1. University of Tennessee
Department of Economics
Economics 514: Macroeconomic Theory
M. Mohsin Spring 2016
Phone: 974-1690 Office: SMC 510
E-mail: mmohsin@utk.edu Office Hours: W 1:30-3:30 P.M.
(And by appointment)
Purpose
The purpose of this course is to introduce some important current topics in Macroeconomics, and the
technical tools used in their discussion. Thus, although the technical details will be kept at a minimum,
you will be expected to know the details that are discussed in class.
Textbook and Essential Readings
There is no single textbook that covers all the topics for this course. The assigned readings will consist
of a few chapters from various graduate level macro texts and journal articles. Here is a list of texts
that you will find useful.
Economic Growth, by R. J. Barro and X. Sala-i-Martin. MIT Press, 2004.
Advanced Macroeconomics, by David Romer. McGraw-Hill, 2012.
Economic Dynamics in Discrete Time, by Jianjun Miao. MIT Press, 2014.
Recursive Macroeconomic Theory, by L. Ljungqvist and T. J. Sargent. MIT Press, 2012.
Monetary Theory and Policy, by Carl Walsh. MIT Press, 2010.
Open Economy Macroeconomics in Developing Countries, by Carlos A. Végh. MIT Press, 2013.
Monetary Policy, Inflation, and the Business Cycle, by Jordi Gali. Princeton University Press, 2008.
Lectures on Macroeconomics, by Olivier J. Blanchard and Stanley Fischer. MIT Press, 1989.
Evaluation
There will be three assignments together worth 15% of the course grade, a midterm exam worth 35%
and a final exam (cumulative) worth the remaining 50% of the grade. One of the assignments will be a
group (three students) project. The group project will be designed to foster experiential learning. The
details of the group project will be discussed later in the classroom. The midterm exam will be
conducted on March 3. The final exam is on May 6, from 12:30 P.M. to 2:30 P. M.. No makeup exam
will be given.
2. Students with Disabilities
Any student who feels s/he may need an accommodation based on the impact of a disability should
contact me privately to discuss your specific needs. Please contact the Office of Disability Services at
865-974-6087 in Hoskins Library to coordinate reasonable accommodations for students with
documented disabilities. Also, see http://ods.utk.edu/ for details.
Academic Integrity
Students are expected to abide by the academic Honor Statement:
As a student of the University, I pledge that I will neither knowingly give nor receive any inappropriate
assistance in academic work, thus affirming my own personal commitment to honor and integrity.
Violations of this statement will, at the very least, result in a failing grade for an assignment/exam, and
may result in a failing grade for the course. For a detailed description of the Honor Code, see
Hilltopics.
Attendance, Student Participation and Conduct
The exams will rely heavily on the material discussed in lecture, so it is absolutely essential that you
do not miss class. If you expect to miss many lectures throughout the semester for any reason, then you
should not take this class. In addition, student participation and good conduct are also essential. I
expect students to ask, answer and make pertinent comments. At the very least, I expect the students to
remain alert, to pay attention and do their best to follow the lecture.
I also expect students to avoid the following in the classroom: using your laptop (unless used for class
purpose), checking your mobile phone, having your mobile phone ring in class, talking to another
student, reading material not related to the course etc. Please be mindful that these activities disrupt the
normal learning environment in the classroom.
Abbreviations
BF : Blanchard & Fischer
BS : Barro and Sala-i-Martin
AER : American Economic Review
IER : International Economic Review
JEL : Journal of Economic Literature
JME : Journal of Monetary Economics
JPE : Journal of Political Economy
NBER : National Bureau of Economic Research
RES : Review of Economic Studies
QJE : Quarterly Journal of Economics
3. TOPICS
1. THE SOLOW GROWTH MODEL
(i) The Basic Structure
(ii) The Dynamics of the Model
(iii) Absolute and Conditional Convergence
(iv) Technological Progress
Romer, Chapter 1.
BS, Chapter 1.
Sala-i-Martin (1990): “Lecture Notes on Economic Growth (1): Introduction to the Literature
and Neoclassical Models.” NBER, Working Paper No. 3563.
2. DYNAMIC EQUILIBRIUM MODELS: TWO PERIOD INTERTEMPORAL DECISION
(i) Exchange Economy
(ii) Production Economy
(iii) The Overlapping Generations (OLG) Model
BF, pages 91-109.
Romer, Chapter 2, Part B
J. Seater (1993): "Ricardian Equivalence.” JEL, 142-190.
R. Barro (1974): "Are Government Bonds Net Wealth?" JPE, 1095-1117.
3. DYNAMIC GENERAL EQUILIBRIUM IN INFINITE HORIZON
(i) The Ramsey-Cass-Koopmans Model
(ii) Dynamics and Stability Analysis
(iii) Fiscal Policy
(iv) Productivity Shocks
(v) Numerical Exercise
BF, Chapter 2, Pages 37-90.
Romer, Chapter 2, Part A.
Turnovsky, Chapter 8.
