Home » Departments and Centres » Academic catalogue » Course detail

Open sidebar menu

Macroeconomics 2 (ECO-CO-MACRO2)

ECO-CO-MACRO2

Description

This course introduces students to the foundations of macroeconomic theory. Departing from the neoclassical growth models of the first part of the macro sequence, we consider model frameworks with market inefficiencies, imperfections and frictions. These models are the cornerstones for the quantitative analysis of many policy questions concerning e.g. public debt, pension systems, redistribution of income and wealth via taxes and transfers, or labor market policies. Topics covered in this course are (i) overlapping generations and public policy, (ii) incomplete markets and household heterogeneity, (iii) job search and unemployment, and (iv) search and matching models of the labor market. Emphasis will be put on state-of-the-art modeling approaches and how to apply them with analytical and numerical methods. 

Learning outcomes:     
By the end of the course, students will be able to:
•    Apply overlapping-generations models to represent economic decision-making across generations and to evaluate the effects of public policy on macroeconomic outcomes and intergenerational welfare.
•    Use incomplete-markets models to study analytically and numerically the precautionary savings behavior of households, the determinants of wealth inequality and the macroeconomic implications of household heterogeneity. 
•    Analyze the job search behavior of workers in frictional labor markets and its role for unemployment dynamics, job mobility and wage dispersion.
•    Use equilibrium models with frictional labor markets to study the aggregate dynamics of employment, unemployment and worker flows and to assess the implications of labor market policies. 

Assessment    
Final exam (70%) and problem sets (30%). Three problem sets will be distributed during the course. The problem sets can be submitted by groups of at most four students. They must be typed in LATEX and converted into a pdf file. 
Academic Misconduct    During any academic activity, especially but not limited to the completion of assignments, students are expected to refrain from any form of misconduct as defined by the EUI Code of Ethics in Academic Research. 
    

Module structure

WEEK 1
Two-Period Consumption Savings Models and Overlapping-Generations Endowment Economy 
Topics: 
•    Consumption-savings decisions and intertemporal utility maximization
•    Endowment OLG model
•    Government deficit finance and Ricardian equivalence

Readings: Azzimonti et al. (Ch. 5.5, 6.4), Miao (Ch. 17), Sargent/Ljungqvist (Ch. 9, 10)

WEEK 2
Overlapping-Generations Growth Model, Fiscal Policy and Debt
Topics: 
•    Productive assets in the OLG model
•    Perpetual youth model
•    OLG model with production and growth
•    Fiscal policy and public debt in the OLG growth model

Readings: Azzimonti et al. (Ch. 6.4), Acemoglu (Ch. 9), Blanchard/Fisher (Ch. 3), Miao (Ch. 17), Romer (2019, Ch. 2)   

WEEK 3
Incomplete Markets Models
Topics: 
•    Income and wealth distributions
•    Consumption and savings with imperfect insurance
•    Equilibrium in the endowment economy
•    Incomplete-markets model with production
•    Computation and aggregate risk

Readings: Azzimonti et al. (Ch. 7 and 10), Acemoglu (Ch. 17), Ljungqvist/Sargent (Ch. 17 and 18), Miao (Ch. 18) 

WEEK 4
Labor Market Search and Unemployment
Topics: 
•    Worker flows in the labor market
•    Worker search and the McCall model
•    Frictional wage dispersion and search on-the-job

Readings: Cahuc et al. (Ch. 5); Ljungqvist/Sargent (Ch. 6), Mortensen (Ch. 1)

WEEK 5
Search and Matching Models and Equilibrium Job Ladder Models
Topics: 
•    Equilibrium search and matching model (Diamond-Mortensen-Pissarides)
•    Efficiency and competitive search
•    Equilibrium job ladder models

Readings: Azzimonti et al. (Ch. 19), Cahuc et al. (Ch. 9), Ljungqvist/Sargent (Ch. 29, 30), Miao (Ch. 19), Pissarides (Ch. 1-3), Romer (Ch. 11)

Bibliography and further readings

Main References:
•    Acemoglu, Daron (2009): Introduction to Modern Economic Growth, MIT Press.
•    Azzimonti, Marina, Krusell, Per, McKay, Alisdair and Mukoyama, Toshihiko (2024): Macroeconomics, forthcoming.
•    Blanchard, Olivier Jean and Stanley Fischer (1989): Lectures on Macroeconomics, MIT Press.
•    Cahuc, Pierre, Carcillo, Stéphane and André Zylberberg (2014). Labor Economics. MIT press.
•    Ljungqvist, Lars and Thomas J. Sargent (2004): Recursive Macroeconomic Theory, MIT Press.
•    Miao, Jianjun (2014): Economic Analysis in Discrete Time, MIT Press.
•    Mortensen, Dale (2003): Wage Dispersion: Why Are Similar Workers Paid Differently? MIT press.
•    Pissarides, Christopher A. (2000): Equilibrium Unemployment Theory. MIT press.
•    Romer, David (2006): Advanced Macroeconomics, McGraw-Hill Irwin.

 

Register for this course