Aims and Objectives

Introduction
This course will cover the dynamic general equilibrium theory which has been developed and found useful in analyzing the key issues related to the macroeconomic problems. There are two types of dynamic general equilibrium models that are used extensively in modern macroeconomics: optimal growth model and overlapping-generations model. The emphasis will be on the implications of these two structures for the analysis of macroeconomic problems of today.

Key Objectives
Successful students should be able to analyze the current economic theories concerning persistent long-term economic growth as well as short-run fluctuations with quantitative method, to read and digest some professional journal articles in macroeconomic theory, and to write essays which are clear and accurate briefing document on issues in macroeconomic theory and policy.
Students will need some mathematical maturity and are expected to work carefully through problem sets.
Policies
Assignments and Exams
No late assignment will be accepted for a grading.
No make-up exam will be given.

Cheating and Plagiarism
The penalties for any form of cheating or plagiarism (whether in exams or term work) are severe.  Written work submitted must be your own.  Any sources of information used in completing your work must be identified.  Plagiarized written work will not be accepted and you should be aware that non acceptance of a submission might, in some cases, lead to failure in the course.

Teaching/Learning Arrangements
Learning/Teaching Style
Preferably interactive: students’ questions and comments are welcome.  Students should see the lectures as events for constructing their own interpretations of what has been said and, if puzzled, for raising questions with the lecturer; lectures should not be seen as occasions for transcribing previously prepared overheads. 

Assessment
Assignments 30%
Mid-Term Examination (Date: TBA) 30%
Final Examination (Date: TBA) 40%
Total 100%

Teaching/Learning Resources
Required Textbook
? David Romer (2006) Advanced Macroeconomics, 3rd edition. The McGraw-Hill Companies, Inc. 

Recommended Textbook
? Costas Azariadis (1995) Intertemporal Macroeconomics, Cambridge, MA: Blackwell.

References:
? Stephen J. Turnovsky (2000) Methods of Macroeconomic Dynamics, 2nd edition.  Cambridge, MA: MIT Press.
? Barro, Robert and Xavier Sala-I-Martin (1995) Economic Growth, New York, McGraw-Hill.
? Jones, Charles (1998) Introduction to Economic Growth, W.W. Norton & Company, New York.
? Cooley, T.F. and Prescott, E. (1995) Frontiers of Business Cycle Research, Princeton University Press, Princeton, New Jersey.

Class Handouts
Printed copies of several classical diagrams relevant to topics will be distributed during classes. It is the responsibility of class members to obtain copies of these handouts at lectures.

Web Page
A class web page will be maintained by TAs, and should be accessed frequently for class notes, weekly lecture slides, additional information links, progress marks etc.

Topics
1 Introduction and Background
? *Mankiw, N.G. (1990), “A Quick Refresher Course in Macroeconomics”, Journal of Economic Literature, 28, 1645-60.

2 The Solow Growth Model (Continuous Time)
? Romer, Ch. 1
? *Solow, Robert M., 1956, “A Contribution to the Theory of Economic Growth”, Quarterly Journal of Economics, 70, 65-94.
? *Solow, Robert M., 1957, “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics, 39, 312-320.
? *Feldstein and Horioka, 1980, “DOMESTIC SAVING AND NTERNATIONAL CAPITAL FLOWS”, Economic Journal, 90, 314-329.
? (1) Miller, S.M. and Upadhyay, M.P., 2002, “Total factor productivity and the convergence hypothesis”, Journal of Macroeconomics, 24, 267-286.
? (2) Levin, A. and Raut, L., 1997, “Complementarities between Export and Human Capital in Economic Growth: Evidence from the Semi-industrialized Countries”, Economic Development and Cultural Change, 155-174.
? (3) Zhang, K.H., 2001, “How does foreign direct investment affect economic growth in China?” Economics of Transition, 9(3), 679-693.
? (4) Bao, S., Chang, G.H., Sachs, J.D., and Woo, W.T., 2002, “Geographic factors and China’s regional development under market reforms, 1978-1998”, China Economic Review, 13, 89-111.

