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Macro-Spatial Economics (ECO-AD-MACROSPAT)

ECO-AD-MACROSPAT

Purpose

- Master quantitative spatial equilibrium frameworks
- Understand how spatial frictions affect aggregate productivity, business cycles, and growth
- Learn empirical methods for estimating spatial models (gravity equations, exact hat algebra)
- Analyze the spatial dimensions of housing markets, migration, and fiscal policy
- Critically evaluate research in spatial macroeconomics
 

Description

The primary goal of this course is to provide an introduction to spatial macroeconomics, exploring how geography and location shape aggregate economic outcomes.

There will be 10 two-hour classes covering foundational quantitative spatial models, empirical applications to productivity, business cycles, housing markets, labor mobility, fiscal policy, and dynamic spatial adjustment. The course emphasizes both theoretical frameworks and their empirical implementation.

Synopsis: 
Why does a software engineer in San Francisco earn substantially more than an equally skilled engineer in Cleveland? Why do young Italians and Spaniards migrate to Northern Europe while Southern regions struggle with unemployment and stagnant wages? Why did London's productivity surge while the UK's Midlands declined, and what does this divergence mean for national growth? These patterns reveal a fundamental truth: where economic activity takes place is not a detail—it's central to understanding aggregate outcomes in productivity, growth, and employment.
This course explores how space and geography shape macroeconomic performance. Workers don't move freely to high-wage locations, firms cluster in productive cities despite congestion costs, and local housing markets can amplify or dampen national business cycles. We begin with a striking empirical puzzle: despite enormous wage and productivity differences across regions—both within countries and across Europe—spatial reallocation is surprisingly limited, leaving talent and capital inefficiently distributed. From this observation, we build a rigorous quantitative toolkit—the workhorse spatial equilibrium framework—that allows us to measure these frictions, trace their aggregate consequences, and evaluate policy interventions from place-based subsidies to housing regulations.
The course is organized around core macro questions viewed through a spatial lens: How do local productivity shocks propagate through the economy? Why do housing markets amplify business cycles? How should fiscal policy account for regional heterogeneity? Can temporary shocks have permanent spatial effects? Along the way, you'll master cutting-edge empirical methods—gravity equations, exact hat algebra, and structural estimation—that have become essential tools in applied macroeconomics. By the final lectures, we'll tackle frontier topics from climate-induced migration to the future of remote work, equipping you to push the boundaries of spatial macro research.
This is macroeconomics for a world where location matters, where local policies have national consequences, and where understanding the spatial distribution of economic activity is key to understanding aggregate outcomes.

Assessment:
10% Class Participation 
90% End of course referee report. I will create a list of (ideally) this season job-market papers related to Spatial Macroeconomics. I will assign one of them to each student. The students will have to produce a detailed referee report for the paper. 

Module structure

Lecture 1: Why Space Matters for Macro
Hsieh & Moretti (2019): Housing constraints and spatial misallocation

Lecture 2: Foundations of Quantitative Spatial Economics – Part 1
Allen & Arkolakis (2025): Facts, seminal models, simple quantitative framework

Lecture 3: Foundations of Quantitative Spatial Economics – Part 2
Allen & Arkolakis (2025): Workhorse framework, taking models to data, exact hat algebra

Lecture 4: Spatial Dimensions of Productivity and Growth
Desmet & Rossi-Hansberg (2013); Hornbeck & Moretti (2024)

Lecture 5: Business Cycles and Regional Dynamics
Beraja, Hurst & Ospina (2019); Guren et al. (2021)

Lecture 6: Housing, Cities, and Macro
Kaplan, Mitman & Violante (2020); Mian & Sufi (2014)

Lecture 7: Migration, Commuting, and Labor Market Dynamics
Monte, Redding & Rossi-Hansberg (2018); Notowidigdo (2020)

Lecture 8: Fiscal Policy and Place-Based Policies
Fajgelbaum & Gaubert (2020); Nakamura & Steinsson (2014)

Lecture 9: Dynamic Spatial Models
Caliendo, Dvorkin & Parro (2019); Allen & Donaldson (2022)

Lecture 10: Frontier Topics
Desmet & Rossi-Hansberg (2015); Delventhal, Kwon & Parkhomenko (2022)

BACKGROUND AND OVERVIEW

Redding, Stephen J. and Esteban Rossi-Hansberg (2017). "Quantitative Spatial Economics." Annual Review of Economics, 9:21-58.

Moretti, Enrico (2011). "Local Labor Markets." Handbook of Labor Economics, Volume 4b, Chapter 14, 1237-1313.

* Hsieh, Chang-Tai and Enrico Moretti (2019). "Housing Constraints and Spatial Misallocation." American Economic Journal: Macroeconomics, 11(2): 1-39.

Glaeser, Edward L. and Joseph Gyourko (2018). "The Economic Implications of Housing Supply." Journal of Economic Perspectives, 32(1): 3-30.

* Allen, Treb and Costas Arkolakis (2025). "Quantitative Regional Economics." Handbook of Regional and Urban Economics, Volume 6, Issue 1, Pages 1-72.

Roback, Jennifer (1982). "Wages, Rents, and the Quality of Life." Journal of Political Economy, 90(6): 1257-1278.

Krugman, Paul (1991). "Increasing Returns and Economic Geography." Journal of Political Economy, 99(3): 483-499.

Eaton, Jonathan and Samuel Kortum (2002). "Technology, Geography, and Trade." Econometrica, 70(5): 1741-1779.

Dekle, Robert, Jonathan Eaton, and Samuel Kortum (2008). "Global Rebalancing with Gravity: Measuring the Burden of Adjustment." IMF Staff Papers, 55(3): 511-540.

* Desmet, Klaus and Esteban Rossi-Hansberg (2013). "Urban Accounting and Welfare." American Economic Review, 103(6): 2296-2327.

* Hornbeck, Richard and Enrico Moretti (2024). "Estimating who Benefits from Productivity Growth? Local and Distant Effects of City Productivity on Wages, Rents, and Inequality " Review of Economics and Statistics 106, no. 3 (2024): 587-607

* Beraja, Martin, Erik Hurst, and Juan Ospina (2019). "The Aggregate Implications of Regional Business Cycles." Econometrica, 87(6): 1789-1833.

* Guren, Adam, Alisdair McKay, Emi Nakamura, and Jón Steinsson (2021). "Housing Wealth Effects: The Long View." Review of Economic Studies, 88(2): 669-707.

* Kaplan, Greg, Kurt Mitman, and Giovanni L. Violante (2020). "The Housing Boom and Bust: Model Meets Evidence." Journal of Political Economy, 128(9): 3285-3345.
 

ENROL FOR THIS COURSE