14.462 | Spring 2007 | Graduate

Advanced Macroeconomics II


Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session


Professor Blanchard will discuss shocks, labor markets and unemployment, and dynamic stochastic general equilibrium models (DSGE models). Professor Lorenzoni will cover demand shocks, macroeconomic effects of news (with or without nominal rigidities), investment with credit constraints, and liquidity with its aggregate effects.


The prerequisites for this course are 14.461 Advanced Macroeconomics I, 14.122 Microeconomic Theory II, and 14.452 Macroeconomic Theory II.


There are no official textbooks for this course. Please refer to the readings list.


The grade is based on the successful completion of 7 graded problem sets.

Course Outline

Part 1 - Professor Blanchard

  1. Shocks
    • Vector autoregression models (VARs). Wold representations and their limits
    • Structural VARs
    • A few major shocks or many?
    • Technology versus demand shocks
    • The great moderation
  2. Unemployment, institutions, and shocks
    • Basic (non-cyclical) facts about unemployment flows
    • Flows, bargaining, and unemployment
    • Role of institutions I: Employment protection and the labor market
    • Role of institutions II: Trust, hold-ups, and bargaining
    • Cyclical movements in unemployment
    • Productivity growth versus unemployment. Trying to put things together
  3. Dynamic stochastic general equilibrium models (DSGE models)

Part 2 - Professor Lorenzoni

  1. Imperfect information and demand shocks
  2. Financial frictions and investment
    • Financial frictions: Limited pledgeability and richer models
    • Q theory
    • Bubbly asset prices and investment
  3. Liquidity and aggregate activity
    • Limited supply of liquidity
    • Search models
    • Countercyclical liquidity premia
    • Liquidation and asset prices

Course Info

As Taught In
Spring 2007
Learning Resource Types
Problem Sets
Lecture Notes