Macroeconomics, Part II: Quantitative Growth Modeling
IWH-DPE / CGDE, Summer 2024, time and location
Syllabus
--  under construction  --

Description

This course equips students with advanced knowledge in modern growth theory. We review at first dynamic optimization methods and numerical solution techniques (Part II.1). Subsequently, focusing on capital accumulation as major growth engine, we discuss the two basic workhorse growth models: Ramsey Model and OLG Model (Part II.2). (Some overlap with Master classes is okay.😊) We then focus on the role of education for economic growth (Part II.3). Next, we discuss how private and deliberate innovation can be modeled in general equilibrium to understand how endogenous technological change drives economic growth (Part II.4). Finally, there will be a brief review of stochastic growth (Brock-Mirman Model & Bewley Model) as well as an introduction to modeling climate change & growth (Part II.5). Most sections follow the textbook of Acemoglu, D. (2009): Introduction to Modern Economic Growth.

What is growth theory good for? And why may it even be big fun? Well, growth theory is obviously important when thinking about real-world growth processes as well as many growth-related phenomena, such as i) changes in asset prices (e.g., house prices) that trigger a change in the wealth distribution or ii) CO2 emissions (a by-product of economic activity and attenuated by directed technological change) that trigger climate change. These examples indicate growth theory is instrumental when reflecting on many big and fundamental questions. Moreover, growth theory, or more general macro theory, is fun because it enables us

1. to think, in a structured manner, about empirical data (macro & time series) by developing consistent narratives on historical episodes; 

2. to identify the impact of impulses (shocks) on endogenous variables over time and provide a decomposition of GE effects into different channels;

3. to identify the differential effects of policy changes by constructing counterfactuals (theory-based policy evaluation); and 

4. to provide theoretical interpretations of empirical estimation results and come up with educated priors in Bayesian estimations. 

Contents & Literature

II.1 Workhorse Models: Ramsey & OLG

(*) Acemoglu, D. (2009): Introduction to Modern Economic Growth, Princeton University Press, Chapters 8-9.

Workhorse Models
This section provides a concise refresher of the two basic workhorse growth models. It is assumed you have seen these models before in your master classes. In any case, it is necessary to read the two chapters of the Acemoglu book to profit from this compact overview. (Why is it important to have a solid understanding of these basic models? Whenever one encounters challenges with more involved models, one usually returns to the workhorse models to develop a solution procedure.)

II.2   Methods: Dynamic Optimization & Numerical Solution

(*) Acemoglu, D. (2009): Introduction to Modern Economic Growth, Princeton University Press, Chapters 6-7.

Dynamic Optimization // Overview

Relaxation website
One suggestion is to apply the powerful relaxation algorithm. Major reason: Whenever there are more than two state variables, a continuum of steady states may occur (e.g., Lucas, 1988; Romer, 1990). In such cases, one cannot determine the steady state, neither analytically nor numerically, without having calculated the transition.
The relaxation algorithm will be used with Matlab (Mathematica implementations are also available).

II.3 Human Capital & Economic Growth

Slides
(*) Acemoglu, D. (2009): Introduction to Modern Economic Growth, Princeton University Press, Chapter 10.
Lucas, R. (1988) On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42.

Benhabib J. , R, Perli (1994): Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth, Journal of Economic Theory, 63, 113-142.

II.4 Endogenous Technological Change

(*) Acemoglu, D. (2009): Introduction to Modern Economic Growth, Princeton University Press, Chapters 12-13.

II.5 Climate Change & Economic Growth

Hassler, J., P. Krusell, and A. Smith. 2016. “Environmental Macroeconomics.” In Handbook of Macroeconomics, edited by John B. Taylor and Harald Uhlig, 2:1893–2008. Handbook of Macroeconomics. Saint Louis: Elsevier Science.
Steger, T. & T. Trimborn (2024): Economic Growth and Climate Change: Many Trajectories, Many Destinations, CESifo Working Paper No. 11053.

Queries

If you are a PhD student enrolled in this course and have questions regarding content, problem sets, or organization of the course, please send me an email. 

Submission of problem sets

-  You can work together in groups (maximum group size: 3 students).
-  Use a word processor and deliver a pdf-file
-   Name of file: Surname_Name_AMacro_problem_set_XX.pdf
-   Submit via email to: sprenger@wifa.uni-leipzig.de  (CC: Andrej Drygalla at IWH)
-   Subject line of email: PhD-course AMacro: problem set XX name
-   Deadline: will be communicated with the distrubution of each problem set