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2014 Syllabus

Economics 398 Macroeconomics
What is “the” Multiplier?
Huntley 220, Mon-Wed-Fri 1:25 pm – 2:20 pm

This course has two goals. One is to develop a full research proposal on a macroeconomic topic. This entails stating and motivating your thesis, providing an extensive survey of the relevant literature survey, presenting an appropriate theoretical model for your topic, and outlining an empirical strategy and an overview of data sources. In general, however, there is insufficient time to actually run regressions or otherwise collect and analyze data. You can see a selection of past projects archived on this web site.

The other goal is to explore contemporary macroeconomic issues, both empirical and theoretical, that lies beyond the scope of Intermediate Macro (Econ 211). To make it more concrete, at several points we will focus on how an economist might determine the value of “the” [fiscal] multiplier, which is central to understanding the impact of shocks. Such work will help highlight the empirical challenges of “testing” macroeconomic models, both because of the nature of macro data and the diametric assumptions of underlying theoretical models.

In addition, we will spend time examining current macro news – unemployment and other macro data, and items in the blogosphere. You will be make a presentation on data once during the term. (I will lead off with the January 10th “Employment Situation” release of the CES and CPS surveys.) You will also be asked to blog on an active basis, with at a post a week and comments on the posts of others.

Modern Macro:

Macroeconomics as a (sub)discipline is under tension. By that 1970s growing computing power combined with a decade-plus of research had produced a range of large, well-accepted models at the Feds and in Wharton Econometrics and other consulting firms. Nobel prizes acknowledged this work, including the initial 1969 prize to Frisch and Tinbergen, and the 1980 prize to Lawrence Klein. However those models handled the oil crises and inflations of the 1970s poorly. Advances in econometric theory and even cheaper computing power combined to produce a new subfield, macroeconometrics, that could use tools unavailable to Klein. In addition, the pursuit of rigor 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 empirical macro requires coming to grips with macroeconometrics. Macro times series grow, but also include stock, flow and rate of change metrics; that introduces all sorts of difficulties. In addition, macro is inherently multi-equation in orientation. So you will learn the jargon of 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 in a dynamic setting. Once we have the building blocks of DSGE models we will be ready to read a range of papers.


I have now observed 4 “bubbles”. The first was while I worked on Wall Street in the late 1970s, part of a team making what ultimately proved to be bad Eurodollar loans to Latin American borrowers. A resume overflowing with red ink was one impetus to do a PhD at Yale. There I was introduced to macroeconomics by the Nobel laureate Jim Tobin. My second experience was with Japan’s late-1980s real estate bubble, which broke while I was on sabbatical in Tokyo in 1991-92 studying urban economics. Then came the bubble, which burst in 2000; an alumnus who was CEO of a then high-flying online banking venture visited campus repeatedly, including to speak in Econ 398. I bought stock in it twice, after the price fell 40% and then after it had fallen 60%. In the end it fell 93%… Then there’s our recent bubble, which has left me as the unintended owner of two mortgages.
To me bubbles are very real, and have led to disasters that across these economies affected hundreds of millions of families. In my analysis very different from “regular” business cycles. But that understanding is not uniform across the profession.


None. Most readings will be posted as links on the course schedule on WordPress.

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. If nothing else, the round conference table in Room 220 is awkward for chalk-and-talk. You will need to go through readings 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 at least once during 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 one blog post each week during Weeks II-XI [10 total], and for commenting on all the posts of your classmates. That will facilitate class discussion, 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 and a globalization essay will account for 20%, reading notes and data presentations for 10%, class discussion 10%, the term paper and its components 50%, and blogging for 10%.

Globalization Essay

The Economics Department requires all capstone students to write a 30 minute globalization essay. The Williams School has understanding “globalization” as one of its objectives for SACS/AACSB accreditation. This essay is part of the self-assessment of how we stand relative to that goal. For that purpose we rank the essays as “exceed/meet/do not meet” expectations. I 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. (See the Kaplan talk on the syllabus.) 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’t answer) please 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:

  1. submit a formal topic statement
  2. follow it up with a working bibliography
  3. and otherwise submit work on a regular basis.

The details and due dates will be fixed as the term progresses. You will be docked a percentage of your paper grade for ignoring these deadlines. It is the easiest way to earn a low grade.
As you see on the schedule, I have set aside a class day to facilitate meeting all of you during office hours at two points during the term. You should have an outside editor for your work, and an individual who will proofread your (penultimate) draft. I also strongly encourage you to make regular appointments with the staff of the Williams School Communication Center. Their offices are in the basement of Huntley. Note this requires advance planning to schedule a time slot, and because they require a draft to be submitted 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 links to readings on WordPress. 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

Honor code:

I take it as a given that you will uphold the honor code. We will go through citation standards and formats for your paper later in the term.

Special accommodations:

As per university policy, if you have been approved for special accommodations, please speak to me in private at the start of the term.