MACROECONOMICS 1

Why are some countries rich and others poor? What types of countries grow more rapidly? Why do certain societies fail to improve their technologies? Why is there unemployment, and what determines its extent? This course will introduce students to these major questions and to the theoretical and conceptual tools necessary for answering them. The presentation of the theories will be supplemented with examples of relevant empirical works and policy implications.

Students will get a graduate-level introduction to economic theories, models, and empirical evidence on modern macroeconomics. By the end of the course, students will be able to outline and manipulate several workhorse models, derive and analyze the relevant policy conclusions implied by them, and refer to the available evidence. Moreover, students will be familiar with the conceptual and mathematical foundations of modern macroeconomics analysis.

The technical prerequisite is the knowledge of the mathematical tools presented in an undergraduate course in Mathematics (i.e. multiple-variable functions, derivatives, static optimization, integrals, matrix algebra). Students may find it useful to be familiar with any undergraduate-level book in macroeconomics (e.g. Mankiw’s “Macroeconomics” by Worth or Blanchard’s “Macroeconomics” by Pearson).

We will attempt to cover the following topics:
1. Growth Facts – we will start with a quick look at some basic facts about economic growth and evidences on cross-country income differences
2. The Solow-Swan Model – we will develop a framework to think about causes and mechanics of the process of economic growth and cross-country income differences
3. Neoclassical Growth Model – we will analyse the Ramsey model, while introducing the mathematical and conceptual foundations of modern macroeconomic analysis (e.g. preferences, transversality conditions, optimal control);
4. Overlapping Generations Models – we will depart from the representative household assumption and introduce a model where different agents arrive over time; we will use this framework to think about e.g. the role of money and social security
5. Neoclassical Endogenous Growth – we will talk about the role of human capital in fostering growth and start considering models of endogenous growth, like the AK model and Romer’s model of expanding variety
6. Equilibrium Unemployment Theory – we will turn our attention to the short-run and on the issue of unemployment; the main theories covered will be the efficiency-wage theories, contracting theories, and search and matching models

If time allows, we will also cover:
7. Consumption and Investment – the determinants of consumption and investment, the life-income hypothesis, and the q theory
8. Real Business Cycle Model – we will introduce stochastic dynamic programming and solve a neoclassical growth model under uncertainty; the Real Business Cycle model will be presented as an application
9. Dynamic Stochastic General Equilibrium Models – the role of price rigidities

The main references for this course are:
• Romer, P. Advanced Macroeconomics, McGraw Hill.
• Barro, R. J., and Sala-i-Martin, X. Economic Growth, MIT Press.
• Acemoglu, D. Introduction to Modern Economic Growth, Princeton University Press. (more advanced)
• Pissarides, C. Equilibrium Unemployment Theory, MIT Press. (only for topic 6)
Useful but more advanced texts include:
• Stokey, N. L., Lucas, R., and Prescott, E. Recursive Methods for Economic Dynamics, Harvard University Press.
• Ljunqvist, L., and Sargent, T. Recursive Macroeconomic Theory, MIT Press.

Additional references may be pointed out in class. Before each class, slides will be made available to students.

In the course of the academic year, there will be four exam sessions. The first session, which takes place during the first semester, is articulated in a midterm written exam in week VII (worth 50% of the final mark) on the contents covered in the first part of the course and a final written examination (worth 50% of the final mark) on the contents covered in the second part of the course; the final mark will be the weighted average of the two exams. The remaining sessions consist of a single written examination on the full contents of the course.

There will be three two-academic-hour classes per week for ten weeks, for a total of 45 hours. The first class of each week will usually involve an application or an exercise based on take-home tutorials (not graded), the remaining two classes will consist of frontal lectures and discussions. In the first week, there will be no tutorial.

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Please note that this course outline may be subject to change. Up-to-date information on scheduled meetings, the course outline, et cetera can be found on the Moodle for this class.

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This subject deals with topics related to the macro-area "Poverty and inequalities" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development