Economics 702A
Macroeconomic Theory
This website covers the first half of the Fall 2008 PhD class, which is
taught by Robert King. There will be a courseinfo
website for the second half of class that is taught by Adrien
Verdelhan.
During first half of the semester, there will be meetings for lecture
on selected Tuesdays, Thursdays, Fridays as indicated below. These will be at
the following times and location
TU/TH SHA 210 2-3:30
FR SHA 201 10:30-12:00
SHA facility is at 928 Commonwealth Avenue as shown on campus map. Please allow 15
minutes to get from central campus to this location.
I will hold two types of office hours for this class. Open office hours
will be held on Tuesdays from 3:30-4:30 in the Starbucks at 874 Commonwealth
Avenue. Office hours by appointment will be in my office, SSW 502, from
10:30-12:30 on Thursdays: you must email me by 10 am on Wednesday for a
(fifteen minute) appointment time. I will email you a confirmation by 10 pm
that day. Please knock on the door at the time of your appointment.
The teaching assistant, Michael Siemer, will
hold office hours for the class on Thursdays from 3:30-4:30 pm and on Fridays
from 12-1 pm. Students may find Michael either in B17C (the room for TF's
to hold office hours) his office, which
is B07.
Course readings marked with a "*" are
required readings that should be looked at prior to class. It should be a "first reading", in
which the student seeks to get acquainted with overall ideas with subsequent
readings filling in the details.
LS refers to the class text, Lundquist and Sargent, Recursive
Macroeconomic Theory, 2nd edition
Lecture slides are generally available 24
hours in advance of the lecture. They are pdf versions
of powerpoint originals. Many students find it useful
to print these transparencies two to a page and bring them to class.
There will be three homework sessions for this part of the class. All homework is not graded, but it is viewed
as essential for good performance in the class by the instructor (and by past
students).
Email communications about lecture
slides, readings, and policies should be sent to Robert King (rking@bu.edu) with a subject of "EC702". Communications about homework problems and
answers should be sent to Michael Siemer (siemer.michael@googlemail.com).
Exam policies: students may bring two
8.5 by 11 sheets of paper to class, including whatever material is helpful to
them. No magnifying glasses permitted!
MIDTERM SCORES AND GRADES (link)
Background readings and problems
Week 1 (Sept 1-5)
Lecture 1 (TU): Optimal consumption and saving over time
Milton Friedman, A theory of the consumption function, chapter 2 PDF
Lecture slides as PDF
Lecture 2 (TH): Linear stochastic difference equations and time series
models
LS, Chapter 2, "Time Series"
* Chow, G.C., "Analysis of Linear Deterministic Systems", Chapter 2 in Analysis and Control of Dynamic Economic Systems., Wiley 1975.
* Chow, G.C., Section 3.1 and 3.3 of "Analysis of Linear Stochastic Systems: Time Domain", Chapter 3 in Analysis and Control of Dynamic Economic Systems.
Chapters 2-4 of Chow Book as PDF: note that you do not need to print all of these materials
* Sargent, T.J., pages 171-183 of "Difference equations and lag operators", chapter IX in Macroeconomic Theory, Wiley, 1979. PDF
Lecture slides as PDF
Lecture 3 (FR): Dynamic general equilibrium under certainty
Lecture slides as PDF (includes corrections)
Week 2 (Sept 8-12)
Lecture 4 (TU): Dynamic programming
* LS chapters 3-5
Lecture slides as PDF
Lecture 5 (TH): Consumption under uncertainty
* Sandmo, Agnar, "The Effect of Uncertainty on Saving Decisions," The Review of Economic Studies, Vol. 37, No. 3 (Jul., 1970), pp. 353-360 PDF
* Levhari, David and T.N. Srinivasan, "Optimal Savings Under Uncertainty" Review of Economic Studies, Vol. 36, No. 2 (Apr., 1969), pp. 153-163. PDF (small corrections to one proof in later issue of RES)
Lecture slides as PDF (note slides 1-28 repeat, in slightly different form, material from prior lectures)
Lecture 6 (FR): Consumption and investment under uncertainty
* Hall, Robert E., " "Stochastic Implications of the Life-Cycle Permanent Income Hypothesis," Journal of Political Economy, vol. 96, no. 5 (October 1978), 971-987. PDF
* Lucas, Robert E., Jr. and Edward C. Prescott, "Investment under uncertainty", Econometrica, Vol. 39, No. 5 (Sep., 1971), pp. 659-681 PDF (pages 659-665 only)
Lecture slides as PDF (note slides 27-32 are blank, to be used for filling in material in class if time allows)
Week 3 (Sept 15-19)
Lecture 7 (TU): Introduction to linear rational expectations models
* John F. Muth,
“Rational Expectations and the Theory of Price Movements,”
Lecture slides as PDF
Lecture 8 (TH): Linear rational expectations models: solution mechanics
* O.J. Blanchard and C. Kahn, “The
Solution of Linear Difference Models Under Rational Expectations,”
Econometrica, 45,
July 1980, 1305-1311. PDF
Sargent, T.J., chapter XI, "Linear stochastic difference equations", Macroeconomic Theory, Wiley, 1979, particularly sections 14-16. PDF
Lecture slides as PDF
FR: Homework session #1 Link to problems Links to answers (P1, P2, P3)
Week 4 (Sept 22-26)
Lecture 9 (TU): Detailed mechanics of the neoclassical growth model
Lecture slides as PDF
The Solow model and the Ramsey, Cass, and Koopmans model are two of the central models of macroeconomics. They are usually studied in continuous time, as in Romer Advanced Macroeconomics, chapters 1 and 2 (on reserve). Our lecture concerns these models in discrete time.
Lecture 10 (TH): General equilibrium over time and under uncertainty
FR: Homework session #2 Link to problems (includes corrections to problems and problem hints)
Week 5 (Sept 29-Oct 3)
Lecture 11: Real business cycle models: the classics
Finn Kydland
and Edward C. Prescott, “Time to Build and Aggregate Fluctuations,” Econometrica, 1982. pdf
Lecture 12: Real business cycle models: the simple models, old and new
* Prescott, Edward,“Theory Ahead of Business Cycle Measurement,” Carnegie- Rochester Conference on Public Policy, Autumn 1986, 25, pp. 1 1-44, pdf
*
R.G. King
and
Lecture slides for 11 and 12 as PDF
FR: Homework session #3 Link to problems
Week 6 (Oct 6-10)
TU: Exam Review. Will cover Practice Exam 1 PDF and Practice Exam 2 PDF.
FR: Exam will be held from 10:30-12:00 (normal section time).
Exam Format is reflected in this sample exam from Fall 2003 PDF. It is not uncommon for exam questions from one year to be expanded into study questions for subsequent years, so doing the homework is a very good way to learn the course material and to prepare for the exam.
Week 7 (Oct 13-17)
TU: No class as per university schedule
TH: Computation lab session: Introduction to MATLAB and dynamic systems
FR: Computation lab session: Introduction to solving RE models