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BU 702B

Professor: Robert G. King (rgkbucourses@gmail.com)

RK Office hours: Thursdays 12:30-1:30 and Friday 12:30-3:00 Appointments must be made on google calendar via www.bu.edu/econ/faculty/rking

Course Website: www.robertgking.com (for course materials – password required)

Teaching assistant: Ei Yang (eiyang@bu.edu)

EY Office hours: Tuesday 3:30-5:00  and Wednesday 5:00-6:30

 

Course description: Economics 702B, Macroeconomic Theory, is a component of the BU Economics first year sequence covers modern methods of dynamic model construction, including optimal policy design.  The focus is on the effect of fiscal policies and fiscal shocks on macroeconomic outcomes and asset prices.

To illustrate the application of these tools, the class will consider a series of specific topic currently under discussion in the US.

(1)    What are the macroeconomic consequences of the type of tax and spending reform that has been proposed by the Republican party candidate and his advisors?

(2)    Can policy uncertainty – specifically the uncertainty surrounding the regime which will govern future taxes and spending in an environment of high public deficits – substantially affect macroeconomic activity, if firms must make fixed investments to implement new technologies?

There are two texts that provide a parallel treatment of material covered in lectures.

Robert J. Barro, Macroconomics: A Modern Approach (2007, Thomson Southwestern) provides an excellent intuitive overview of substantive questions and approaches of modern macroeconomics, with a focus on the impact of fiscal policy.

Lars Ljungqvist and Thomas J. Sargent, Recursive Macroeconomic Theory  (2nd edition, MIT Press) provides a useful introduction to the tools that macroeconomists employ to construct and analyze quantitative model economies, including those in which fiscal policies play a role.

Two copies of each of these books will be on reserve in Mugar Library.  Student copies can be ordered through Amazon for about $60 for L/S and $20 for Barro.

The course will consist of four modules.  Each module will have a separate section on the course website and lecture materials will be posted within that section.

Homework problems (and some answers) will be posted under a separate section on the course website.

Class sessions will be held in CAS 226 on Tuesdays and Thursdays from 2-3:30.  The homework sessions will be held in CAS 226 on Fridays from 10:30-12:00:  the homework session dates are October 26; November 2,9,16, 30 and December 7.

 

Module A

  1. (10/25) The state of US fiscal policy and economic activity; Models of time series (LS 2)
  1. (10/30) Dynamic programming (LS 3)
  2. (11/01) Markov equilibria (LS 7)
  3. (11/06) Linear rational expectations models

Module B

  1. (11/08) Fiscal policy in the basic neoclassical model (LS 10 and 11)
  2. (11/13) The long-run and dynamic effects of the Romney plan
  3. (11/15) First steps in constructing an endogenous productivity model

Module C

  1. (11/20) Perturbation approximations to nonlinear rational expectations models
  2. (11/27) Optimal policy in basic neoclassical models (LS 15)
  3. (11/29) Recursive optimal policy design (LS 15 cont’d)
  4. (12/04) Asset pricing in Markovian environments (LS  8, 12, and 13)

Module D

  1. (12/06) Fiscal shocks and fiscal rules with endogenous productivity
  2. (12/11) Policy uncertainty and macroeconomic activity

Homework sessions and topics

  1. (10/27) Forecasting, moments and simulations
  2. (11/02) A. Distorted steady states, calibration and loglinear approximation and B. Dynamic programming
  3. (11/09) Linear rational expectations models
  4. (11/16) Fiscal policy and its effects
  5. (11/30) Optimal policy design
  6. (12/07) Perturbation approximation and asset pricing
  7. (12/14) Exam review and discussion of sample exam questiosn