Macroeconomics III - ECO00002H

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Module summary

The module introduces final year students to a select set of topics in modern macroeconomics.

Related modules

Module will run

Occurrence	Teaching period
A	Autumn Term 2022-23 to Summer Term 2022-23

Module aims

Macroeconomics II introduced extensions of the aggregated approach to develop dynamic models of consumption and investment, business cycles, monetary policy, growth, and international trade, with a focus on the roles of expectations and market imperfections, and on differences between rival schools of macroeconomic thought.

Macroeconomics III introduces general equilibrium and information economics to macro models as this allows the behaviour of the model to be understood in terms of economic fundamentals at the level of the decision maker.

Term 1 of Macroeconomics III starts with revision of Solow's famous growth model, and then extends it to the case of an optimal saving rate, resulting in a model often known as the Ramsey model. We proceed to look at various applications and adaptations of this model, including the analysis of fiscal policy in a dynamic setting with perfect foresight.

Term 2 of Macroeconomics III concentrates attention on three issues:

Intergenerational trade, social security and capital formation studied within the framework of an overlapping generation model with production

The efficiency wage approach and the search approach to labour markets

The role of liquidity and collateral in the economy.

Module learning outcomes

On completing the module a student will be able to:

• Understand some modern macroeconomic models with micro-foundations
• Comment on some policy debates in macroeconomics

Module content

Currently twenty-six hour long lectures have been timetabled.

Homework assignments will be solved in Practical classes. Attendance will be taken.

In week 7 of term 2 you will be required to submit one piece of written work—an exercise from the homework assignments or a past paper—which will be marked and returned.

There will be one small group Seminar in week 10. This will give you an opportunity to ask questions and discuss the material covered in lectures.

It is essential that you attend lectures, work on the the reading and the Handout, make an honest effort to solve the homework exercises, and attend the Practical classes and Seminar.

Indicative assessment

Task	% of module mark
Closed/in-person Exam (Centrally scheduled)	100

Special assessment rules

None

Indicative reassessment

Task	% of module mark
Closed/in-person Exam (Centrally scheduled)	100

Module feedback

This is provided in four different forms:

1. Complete solutions to all homework exercises will be posted on the VLE page after the material has been presented in the Practical classes.
2. You are encouraged to make use of Office Hours to make sure that you familiarize yourself with the material as it is being taught.
3. One piece of work will have to be submitted and will be marked and returned to you.
4. The Seminar meeting in week 10 of each term provides you with an opportunity to interact with me to raise questions and clarify doubts that you have.

Indicative reading

Term 1 reading lists are available on the VLE.

Term 2 is below:

BLANCHARD, O., AND S. FISCHER: Lectures in Macroeconomics, MIT, 1989.
For the Diamond model: Ch 3 pgs. 91-97 (until “...alternative equilibria.”), pgs 102-107 (from “To answer this,...” until “...modified golden rule.”), and pgs 110-114.
For the efficiency wage model: Sec 9.4 (pgs 455-460).
For the Stiglitz and Weiss model: Sec 9.6 (pgs 478-484).

FREIXAS, C., AND J.-C. ROCHET: Microeconomics of Banking, MIT, 1997.
For the Bernanke and Gertler model: Sec 6.3.2 (pgs 171-176).
For the Kiyotaki and Moore model: Sec 6.4.2 (pgs 180-183).

ROMER, D.: Advanced Macroeoconomics, McGraw Hill, 1996.
For the search model: Sec 10.8 (pgs 473-481).

STIGLITZ, J. E., AND A. WEISS: “Credit Rationing in Markets with Imperfect Information,” American Economic Review, 1981, 393-399.