3 The Representative Agent Optimal Growth Model (Continuous Time): Dynamic Optimization Problem
? Romer, Ch 2.1 - 2.9
? Turnovsky, Ch 8-12
? Barro, Robert and Xavier Sala-I-Martin, 1995, Economic Growth, p 498-510
? Chiang, Alpha, 1992, Elements of Dynamic Optimization
? *Dorfman, Robert, 1969, “An Economic Interpretation of Optimal Control Theory”, American Economic Review, 59, 817-831
? *Krautkraemer, Jeffrey, 1985, “Optimal Growth, Resource Amenities and the
Preservation of Natural Environments”, Review of Economic Studies, LII, 153-170.
? (5) Hjelm, G., 2002, “Is private consumption growth higher (lower) during periods of fiscal contractions (expansions)?”, Journal of Macroeconomics, 24, pp.17-39.
? (6) Ramirez, M.D. and Nazmi, N., 2003, “Public Investment and Economic Growth in Latin America: an Empirical Test”, Review of Development Economics, 7(1), 115-126.
? (7) Palivos, T., Chong, K.Y., and Zhang, J., 2003, “Transitional Dynamics and Indeterminacy of Equilibria in an Endogenous Growth Model with a Public Input”, Review of Development Economics, 7(1), 86-98.
? (8) Todo, Y. 2003, “Empirically consistent scale effects: An endogenous growth model with technology transfer to developing countries”, Journal of Macroeconomics, 25, 25-46.
? (9) Krautkraemer, Jeffrey, 1986, “Optimal Depletion with Resource Amenities and a Backstop Technology”, Resources and Energy, 8, 133-149
? (10) Ventura, Jaume, 1997, Growth and Interdependence”, The Quarterly Journal of Economics, 57-84

4 Difference Equations (Lectured by TAs)
? Linear Systems
Azariadis, Ch 2, 3, 4 and 5
? Nonlinear Systems
Azariadis, Ch 6

5 The Descriptive and Optimal Growth Model (Discrete Time)
? Azariadis, Ch 7

6 The Overlapping Generations Model
? Romer, Ch 2.10 – 2.14
? Azariadis, Ch 7
? *Diamond, Peter, 1965, “National debt in a neoclassical growth model”, American Economic Review, 55, 1126-50.
? (11) Barry, F. and Devereux, M.B., 2003 “Expansionary fiscal contraction: A theoretical exploration”, Journal of Macroeconomics, 25, 1-23.
? (12) Babu, P.G., Kavi Kumar, K.S., and Murthy, N.S., 1997, “An Overlapping Generations Model with Exhaustible Resources and Stock Pollution”, Ecological Economics, 21, 35-43.
? (13) John, A., Pecchenino, R., Schmmelpfennig, D., and Schreft, S., 1995, “Short-lived agents and the long-lived environment”, Journal of Public Economics, 58, 127-141.
? (14) Iwaisako, Tatsuro, 2002, “Technology choice and patterns of growth in an overlapping generations model”, Journal of Macroeconomics, 24, pp.211-231.
? (15) Lee, Minsoo and Tcha, M., 2004 “The Color of Money: The Effects of Foreign Direct Investment on Economic Growth in Transition Economies,” Weltwirtschaftliches Archiv - Review of World Economics, Vol.140, No.2, pp.211-229.

7 New Growth Theory
? Romer, Ch 3.
? Jones, Charles, 1998, Introduction to Economic Growth (Chapter 4. The Economics of Ideas), W.W. Norton & Company, New York.
? Turnovsky, Ch 13 & 14
? (16) Peretto, P.F., 2003, “Fiscal policy and long-run growth in R&D-based Models with Endogenous Market Structure”, Journal of Economic Growth, 8, pp.325-347.
? *Lucas, Robert, 1990, “Why Doesn’t Capital Flow from Rich to Poor Countries?” AEA Papers and Proceedings, 80, 92-96.
? *Mankiw, G., D. Romer, and D. Weil, 1992, “A Contribution to the Empirics of
Economic Growth”, Quarterly Journal of Economics, p. 407-437.
? Romer, Paul, 1986, “Increasing Returns and Long-Run Growth”, Journal of Political Economy.
? Romer, Paul, 1990, “Endogenous Technological Change”, Journal of Political Economy, 98 Part 2, p. S71-S102.

