14.06 | Spring 2003 | Undergraduate

Intermediate Macroeconomic Theory


Course Meeting Times

Lectures: 2 Sessions / week, 1.5 hours / session

Course Overview

This course is a communications intensive subject, and there are two papers required. These will count for total of 35% of the grade. The first paper will be an essay of 5 pages. It should draw on the tools of macroeconomics (including models, equations, and graphs) you acquired in 14.02. The topic will be based on current events. The first paper will be worth 10% of the final grade. The deadline is by lecture no. 3. The second paper will be an essay of about 15 pages. The topic is described later in the course outline. A rough draft or an outline of the second paper is due by lecture no. 8. Credit will be given for both the outline (10% of the final grade) and the paper (15% of the final grade). The final version of the second paper is due by lecture no. 9. More details about the paper can be found at the end of the syllabus. Problem sets will count for 20% of the final grade. There will also be a midterm and final examination. The midterm will count for 15% of the grade and the final for 30% of the grade.

The text for the course is David Romer, Advanced Macroeconomics, Second Edition (New York: McGraw Hill, 2001). The detailed course outline lists other readings, which will include journal articles and selections from other books. A few other resources for the paper are listed at the end of the syllabus.

Outline of the Course

Neoclassical Growth Theory

Romer (2001), Chapter 1.

Solow, Robert M. “Technical Change and the Aggregated Production Function.” Review of Economics and Statistics 39 (1957): 312-320.

The “Solow Model” with Human Capital

Mankiw, N. Gregory, David Romer, and David N. Weil. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (May 1992): 407-437.

Romer (2001), Chapters 3.8-3.9.

Knowledge Accumulation and Growth

Romer, Paul M. 1990. “Endogenous Technological Change.” Journal of Political Economy 98 (October, Part 2): S71-S102.

Romer (2001), Chapters 3.2-3.6.

Dynamic Optimization

Dixit, Avinish. Optimization in Economic Theory. Oxford: University Press, 1990. (Chapter on dynamic optimization and the maximum principle).

Dorfman, Robert. “An Economic Interpretation of Optimal Control Theory.” American Economic Review (December 1969): 817-31.

The Ramsey Problem

Blanchard, Olivier J., and Stanley Fischer. Lectures on Macroeconomics. MIT Press, 1989, Chapter 2.1-2.2.

Ramsey, F. P. “A Mathematical Theory of Saving.” Economic Journal 38 (December 1928): 543-559.

Debt and Deficits

Barro, Robert J. “Are Government Bonds Net Wealth?” Journal of Political Economy 82 (November/December 1974): 1095-1117.

Blanchard, Olivier J., and Stanley Fischer. Lectures on Macroeconomics. MIT Press, 1989, Chapter 2.3.

Business Fixed Investment

Chirinko, Robert S., and Huntley Schaller. “Business Fixed Investment and ‘Bubbles’: The Japanese Case.” The American Economic Review 91, 3 (2001): 663-680.

Jorgenson, Dale, and Robert Hall. “Tax Policy and Investment Behavior.” American Economic Review (June 1967).

Summers, Lawrence. “Taxation and Corporate Investment: A q-Theory Approach.” Brookings Papers on Economic Activity (1981).

Inventory Investment

Blinder, Alan, and Louis J. Maccini. “Taking Stock: A Critical Assessment of Recent Research on Inventories.” A Journal of Economic Perspectives, 5 (1991): 73-96.

Maccini, Louis J., Bartholomew Moore, and Huntley Schaller. “The Interest Rate, Learning, and Inventory Investment.” MIT Working Paper (2003): 03-04.

Ramey, Valerie A., and Kenneth D. West. “Inventories.” Chap. 13 in Handbook of Macroeconomics. Vol. 1B. Edited by John B. Taylor, Micheal Woodford, and Elsevier. 1999.

Savings and Investment in a Small, Open Economy

Blanchard, Olivier. “Debt and the Current Account Deficit in Brazil.” In Financial Policies and the World Capital Market: The Problem of Latin American Countries. Edited by Pedro Aspe Armella et al. University of Chicago Press, 1983.

Fischer, Stanley, and Jacob Frankel. “Investment, the Two-Sector Model, and Trade In Debt and Capital Goods.” Journal of International Economics 2 (August 1972): 211-233.

Svensson, Lars E.O. “Oil Prices, Welfare, and the Trade Balance.” Quarterly Journal of Economics 99, 4 (November 1984): 649-672.

