Economics 7395 
Topics in Macroeconomics
Fall 2009

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NOTE: I will travel a lot in the fall (so far I know that I am out the 2^nd and 3^rd week of class). The class is scheduled for 10-11.30 Mo-We but some days we will start in advance. We will like also have some ad hoc make-up classes, in particular the last week of teaching for student presentations.

Presentations: Wided will give the first presentation 10/21, on Search (LS Chapter 6), please look at this in advance.

On Nov 2, we will have a double feature with Ebru and Gokcen. (I expect we will have normal 10-11.30 hours the

rest of the semester).

Scheduling: Classes to be rescheduled so far 8/31, 9/2, 9/9, 9/28, 9/30, 10/26, 10/28.

Make-up: 8/24 3.30-5.00, 8/26 9am-10am (start early), 9/16 start 9am, 9/21 start 9am,

10/7 start 9am, 10/12 start 9am (and stop 10.45 or so). 10/19 (midterm) 9.30am-11am.

11/2 9am-11.30.

Course structure:

A midterm and 3 homeworks followed by in-depth student presentations (a full class each, which in practice means that I do half the talking to help make things understandable to the rest of the class).

(I insist on 3-4

homeworks and midterm because my experience is that too many people do not not study properly without these proddings.)

Topics covered (I will start with the first one which is just one lecture to get you to think about the role of empirical work).

1) Introduction (empirical methods in macro,)

2) GMM (how to do, applied perspecitive---I will not prove any econometrics results)

3) VAR (focus on interpretions of structural VARs and applications in macro)

4) Introduction to dynamic programming (Sargent and Ljungquist)

5) A Midterm

6) Student presentations after midterm – I prefer that students choose a chapter from Sargent-Ljungquist (large chapter can be 2 students) because this is an influential text written in a different style than most students are used to so it is good if we get exposed as much as possible to this. If you see some article that really interest you, we can cover that too, but I want it to be something very recent (preferable still a working paper).

Midterm date is October 19 at 9.30.

Notes on Empirical Methods in Macro

Some papers on IV-estimation that you may want to consult (if you do IV, you SHOULD read):

1. Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development byAngus Deaton (go to Deaton’s web-page at Princeton)
2. COMPARING IV WITH STRUCTURAL MODELS: WHAT SIMPLE IV CAN AND CANNOT IDENTIFY by James J. Heckman Sergio Urzua NBER Working Paper 14706 (http://www.nber.org/papers/w14706)
3. Better LATE Than Nothing: Some Comments on Deaton (2009) and Heckman and Urzua (2009), Guido W. Imbens, April 2009

Note on Structural VARs.

Note on Panel Data

Panel Data Program from Ostergaard, Sorensen, Yosha JPE 2002. the data

The data are in GAUSS format and you should

Download to the PC and unzip. You will need to change the paths for loading and the outfile.

GMM Notes part 1

GMM Notes part 2

GMM Notes part 3

Hansen-Singleton GMM program, the data

Homework 1: Read the article The Scientific Illusion in Empirical Macroeconomics by
Lawrence H. Summers, The Scandinavian Journal of Economics Vol. 93, No. 2, Available from JSTOR, and write one page with a very short summary and a critique of the article. (What is your opinion? Do you agree with Summers? Why is it technically a bad article? Please argue carefully.) Also read, or skim, the articles Mankiw and Villaverde that I mention in my “method’’ note, whose points of view do you like best?

Homework 2: Use the panel data program that I have posted. Interpret the regression results (Focus on the excess sensitivity regression). Try and add lagged consumption and more lags of disposable income and interpret the results. Try (in a separate regression) to include state fixed effects---are the results sensitive to this?

Homework 3.