Advanced Macroeconomics

This course is mandatory for PhD students and elective for MA students.

Pre‐requisites
This is a compulsory, core class for first‐year PhD students. Enrollment is open to interested second‐year
MA students as well.

6. Course Level
PhD

7. Course Outline
We first introduce the fundamental methods and toolkit needed to analyze dynamic general equilibrium
optimizing models. We then cover the basics of continuous‐time dynamic programming and apply it to
endogenous growth models.

8. The goals of the course
The goal of this course is to provide students with understanding a set of key macroeconomic models.
While there is no single textbook for the course, lectures 1‐10 loosely follow sections in Krussell (K): Real
Macroeconomic Theory, manuscript, 2007, and Adda and Cooper (AC): Dynamic Economics, MIT Press, 2003.
The main readings for lectures 11‐15 is Grossman and Helpman (GH): Innovation and Growth in the Global
Economy, MIT Press, 1991.
Required readings are denoted by *. Other readings are recommended. Most readings are available online,
linked from the course website. Those that are not will be distributed in a reader.

9. The learning outcomes of the course
Students understand the mechanics of the relevant models taught.

10. More detailed display of contents
Assumed Background: Macroeconomics at the MA level.

11. Assessment
Assessment is through a final exam and problem sets, the former accounting for 60%, the latter for 40% of
the total course grade.

Outline
Lectures 1-10
Lecture 1 Introduction and overview
1. Facts, models and macroeconomics
2. Methodology: a cake eating problem
Lecture 2-4 Deterministic models and neoclassical growth
1. Solution methods (K, Ch 3-4)
1.1. The sequences approach
1.2. Dynamic programming
1.3. Steady states and dynamics
2. Equilibrium and the planner’s problem (K, Ch 5)
2.1. Date zero (Arrow-Debreu) markets
2.2. Sequential markets
3. Growth (K, Ch 9)
3.1. Exogenous technology
3.2. Labor supply
Lecture 5-8 Stochastic models and real business cycles
1. Uncertainty (K, Ch 6)
1.1. Stochastic processes
1.2. Introducing uncertainty
2. Real business cycles (K, Ch 6)
2.1. The stochastic growth model
2.2. Labor supply
2.3. Calibration
3. Asset pricing and market completeness
Lecture 9-10 Aggregation (K, Ch 7), Numerical Analysis, Structural Estimation (AC, Ch 3-4) (as time permits)
Lectures 11-15
Lecture 11 Continuous-time methods
* Lecture notes
Feller (1950) in reader.
Lectures 12-13 The expanding variety model of growth
* GH Chapter 3 (except for Appendix).
Romer (1990): “Endogenous technological change.” JPE
Broda and Weinstein (2006): “Globalization and the gains from variety”. QJE
Lecture 14 Rising product quality
* GH Chapter 4 (except 4.2 and Appendix).
Aghion and Howitt (1992): “A model of growth through creative destruction.” Ecta
Comin, Hobijn and Rovito (2007): “A New Approach to Measuring Technology with an Application to the Shape
of the Diffusion Curves”
Klette and Kortum (2004): “Innovating firms and aggregate innovation”. JPE
Lecture 15 Life-cycle consumption models
* Lecture notes.
* Carroll and Kimball (2007): “Precautionary Saving and Precautionary Wealth” Palgrave Dictionary
Carroll (2001): “A Theory of the Consumption Function, With and Without Liquidity Constraints”
Aguiar and Hurst (2005): “Consumption vs Expenditure” JPE
Johnson, Parker and Souleles (2006): “Household Expenditure and the Income Tax Rebates of 2001” AER
Gourinchas and Parker (2002): “Consumption over the life cycle” Ecta.