
Further readings: Barro & Sala-i-Martin (2004) Ch. 1, 2 / Romer (2006) Ch. 1, Ch. 2 Part A.
Homework No. 1 (Due: 10:15, November 11th): Problem No. 1, 2, 3, 4 from Problem Set 1. Problem No. 5 is optional.
October 28th, 2010
We will continue with macro modelling, then apply the knowledge we have learned so far on a very simple partial equilibrium model, Solow-Swan model, and get some flavor on economic dynamics. Then we extend the Theorem of Lagrange / Kuhn-Tucker Theorm in a dynamic framework, prove the dynamic control theory and show how to work with it.
Further readings: One can consult Barro & Sala-i-Martin (2004) Appendix of Mathematical Methods A.1 --- A.3 for mathematics.
October 26th, 2010
The first class begins as a warming-up session. We are going to think about how to model the micro behaviors in a macro framework (which you may have learned more or less in the undergraduate studies), and see what differences it brings to us. During the process, we will come across the problems concerning differential equations and we spend some time to recall what we learned in our undergraduate maths.
Links
Last update: February 7th, 2011 -- Warnings and Disclaimers