8 Endogenous Growth, Innovation, FDI, and Trade
? Jagdish N. Bhagwati, Arvind Panagariya, and T.N. Srinivasan, (1998), Chapter 37 in Lectures on International Trade, 2nd Edition, MIT Press, Cambridge, Massachusetts.
? (17) Jansen, W.J., 2003, “What do capital inflows do? Dissecting the transmission mechanism for Thailand, 1980-1996”, Journal of Macroeconomics, 25, pp.457-480.
? (18) Bennett, J. and Dixon, H.D., 2001, “Monetary Policy and Credit in China: A Theoretical Analysis”, Journal of Macroeconomics, 23(1), pp.297-314.
? (19) Petrucci, A., 2003, “Money, endogenous fertility and economic growth”, Journal of Macroeconomics, 25, pp.527-539.
? (20) Lee, Minsoo and Tcha, M., 2005, “Pass-Through Elasticity, Substitution and Market Share: The Case for Sheep Meat Exports,” Journal of International Trade and Economic Development, Vol.14, No.2, pp.209-228.
? Tuan, C. and Ng, L.F.Y., 2003, “FDI facilitated by agglomeration economies: evidence from manufacturing and services joint ventures in China”, Journal of Asian Economics, 13, 749-765.
? Ng, L.F.Y. and Tuan, C., 2003, “Location decisions of manufacturing FDI in China: implications of China’s WTO accession”, Journal of Asian Economics, 14, 51-72.
? Lederman, D. and Maloney, W., 2003, “Trade Structure and Growth”, World Bank Policy Research Working Paper 3025.

9 Short-Run Fluctuations and Nominal Rigidities (Keynesian Theories of Fluctuations)
? Romer, Ch 5
? Akerlof, George A. and Janet L. Yellon, 1985, “A Near-Rational Model of the Business Cycle, with Wage and Price Inertia”, Quarterly Journal of Economics, 100, 529-539.
? Mankiw, N. Gregory, 1985, “Small Menu Costs and Large Business Cycles: A
Macroeconomic Model of Monopoly”, Quarterly Journal of Economics, May 1985, 529-537

10 New Open Economy Macroeconomics (NOEM) Model
? *Maurice Obstfeld and Kenneth Rogoff, 1995, “Exchange Rate Dynamics Redux”, Journal of Political Economy, 103(3), 624-660.
? Betts, C. and Devereux, M. B. 2000, ‘Exchange rate dynamics in a model of pricing-to-market’, Journal of International Economics, vol. 50, pp. 215–44.
? H. Bouakez and N. Rebei, 2008, “Has exchange rate pass-through really declined? Evidence from Canada,” Journal of International Economics, vol. 75, 249-267.
? S. Karim, M. Lee, and C. Gan, 2007, “Real effects of monetary policy in New Zealand”, Australian Economic Review, 40(4), 385-401.

11 Inflation and Monetary Policy
? Romer, Ch 10
? *Finn E. Kydland; Edward C. Prescott, 1977, “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, 85(3), 473-492.
? Athanasios Orphanides, 2000, “Activist Stabilization Policy and Inflation: The Taylor Rule in the 1970s,” Federal Reserve Board, Feb. 2000.
? Christina D. Romer; David H. Romer, 2000, “Federal Reserve Information and the Behavior of Interest Rates,” American Economic Review, 90(3), 429-457.

12 Budget Deficits and Fiscal Policy
? Romer, Ch 11
? Grilli, Masciandaro, and Tabellini, 1991, “Institutions and Policies”, Economic Policy
? Alberto Alesina; Allan Drazen, 1991, “Why are Stabilizations Delayed?”, American Economic Review, 81(5), 1170-1188.

13 Real Business Cycle Theory (if time permitted)
? Romer, Ch 4
? Prescott, Edward, 1986, “Theory Ahead of Measurement”, Federal Reserve Bank of Minneapolis Quarterly Review, Fall.
? Cooley, T.F. and Prescott, E., 1995, “Economic Growth and Business Cycles” in Frontiers of Business Cycle Research edited by Thomas F. Cooley, Princeton University Press, Princeton, New Jersey.
? Li, Victor E., 1999, “Can market-Clearing Models Explain U.S. Labor Market Fluctuations?” Federal Reserve Bank of St. Louis Review, July/August, 35-50.

* Recommended readings
1-20 Articles for review