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2012 Syllabus

Economics 398 Macroeconomics
Early-Fielding 205, Tuesdays and Thursdays 11:50 am – 1:15 pm
This course has two purposes. One is for you to do a literature survey, rather than (as in past versions of the Capstone) a research paper. The other is to explore a set of economic issues at a depth appropriate for a senior economics major.
This section focuses on contemporary macroeconomic issues, both empirical and theoretical. Commensurate with that, your literature survey needs to tie into one or more of our course themes; I do not want to supervise a “micro” paper while teaching a “macro” course.
We will likely adapt course content as the term progresses, particularly if one or more of the 17 countries currently using the euro as their currency. The election campaign may also bring up issues that merit shifting the sequence in which we approach “macro”.
One section of Economics 399 will be offered in Winter, 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:
Unemployment is high in the EU and not just the US. But it is not only macroeconomies that are facing tensions; macroeconomics as a (sub)discipline is also 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 class empirical techniques, such as VAR-based models. In addition, the rise of “rational expectations”, partly in response to the scant attention paid to price issues in existing models, and partly reflecting the attraction of “efficient market” models in finance, led to a new class of theoretical models. Proponents also found them more elegant, and claimed that their models did not rely on ad hoc assumptions (we’ll work through a four equation one, but in their eyes their very strong assumptions weren’t ad hoc). The denouement was the world of DSGE – dynamic stochastic general equilibrium models built from submodels of perfectly rational microeconomic behavior.
I have now observed 4 “bubbles”. The first was while I worked on Wall Street in the late 1970s, as part of a team doing Eurodollar syndicate loans to Latin America. I served as a banking representative to the steering committee that worked with the IMF and the Jamaican government on refinancing its sovereign debt. It was a deeply saddening experience, but also made me interested in economic issues. Seeing a wave of defaults on the horizon – ultimately every loan on which I worked went bad – I headed off to Yale in 1980, where I was introduced to macroeconomics by the Nobel laureate, Jim Tobin. Then I lived in Tokyo in 1991-2, on sabbatical from W&L, at the peak of their real estate bubble; it “broke” in 1992, and in the space of a few months prices of one property I happened to know fell 40% – and in most of Japan prices are still declining, 20 years hence. Then during the bubble that burst in 2000 we had an alumnus and CEO of a high-flying online banking venture on campus repeatedly; I lost a bit of money, but a couple people on campus lost their entire retirement savings. spent approximately 7 years in Japan, over a span of almost 40 years. This time around I returned from another stint in Japan to begin constructing a new house, not having watched develops in the US. I now unfortunately own two houses, and two mortgages. Bubbles are very real, and in my analysis very different from “regular” business cycles. But that’s understanding is not uniform across the profession.
None. Most readings will be posted to Sakai. We will use a site on the (new) W&L WordPress server for blogging about macro issues.
Concrete Objectives:
One of the challenges is that modern macroeconomics is extraordinarily technical. We can however grapple with a set of sub-models that are combined to build “modern” models. That then should leave you able to read around the math in at least the better written contemporary papers, and have a sense of what assumptions, stated or not, are likely driving the model.
  • understand the three basic building blocks of “new” macro models: growth models, overlapping generations models, and rational expectations models;
  • gain 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 relies upon class discussion. I will post readings in advance of class, and will typically ask you to bring in a one-page “executive” summary. Some of class will nevertheless be devoted to working through models, but as much as possible I want to use class time to focus on the underlying issues – how the model might inform empirical and policy questions, and what are its attendant strengths and weaknesses.
I also ask you to write and present. We will devote a portion of each week to current events – U, π, g, i — for which you located data and graph or otherwise structure to communicate to your classmates. As noted, we will maintain a blog. You will also be required to write a position paper or two – I will rotate assignments so these may not have the same due date for everyone – and then debate policy options. Finally, all will be asked to write a longer research paper.
If you are not diligent in preparation for class, then I add two midterms. However, I will not impose a final exam upon you (and me).
Weights will vary depending on the nature of debates and data presentations. Tentatively, position papers will account for 15%, reading notes for 10%, class discussion 10%, the term paper and its components 35%, data presentations for 10% and blogging for 10%.
I require that you attend class, and at least one outside event (the annual H Parker Willis lecture). If we have other relevant speakers on campus, I will also mandate attendance.
Office hours:
See WordPress for current hours. 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 and (since I may not answer) voicemail on my cell phone at (540) 460-6288.
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 as noted on the schedule. Failure to meet deadlines incurs penalties. In addition, at some point I expect you to discuss your project with me during office hours. I will require that all of you have an outside editor for your work, and an individual who will proofread your (penultimate) draft. I thus expect most of you will 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. While I encourage “dropping” digital copies on Sakai as a backup, you should not expect me to spend my time accessing, downloading and printing electronic copies.
Web site:
I put readings on Sakai. We will blog at:
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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