EC6021 Macroeconomic Theory

Introduction: This is an introduction to the methods used at the business end of macroeconomics, as it were. We are interested, as Taylor (2004, pg. 1) writes, in “macroeconomic frameworks that constrain social and economic actors and aggregates of their actions”. The goal of the module therefore is to teach students the main models used in professional and applied macroeconomics.

This module covers the development of macroeconomic theories from the classical period to today, showing the main models of the Lucasian synthesis-the Solow growth model, the overlapping generations model, real business cycle theory, the standard new-Keynesian model, and some post-Keynesian macroeconomic models as well as showing earlier models of growth and distribution.

The module examines how these models have developed in reaction to major economic events like the Great Depression and the Great Recession, and discusses the benefits and costs of different types of macroeconomic models in relation to current macroeconomic data.

Each week takes a real world question to the model(s) under study for an answer using current data. The module will wrap up integrating everything we’ve done in the previous 10 weeks with a large in-class project looking at two distinct macroeconomic phenomena: savings and growth, and debt and development.

Objective: We want students to learn a series of modeling approaches to different economic phenomena under alternative assumptions about the economy. That is, we will study different schools of thought using the same data that describe the macro economies of the international economy. We will, concurrently, study macroeconomic data, how they are generated, how they are used, and, using simple methods, see how well the models we generate in lectures ‘fit’ these data.

Learning Outcomes: The learning outcomes for this module are:

  • Understand the development of macroeconomic theory from the post-war period to today;
  • Understand the basic models used by professional economists, and the pitfalls of these models;
  • Interpret macroeconomic data;
  • Analyse macroeconomic data using simple models;
  • Develop potential macroeconomic models in labs.

Module Requirements: We have 3 contact hours per week. The (rough) division will be 2 hours of theory, and 1 hour of empirics. Labs start in week 2. It is expected that you do the readings before class. You will not be asked to digest more than 30 or 40 pages of material per week, so please, come prepared. We will read the Foley and Michl text entire, but make sure to read as a scholar reads, for use and understanding, rather than just page by page.

Assessment: Two home works worth 30%, an economics ‘log’ worth 10% and an exam worth 60%.

Economics ‘Log’: We want each of you to keep a log of your opinions about economics and about current economic issues that you find interesting. We want you to make at least one log entry per week. It should typically be about one page. The idea is to help you develop a file of your own economic ideas and opinions. This will be very helpful when choosing a thesis topic or coming up with your own ideas. Upload the log to the SULIS site at the end of each week.

Exam. The Christmas exam will be a series of 10 short questions and 5 longer questions, of which you must do 3. A sample exam will be provided in week 10 or 11, depending on how fast we go in the module. The repeat exam will be the same format.

Feedback: Lectures will have details of in-term assessments, individual feedback will be given on all home works during office hours. Tutorials will be highly interactive and there will be opportunities for one on one feedback for each student weekly.

Core Text: Duncan Foley and Thomas Michl, Growth and Distribution, Harvard University Press, 1999 (hereafter GD)

Supplementary Texts:

  1. David Romer, Advanced Macroeconomics, McGraw Hill, 2012, Chapters 5-7.
  2. Wynne Godley and Marc Lavoie Monetary Economics, Palgrave, 2012, Chapters 1, 3, and 5.
  3. Lance Taylor, Reconstructing Macroeconomics, Harvard University Press, 2004, Chapters 1,2 and 3.
  4. Eurostat, European System of Accounts, ESA 2010
  5. Francois Lequiller and Derek Blades, Understanding National Accounts, OECD, 2010.
  6. Deirdre McCloskey, Economical Writing, Waveland Press, 1999.
  7. Stephen Kinsella, The Mathematics of Modern Growth Theory, 2005, Lecture notes. 

Important Links

Extended Penn World Tables, FRED, Eurostat, AMECO

Course outline

  1. Introduction: Measuring Growth and Distribution  (GD Chts 1 & 2)
  2. Models of Production: Firms and Households (GD Chts 3 & 4)
  3. Consumption & Savings (GD Chts 4 & 5)
  4. Classical Models of Growth and technical change (GD Chts 6 & 7)
  5. Neoclassical Growth Models and technical change (GD Cht 8 & 9)
  6. Government debt & the OLG approach (GD Cht 13)
  7. New Keynesian/RBC/DSGE Approach Romer, (GD Chts 5-7)
  8. Money and economic growth (GD Cht 14 & Godley & Lavoie, Cht 4)
  9. Endogenous technical change (GD Cht 16 & Agent Based Modeling Approaches)
  10. Structuralist/Keynesian approach (GD Cht 10, 12)
  11. Structuralist/Keynesian approach 2 (GD Cht 10, 12)
  12. Comparing all of the models across macroeconomic phenomena 1: Saving and Growth