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2013 Syllabus

Economics 398 Macroeconomics
What is “the” Multiplier?
Huntley 220, Mon-Wed-Fri 11:15 am – 12:20 pm
[DRAFT – still under revision]

This course has two purposes. One is to do a literature survey, rather than (as in past versions of the Capstone) a full research paper, though I welcome the latter. Given the macroeconomics emphasis of this section, your paper should be on a related topic; I do not want to supervise a “micro” paper while teaching a “macro” course.

The other is to explore contemporary macroeconomic issues, both empirical and theoretical. To make it more concrete, we will focus on how an economist might determine the value of “the” multiplier, which is central to understanding the impact of shocks. In addition, we will spend time examining unemployment and other macro data.

One section of Economics 399 will be offered in Winter 2014 for those of you wishing to pursue Honors or to write a paper involving original research. I will be happy to discuss that option with you during office hours; it is new this year and hence still being refined.

Modern Macro:

Macroeconomics as a (sub)discipline is under tension. The weaknesses of a generation-plus of macroeconomic modeling, work for which Jan Tinbergen received the first Nobel Prize in Economics in 1969, intersected with cheap computing power and advances in econometric theory to produce a new subfield, macroeconometrics. In addition, the pursuit of rigor and clarity led to the rise of “rational expectations” as a strategy to incorporate forward-looking behavior into models. The denouement was the world of DSGE – dynamic stochastic general equilibrium models – built from microeconomic models of consumption, investment and so on that endogenize most variables of interest.

To understand modern macro requires both coming to grips with macroeconometrics and with the building blocks of DSGE models. Macro times series exhibit steady growth, and that introduces all sorts of difficulties. In addition, macro is inherently multi-equation in orientation. So you will learn about unit roots, stationarity, and VARs. That will equip us to read empirical papers on “the” multiplier.

On the theory side we develop several components. One is the Solow growth model; another is the Samuelson overlapping generations model. Then there is the rational expectations approach, where we will work through a “full” model (even if it is only 4 equations). We will also look at the life-cycle consumption model, as an example of how savings and other components are incorporated. After that we will be ready to read papers that employ these models.


I have now observed 4 “bubbles”. The first was while I worked on Wall Street in the late 1970s, and was what led me to do a PhD at Yale, where I was introduced to macroeconomics by the Nobel laureate, Jim Tobin. The second was Japan’s late-1980s real estate bubble, which broke while I was on sabbatical in Tokyo in 1991-92. Then came the bubble, which burst in 2000; an alumnus who was CEO of a high-flying online banking venture visited campus repeatedly, including to speak in Econ 398. Several people on campus were led to invest in his venture, to their chagrine. Then there’s our recent bubble, which has yet to reach its final denoument in the EU.

Bubbles are very real, and in my analysis very different from “regular” business cycles. But that understanding is not uniform across the profession; as you will see, there are well-known macroeconomists who insist, on the basis of their models, that our high levels of unemployment are unrelated to the collapse in real estate prices, but instead must be largely voluntary. We need to understand the structure of DSGE models to understand why that is the case.


None. Most readings will be posted to Sakai.

Course Objectives:

Modern macroeconomics is extraordinarily technical. Still, by the end of the term you should:

  • understand the basic building blocks of “new” macro models: growth models, overlapping generations models, consumption models, and the rational expectations approach;
  • have practice in finding and presenting basic macroeconomic data, and understand some of the empirical limitations, econometric and otherwise, in using that data;
  • read and be familiar with contemporary debates, including what constitutes a good model, and how models might permit evaluating the size of “the” multiplier;
  • through your paper project, learn how to research a macroeconomic topic, and explore and present one in depth.


The course is a small seminar, which will rely upon class discussion rather than lectures, though class time will also be devoted to working through formal models. Readings will be on Sakai; you will need to go through them in advance. Remember that the “norm” for a 3-credit course is roughly 2 hours of preparation for each hour of actual class time – going through individual papers can take a full hour. On an occasional basis I will ask you to submit reading notes; I will ask each of you to lead the discussion twice during the term, roughly once in each half of the term.

We will devote a portion of each week to current events – U, π, g, i — for which you need to locate and graph data. You will also be responsible for at least 6 blog posts during the term, and for commenting on the posts of others at least once a week. That will facilitate class dicsussion, as will a debate or two, and a couple short papers.

All of you must write a longer research paper, and present your topic and then your completed work.

I will not impose a final exam upon you (and me).


Weights will vary depending on the evolution of the class. Tentatively, short papers will account for 20%, reading notes and data presentations for 10%, class discussion 10%, the term paper and its components 40%, and blogging for 20%.

Globalization Essay

The Economics Department requires all capstone students to write a 30 minute globalization essay. The Williams School has an understanding of “globalizaiton” as one of its objectives for SACS/AACSB accreditation. This is one tool we use in our self-assessment. For that purpose we rank the essays as “exceed/meet/do not meet” expectations. I will make it a small part of your course grade to encourage you to take it seriously.


Given the seminar nature of this course, I require attendance. If we have relevant outside speakers on campus, I will also mandate attendance at those talks. If you have job interviews you should let me know in advance; if you are ill, please don’t communicate except via email.

Office hours:

I will fix office hours once the term begins and I know the timing of regular meetings. My office is HU125B (in the basement). Please note that immediately before class is a bad time to stop by.

My phone is not smart – no snide comments – so please do not text me. I check email frequently, and am often on Skype (@ jidoshasangyo); I’m happy to receive calls but (since I often don’tt answer) plese leave voicemail. My cell is 460-6288, a local call.

Term paper:

You probably have written at least one research paper in an economics class. Nevertheless, we will work on how to find papers and data, that is, the material that undergirds your content. That does not guarantee a good paper. Typical (major) problems include a weak topic, reliance upon poor sources, the failure to ground your research in relevant models, and poor organization. To help you write a good paper, I thus require that you submit a topic in advance, follow it up with a working bibliography, and so on. In addition, I expect you to discuss your project with me during office hours, typically once as you develop your topic and again as you narrow it. You should have an outside editor for your work, and an individual who will proofread your (penultimate) draft. Ideally, you will also utilize the Williams School Writing Consultants in the basement of Huntley, which requires advance planning to schedule a time slot and have a good draft ready for them, sent ahead of your meeting.

Submitting work:

I treat it as your responsibility to print out and convey to me a physical copy of all your work. I ask that you also submit digital copies as pdf files on Sakai. That serves as a backup, and provides me with a time stamp for when you completed it.

Web site:

I put readings on Sakai. We will blog here; I will make each of you “authors” so that you can post and edit content. I also maintain a blog at but will post items first here.

Honor code:

I take it as a given that you will uphold the honor code, as reflected in my use of take-home exams and self-grading on problem sets. I will review with you standards for citing the work of others in your research paper.

Special accommodations:

As per university policy, please speak to me in private at the start of the term.

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