Real Business Cycle Models

Chang, Yongsung, Joao Gomes, and Frank Schorfheide. “Learning by Doing as a Propagation Mechanism.” American Economic Review 92, 5 (2002): 1498-1521.

Romer (2001), Chapter 4.

The First Paper for 14.06

This paper should be a paper that uses the tools of 14.02 to analyze a current public policy issue. It should be about 5 pages long, double-spaced (on numbered pages), with a bibliography of works consulted. It should demonstrate an understanding of concepts and models from 14.02 and an ability to apply these to an issue in the real world. Knowledge of the models should be demonstrated by a use of written analysis closely based on a model, graphs, and/or equations. The topic of the paper is: why did Japan’s economy slump in the early 1990s and why is Japan in a recession today? (If you wish to write on a different topic, you must receive written permission from your TA.)

The Second Paper for 14.06

This paper should be a research paper that is about 15 pages long, double-spaced (on numbered pages), with a bibliography of works consulted. It should demonstrate both your understanding of the subject and your ability to write in English. An outline (or, even better, a rough draft) is due by lecture no. 8. The outline also will be the basis on which you can get feedback from a TA for the final version. Credit will be given for both the outline (10% of the final grade) and the paper (15% of the final grade).

You should bring your outline with you when you discuss your paper with a TA. A first draft of the paper also should be written soon after lecture no. 8, if a second draft is to be turned in by lecture no. 9. Late papers will be penalized on a steep sliding scale that makes it worth your while to submit the paper on time rather than trying to wait a week to improve it.

The paper should be a comparison of economic conditions in two countries. One country could be the country you live in, or from which your parents came, or with which you have other strong attachments. The other country should be chosen to provide a good contrast with this one. Feel free to discuss the choice of country with your instructors. You can describe and analyze economic growth in the two countries in the last half of the 20th century. The aim of the paper should be to use the theories learned in 14.06 to explain the qualitative and quantitative performance of the two countries. Comparing and contrasting two countries should provide enough movements of interest for our theories to explain.

Like any good paper, this one should have a beginning, a middle, and an end. The beginning should state clearly the topic of the paper and what you are planning to do. It should be rewritten after the rest of the paper is finished to make sure it fits the paper as written and presents a good case for someone to read the paper. In particular, the beginning should explain what theories you are employing in your analysis. The middle of the paper should contain your description of qualitative and quantitative performance of the two countries and your analysis of them. This part can contain diagrams and data as needed to show what you are explaining or how you are explaining it. It is the longest and most substantial part of the paper. The end of the paper should summarize your argument, state your conclusions, and draw any implications of your analysis that you think warranted.

Plagiarism is a major problem when writing research papers under time pressure. You should avoid plagiarism at all costs. If you are in doubt about whether you are over the line of acceptable behavior, you are too close to the edge. Omit the questionable passage and draw back from the edge. Provide full citations for all sources you consult in your work. Feel free to quote from them, but indicate clearly when you are quoting.

The following two books may be useful in addition to the material on the syllabus.

Chang, Ha-Joon. Kicking Away the Ladder-Development Strategy in Historical Perspective. London: Anthem Press, 2002.

Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: MIT Press, 2001.

Data for a wide variety of countries are available from the Penn World Tables, available on the web at http://datacentre2.chass.utoronto.ca/pwt/.

Paper Standards for 14.05

Here are ten questions to pose of each paper. The answers can be scored on, say, a five-point scale. The addition of these scores will yield an overall score on a base of 50. If you prefer, a narrower or wider score could be used for each question; the aim is to record information without forcing paper graders into meaningless discriminations. My hope is that almost all papers will score high in the first five questions; the discrimination between papers will come in questions 6 through 10.

  1. Does the paper look like a proper paper (Title, 20 pp., bibliography, etc.)?
  2. Is it in English (as opposed to literal translation of foreign phrases)?
  3. Does the paper have a beginning, middle and an end?
  4. Does the paper use the Solow model reasonably (not necessarily totally correctly)?
  5. Does the paper use other growth theory reasonably (not necessarily totally correctly)?
  6. Are there relevant quantitative data in the paper?
  7. Is there a clear comparison between two countries?
  8. Do the details in the paper advance the argument (as opposed to filling space)?
  9. Does the argument flow and/or cumulate as the paper continues?
  10. Is the paper persuasive?

Course Info

As Taught In
Spring 2003
Learning Resource Types
Problem Sets with Solutions