The Pennsylvania State University
Department of Economics

Economics 503
Professor Barry W. Ickes
Macroeconomic Theory
Fall 1995
 

Office: 618 Kern Graduate Bldg.
Office Hours: Wednesday 10:00 - 11:30, and by appointment
 

Introduction

The purpose of this course is to provide students with a solid introduction to macroeconomic analysis. Our focus will be on the models and methods that form the core of modern macroeconomics. The goal is to provide students with an understanding of what macroeconomics is about, and how macroeconomists approach problems.

There is a textbook for this course: David Romer, Advanced Macroeconomics, McGraw Hill, 1996. The outline lists some classic articles for further reference. Periodically, articles of topical or policy interest will be posted on the website (see below).
 

Technicalities

This course is relatively self-contained. Familiarity with intermediate macroeconomics will help. For those who are completely new to the subject it may be valuable to consult such a text. It is assumed that students are familiar with basic algebra and calculus. No advanced mathematical techniques are required.

There will be two midterms and a final exam. The midterms will be given in class. The dates to be arranged. They will count for approximately 25% of the grade, each. The final exam will count for 40% fo the grade. The remainder will be based on problem sets.

The most efficient way to learn macroeconomics is by doing problem sets. There will be at least 5 problem sets during the semester. These have a direct effect on your grade, as noted above. They also have an indirect effect via your performance on the exams. Indeed, experience teaches that the indirect effect is much larger than the direct effect.

One important piece of advice. Review your notes after each lecture, rather than waiting for the midterm to being cramming for the exam. Storming (shturmovschina), - the practice whereby Soviet enterprises waited until the end of the plan period to fulfill their plans - was an incredibly wasteful practice. Similarly, waiting till just before the exam to prepare is equally inefficient. An intelligent undergraduate can succeed with such a strategy, but it will not work in a graduate course. Review your notes after each lecture to make sure you understand what was talked about. Use office hours to clear up any confusions that are left over.

More information on the class, and important messages, will be available on the course website: http://www.personal.psu.edu/i04/503home.htm

The structure of the course will (hopefully) resemble the following outline:
 

Course Outline

Part One: Basics
 

  • National Income Accounting and Macroeconomic Data

    •         Lecture Note
  • Review of Basic Ideas: Static Macro Models, and IS-LM

    •         Romer, chapter 5
     

    Part Two: Dynamics
     

  • Stylized Facts of Economic Growth and the Solow Model

    •         Romer, chapter 1.
            Romer, P., "Capital Accumulation in the Theory of Long-Run Growth," in R. Barro ed., Modern Business Cycle Theory, Cambridge: Harvard University Press, 1989, section 2.1.
     
  • The Ramsey Model

    •         Romer, chapter 2, part A.
            Ramsey, Frank, "A Mathematical Theory of Savings," Economic Journal, 38, 152, December 1928. (Reprinted in Stiglitz and Uzawa eds., Readings in the Modern
            Theory of Economic Growth, MIT Press, 1969.)
     
  • The Diamond Model

    •         Romer, chapter 2, part B.
            P.A., "National Debt in a Neoclassical Growth Model," American Economic Review, 55, 1965: 1126-1150.
     
  • New Growth Theory

    •         Romer, chapter 3.
     

    Part Three: Fluctuations and Policy
     

  • Real Business Cycle Models

    •         Romer, chapter 4.
     
  • New Keynesian Models

    •         Romer, chapter 6.
            Blanchard, O., "Why Does Money Affect Output? A Survey," Handbook of Monetary Economics, vol. 2, North Holland 1990.
     
  • Inflation and Monetary Policy

    •         Romer, chapter 9
            Kydland, F., and E. Prescott, "Rules Rather than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, 85, 3, 1977.
     
  • Consumption

    •         Romer, chapter 7.
            Deaton, Angus, Understanding Consumption. New York, Oxford University Press, 1992.
     
  • Investment

    •         Romer, chapter 8.
            Abel, A.B. and J.C. Eberly, "A Unified Model of Investment Under Uncertainty," American Economic Review, 84, 5, December 1994.
     
  • Unemployment

    •         Romer, chapter 10.