Lecture1(2)

# Lecture1(2) - Assessment More details to be on Blackboard 1...

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1 Assessment More details to be on Blackboard.

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2 Text and Key References  No single textbook but many references. No need to purchase any. Fisher Closed Reserve. Key references See
3 Course Contents In this Course, We will study Ø Various models of the business cycle Ø Models of asset pricing Ø Frameworks for analysing interactions between the Business Cycle and Asset markets Ø How empirical methods are used for analysing the business cycle and asset markets Ø How to interpret data and econometric studies Ø The implications and roles of government policy.

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4 Assumed Knowledge § Micro: Utility theory (indifference curve), budget constraints, production function, marginal products, neoclassical equilibrium etc. § Macro: ECON1002, ECOS2002 § Math/Stat/Ecmt: § simple calculus (differentiation), functions and equations § basic regression analysis (OLS, t-ratios, R squared) § Using Excel or a simple statistical software
5 Lecture 1: Introduction to Business Cycles Concepts and Measurements What is the business cycle? v Fluctuations in aggregate economic activities. v Focus on short-run to medium-run changes. v Recurrent but not ‘periodic’. v Some predictable while others more random. v No unique definition. v We will take a broad perspective, to link theory to data.

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6 Concepts and Measurements: Fluctuations in Australia’s GDP 50,000 100,000 150,000 200,000 250,000 300,000 350,000 60 65 70 75 80 85 90 95 00 05 Real GDP Long term trend Millions of Dollars
7 Concepts and Measurements: Recessions in Australia 10.4 10.8 11.2 11.6 12.0 12.4 60:1 65:1 70:1 75:1 80:1 85:1 90:1 95:1 00:1 05:1 Note the log scale. Why use log of GDP? Use: yt = ln Yt Measures approximate percentage change in Yt

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8 GDP Time Business Cycles:  Basic terminologies
9 Business Cycles:   Concepts and Measurements Classical Business Cycles Burns and Mitchell (1946), researchers at the NBER in the US, defined business cycles as follows. Business cycles are a type of fluctuations found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions , and revivals which merge into the expansion phase of the next cycle; in duration business cycles vary from more than one year to ten or twelve years…..

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10 Business Cycles:   Concepts and Measurements According to Burns and Mitchell, ü Business cycles are not defined as fluctuations in real GDP but as fluctuations in an undefined measure of “aggregate economic activity” ü Led to the concept of a “ reference cycle ” – measured on the
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