Week 1 & 2 - Intro and Data.

1. Introduction

· GDP, growth and business cycles. Basic facts. Why do we need macroeconomic models? Basic structure of a macromodel. Why do we need microeconomic foundations? Lucas critique.

Readings: W, chapter 1.

2. Data Issues

· Measurement Issues. National income and product accounts. The product, income and ex- penditure approach. Nominal vs. real GDP. Readings: W, chapter 2.

· Price indexes: Paasche, Laspeyres, Fisher. International price comparisons, Balassa-Samuelson effect. Seasonal adjustment. Readings: W, chapter 2, 3.

· Business cycle measurement. Hodrick-Prescott filter. Definitions and properties of business cycles. Components of GDP. Comovements and cyclicality. Persistence and volatility. Leads and lags. Correlation vs. causality. Readings: W, chapter 3.

Week 3 & 4 - Theory.

3. Consumer Theory for Macro

· Dynamic utility maximization problems. 2 period example with savings. Consumption smoothing. Permanent income hypothesis. Infinite horizon consumption-savings problem. Readings: W, chapter 4, DLS, chapter 2.

4. Firm Theory

· Technology and production function. Profit maximization, static and dynamic. Representative firm. Demand for labor. Readings: W, chapter 4.

5. General Equilibrium (in Pure Exchange Economies)

· Consumer maximization problems. Market clearing. Definition of equilibrium. Normalization of prices. Walras Law. Feasibility. Pareto optimality. First welfare theorem. Second welfare theorem. Readings: DLS, chapter 5.

· Apples and oranges example. Solving for the equilibrium. Edgeworth box. Determining graphically the Pareto optimal allocations. Illustration of FWT and SWT. Aggregation, representative consumer. Readings: DLS, chapter 5, Williamson, page 100.

Week 5 & 6 - Business Cycles. 3 lectures, midterm.

6. Business Cycles

· Introducing an infinite horizon macromodel. The neoclassical growth model. The RBC model: productivity shocks as source of business cycles. Constructing and estimating the Solow residual. Successes of the RBC model. Shortcomings of the RBC model. Readings: W, chapter 11, DLS, chapter 9.

Week 7 & 8 - Growth. 3 lectures.

7. Growth

· Data.

· Neoclassical growth model (Solow model) with population growth and constant technology. Dynamics. Steady state. Comparative statics. Readings: W, chapter 6, DLS, chapter 11.

· Solow model with population and technology growth. International convergence? Introducing an endogenous growth model with human capital accumulation. Readings: W, chapter 7.

· Endogenous growth model with human capital accumulation. Dynamics of the model. Long run income disparity among countries. The role of education. Readings: W, chapter 7. Summary of the course.

Week 9 & 10 - Government Policy. 3 lectures.

8. Government Policy

· Data.

· Models: Positive analysis of government (fiscal) policy in a dynamic (2 period) macro model.

· Simple optimal taxation, Ramsey problems (dynamic, 2 period).

Week 11 & 12 - Inequality. 4 lectures.

9. Inequality

· Data. Between group vs. within group inequality. Autor's paper, Pikkety's book etc.

· Models: Positive analysis. Skill-biased technical change.

· Normative applications. Optimal taxes in the presence of inequality.

Presentations of Group Project, 1 or 2 lectures.

Final exam during last class meeting.