4. 4. MONEY, INFLATION AND GROWTH
BF, Chapter 4.
Walsh, Chapters 1, 2 and 3.
Orphanides, A. and R. Solow (1990): “Money, Inflation and Growth”, in Friedman and Hahn
(eds.) Handbook of Monetary Economics, Vol. I, pp. 223-261.
Abel, Andrew B. (1985): “Dynamic Behaviour of Capital Accumulation in a Cash-in-Advance
Model.” JME, 16: 55-71.
Sidrauski, Miguel (1967): “Rational Choice and Patterns of Growth in a Monetary Economy.”
AER Papers and Proceedings, 30: 534-44.
Stockman, A.C. (1981): "Anticipated Inflation and the Capital Stock in a Cash-in-Advance
Economy." JME, 8: 387-393.
Mansoorian, A and M. Mohsin (2004): “Monetary Policy in a Cash-in-Advance Economy:
Employment, Capital Accumulation and the Term Structure of Interest Rates.” Canadian
Journal of Economics, 2004, Vol 37, pp 336-352.
5. DISCRETIONARY POLICY AND TIME INCONSISTENCY
BF, pages 592-614.
Walsh, Chapter 7.
Persson, T., and G. Tabellini (1990): Macroeconomic Policy, Credibility, and Politics.
London, Harwood Publishers.
Kydland, F., and E. Prescott (1977): "Rules Rather Than Discretion: the Inconsistency of
Optimal Plans". JPE, 473-492.
Walsh, C. (1995): "Optimal Contracts for Central Bankers." AER, 150-67.
Alesina, A., and P. Masson (1994): "Credibility of Policies vs. Credibility of Policymakers."
QJE, 735-734.
Barro, R. J. and D. B. Gordon (1983): “Rules, Discretion, and Reputation in a Model of
Monetary Policy.” JME, 101-120.
5. 6. New GROWTH THEORY
(i) Problems with the Neoclassical Growth Model
(ii) Exogenous Versus Endogenous Growth Models
(iii) The AK Model: Rebelo (1990)
(iv) Research and Development Models of Growth: Romer (1986)
(v) Growth with Public Spending: Barro (1990)
BF, pages 37-47 and 188-192.
Romer , Chapter 3.
BS, Chapters 4 and 5.
Barro, R. J. (1990): “Government Spending in a Simple Model of Endogenous Growth.” JPE,
October, part II, S-103-S125.
Romer, P. (1986): “Increasing Returns and Long-run Growth.” JPE, 1002-1037.
Romer, P. (1989): "Capital Accumulation in the Theory of Long-run Growth". In Modern
Business Cycle Theory, edited by R. Barro. (Cambridge, MA: Harvard University press).
Sala-i-Martin, X. (1990): “Lecture Notes on Economic Growth (II): Five Prototype Models of
Endogenous Growth.” NBER, Working Paper No. 3564.
Grossman, G. and E. Helpman (1991): Innovation and Growth in the Global Economy.
Cambridge, MA: MIT Press.
P. Romer (1987): “A Growth Based on Increasing Returns to Specialisation.” AER, May, 56-
62.
7. DYNAMIC PROGRAMMING, ASSET PRICING, AND THE EQUITY PREMIUM PUZZLE
(i) Programming with Discrete Time Framework
(ii) Hall’s Random Walk Theory of Consumption
(iii) Lucas’s Model of Asset Prices
(iv) Mehra and Prescott’s Equity Premium Puzzle
BF, pages 279-283 and 510-512.
Lucas, R.E. (1978): "Asset Prices in an Exchange Economy." Econometrica, 1429-45.
Epstein, L. (1988): "Risk Aversion and Asset Prices." JME, 179-192.
6. Mehra, R., and E. Prescott (1985): "The Equity Premium: A puzzle." JME, 145-61.
Constantinides, G.M. (1990): "Habit Formation: A Resolution of the Equity Premium Puzzle."
JPE, 19-43.
Heaton, J., and D. Lucas (1995): "The Importance of Investment Heterogeneity and Financial
Market Imperfections for the Behaviour of Asset Prices." Carnegie-Rochester Conference
Series on Public Policy, 42: 1-32.
8. REAL BUSINESS CYCLE THEORY
Miao, Chapter 14.
Kydland, F., and E. Prescott (1982): "Time to build and aggregate fluctuations."
Econometrica, 1345-70.
T. Cooley (1995): Frontiers of Business Cycle Research. Princeton University Press
McCallum, B.T. (1989): "Real Business Cycle Models." In Modern Business Cycle Theory,
edited by R.J. Barro (Harvard University Press).
Greenwood, J., Z. Hercowitz, and G. Huffman (1988): "Investment, capacity utilization & the
real business cycle." AER 402-417.
Hansen, G.D. (1985): “Invisible Labor and the Business Cycle.” JME, 309-327.
9. DYNAMIC NEW KEYNESIAN MODELS
Gali, Chapters 1, 2 and 3.
Miao, Chapter 19.
