ECON 5010 Class Notes
Review of the IS-LM Model
1
Aggregate Demand: An IS-LM Framework
The traditional IS-LM model describes the aggregate demand (AD) side of the economy.
1.1
IS Curve
The IS relationship describes all combinations of interest rates (r) a
ECON 5010 Class Notes
RBC Theory: Basic Model, Calibration, Solution and Simulation
1
Introduction
In this section, I present the details of a basic real business cycle (RBC) model. I rely heavily on Prescott
s
(1986) seminal paper and the material in Far
ECON 5110 Class Notes Shapiro and Stiglitz (1984) Equilibrium Unemployment as a Worker Discipline Device 1 Introduction to Eciency Wages
This is the seminal paper in the area of eciency wages. The model can be used to explain involuntary unemployment. abo
ECON 5010 Class Notes
Endogenous Growth Theory
1
Introduction
One drawback of the Solow model is that long-run growth in per capita income is entirely exogenous. In the
absence of exogenous technological growth, income per capita would be static in the lo
ECON 5110 Class Notes
Endogenous Fluctuations
1
Introduction
In this section, I present an overview of business-cycle models that are driven by extrinsic or non-fundamental
uncertainty. Typical business-cycle models are driven by intrinsic or fundamental
ECON 5010 Class Notes
The Green Solow Model
This section of notes covers a 2010 article written by William Brock and Scott Taylor, which was published
in 2010 in the Journal of Economic Growth.
1
Introduction
This paper attempts to explain the Environment
ECON 5110 Class Notes
Staggered Wages
1
Introduction
A popular method for generating persistence and wage/price stickiness in current macro models is through
staggered contracts. The earliest work in this area is credited to Stanley Fischer (1977) and Joh
ECON 5110 Class Notes
Sticky Information Versus Sticky Prices
1
Introduction
Mankiw and Reis (2002) present a new model based on the idea that information disseminates slowly through
the population.
Current New Keynesian models typically rely on either st
ECON 5010 Class Notes
Testing the Solow Model
In this section, I discuss how to test the Solow model. The notes closely follow the seminal paper by
Mankiw, Romer and Weil published in 1992 in the Quarterly Journal of Economics. The paper is titled "A
Cont
ECON 5110 Class Notes
Topics in Real Business Cycle Theory
1
International
1.1
Backus, Kehoe and Kydland (1992): International Real Business Cycles
This article investigates whether an open-economy version of the RBC model is consistent with the
internati
ECON 5110 Class Notes
Solution Techniques for Dynamic Rational Expectation Economies
This section provides a very brief introduction to solving dynamic RE models. Good references include
books by Stokey, Lucas and Prescott (1989) and Adda and Cooper (2003
ECON 5110 Solutions to Problem Set #2
1. Not graded. Undeterminded coe cients will not work. Need to use a dierent solution technique.
2. Consider the production function Y = AK + BL, where A and B are positive constants. Also assume
constant population g
ECON 5110 Solution to the Final Exam
Spring 2010
1. Modied Cobweb Model. (60 pts) Let the demand for a good (d) be given by
dt =
1 pt
0
+
2 yt
+
3 Et yt+1
0
+
1 E t 2 pt
+
d
t;
(Demand)
supply (s) be given by
st =
+
s
t;
(Supply)
where p is price; income
ECON 5110 Final Exam
Spring 2010
1. Modied Cobweb Model. (60 pts) Let the demand for a good (d) be given by
dt =
1 pt
0
+
2 yt
+
3 Et yt+1
0
+
1 E t 2 pt
+
d
t;
(Demand)
supply (s) be given by
st =
s
t;
+
(Supply)
where p is price; income (y) is exogenous
ECON 5010 Class Notes
Review of the Solow Model
1
Solow Growth Model
1.1
The Basics
The Solow growth model begins with a constant returns to scale (CRS) production function
Y (t) = F (K(t); A(t)L(t)
(1)
where the terms are dened as
Y (t) output
K(t) capit
ECON 5010 Class Notes
Monetary Policy Rules and Macro Stability
Here I outline a paper by Clarida, Gali and Gertler (CGG) in the Quarterly Journal of Economics. The
title is "Monetary Policy Rules and Macroeconomic Stability:
Evidence and Some Theory." Th
ECON 5110 Class Notes Coordination Failures 1 Introduction
We have discussed three dierent models of the business cycle. 1. Business-cycle models driven by supply-side factors including imperfect information (e.g., RBC and Lucas model). 2. Business-cycle
ECON 5010 Class Notes
Introduction to Real Business Cycle Theory
1
Ramsey Growth Model
The Ramsey model extends the Solow model to allow for explicitly optimal behavior by rms and households.
1.1
The Basics
Begin by assuming the following:
There are a lar
Econ 5110 Solutions to the Final Exam
Spring 2009
1. Staggered Prices and Macro Dynamics. (50 pts) Consider the following price setting equation
xt = bxt
1
+ (1
b)Et
1 xt+1
where xt is the price, yt is the output gap,
> 0, and 0
b
+ [bEt
1 yt
+ (1
b)Et
1
Econ 5110 Practice Questions for the Midterm Exam
Spring 2012
Real Business Cycle Theory.
Consider a simple neoclassical growth model (notation similar to class)
where all agents are identical and a representative agent maximizes
X1
t
t=0
fln(Ct ) + ln(lt
Econ 5110 Solutions to the Practice Questions for the Midterm Exam
Spring 2012
Real Business Cycle Theory. Consider a simple neoclassical growth model (notation similar to class) where all
agents are identical and a representative agent maximizes
X1
t
t=0
ECON 5110 Final Exam
Spring 2012
1. Dynamic New Keynesian (DNK) Model. (60 pts) Consider the following variation of the DNK model:
t
yt
=
y t + Et
= yt
1
where gt is the growth rate of the money stock mt ,
exogenous, mean-zero process: gt = gt
(a) (10 pts
ECON 5110 Solutions to the Final Exam
Spring 2012
1. Dynamic New Keynesian (DNK) Model. (60 pts) Consider the following variation of the DNK model:
t
yt
=
y t + Et
= yt
1
where gt is the growth rate of the money stock mt ,
exogenous, mean-zero process: gt
ECON 5110 Midterm Exam
Spring 2012
1. (60 pts) Consider Lucasaggregate supply model with all variables measured in logs. The supply function is
qt = q + (pt
where qt is output, pt is the price level, Et
mean-zero i.i.d. supply shock, and
1
Et
1 pt )
+ t;
ECON 5110 Solution to the Midterm Exam
Spring 2012
1. (60 pts) Consider Lucasaggregate supply model with all variables measured in logs. The supply function is
qt = q + (pt
where qt is output, pt is the price level, Et
mean-zero i.i.d. supply shock, and
1
ECON 5010 Class Notes
Introduction to Empirical Macroeconomics
1
Univariate and Multivariate Stochastic Processes
1.1
Univariate Processes
Macroeconomic time series can often be represented by an autoregressive moving-average process:
yt =
where
i:i:d:(0;
ECON 5010 Class Notes
Endogenous Growth Theory
1
Introduction
One drawback of the Solow model is that long-run growth in per capita income is entirely exogenous. In the
absence of exogenous technological growth, income per capita would be static in the lo
ECON 5010 Class Notes
The Green Solow Model
This section of notes covers a 2010 article written by William Brock and Scott Taylor, which was published
in 2010 in the Journal of Economic Growth.
1
Introduction
This paper attempts to explain the Environment
Econ 5110 Midterm Exam Spring 2014
1. IS-LM-AS Model. (40 pts) The recovery from the 2008 nancial crisis has been slow and painful.
Two prominent
macroeconomists, John Taylor and Paul Krugman, have made contrasting arguments to explain the slow recovery.
ECON 5110 Final Exam
Spring 2014
1. Money Demand and Expectations. (40 pts) Consider the simple money demand function
Mt
=
Pt
Et Pt+1
Pt
(1)
where the money supply follows Mt = M exp( t ), M is a constant,
t
is mean-zero white noise and
< 0.
(a) (10 pts)