Econ 402: Business Cycles

Current Semester: Fall 2011

Section 01:
Meets T R from 11:00pm - 12:15pm in HH 1301

 

Click here for the Syllabus

Lectures

Note:  These lecture notes are not meant as a substitute for your own class notes.  Rather, they are meant to assist you in taking class notes.  In no cases are they complete representations of the course material, and in most cases, they will not be comprehensible without having attended class.

Files can be viewed with Adobe Acrobat Viewer (click here to download)

Please note: The schedule below is only tentative and subject to change based on the pace of the class.

Course Schedule
Week	Subject	Lecture Notes pdf version	Lecture Notes Powerpoint version	Textbook Chapters (AB) & Other Readings
1 - 2	Introduction to Business Cycles	Lecture 1.pdf	Lecture 1	AB: Chapter 8
2-4	Tools of Analysis	Lecture 2.pdf	Lecture 2	Review of Graphs
4	The IS-LM Model	Lecture 3.pdf	Lecture 3	AB: Chapter 9, pg. 310-336 & Appx 9.A
5	IS-LM/AD-AS	Lecture 4.pdf	Lecture 4	AB: Chapter 9, pg. 336 -343 & Appendices; Chapter 3.A; Chapter 10.3
6	Introduction to the Phillips Curve and Economic Policy	Lecture 5.pdf	Lecture 5	AB: Chapter 11 including Appendices; skip section 11.1; Chapter 12;
7	Conduct of Monetary Policy; Monetary Policy Rules	Lecture 6.pdf	Lecture 6	Chapter 14.3
8-12	An Introduction to Real Business Cycle Theory	Lecture 7.pdf Notes on Stadler's 1994 paper	Lecture 7	AB: Chapter 10.1 - 10.2 and including Appendices; Chapter 3 Notes on An Introduction to Real Business Cycle Theory Plosser, Charles (1989) "Understanding Real Business Cycles", Journal of Economic Perspectives, 3 (3), pp 51 - 77. Chatterjee, S. (1999) "Real Business Cycles: A Legacy of Countercyclical Policies"
13-15	Dynamic Stochastic General Equilibrium Models and New Keynesian Theory	Lecture 8.pdf Basics of New Keynesian Models: Deriving the New Keynesian IS curve Deriving the New Keynesian Phillips Curve	Lecture 8	Notes on Clarida, Galli and Gertler (1999)

 

Reading List and Article Summary Template

Sample Summaries

Here are a couple of sample summaries that I wrote when first reading the papers below, along with the actual papers themselves. You will need the password that I gave out in class to be able to open the papers. Use the structure of the sample summarizes below to organize your own summaries.

Article Review Template

Click here for the format to be used for the article summary

Papers and Samples

• King, Robert G., Charles I. Plosser, James H. Stock and Mark W. Watson (1991), "Stochastic Trends and Economic Fluctuations", American Economic Review, 81(4), (Sept. 1991), pp 819 - 840.
  • Sample 1: Summary of KPSW
• Campbell, John and Robert J. Shiller (1988), "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors", Review of Financial Studies, 1(3), (Fall 1988), pp 195 - 228
  • Sample 2: Summary of Campbell-Shiller

Please note, I am not expecting you to be able to understand all the technical details of the papers that you will review. However, I want you to develop the intuition behind the ideas and their results, and to compress, communicate and convey them. In essence, you should be able to pick up your summary and have a clear idea of what the main results of the paper are, what drives them, what methods they used to analyze the problem, etc.

Student's Paper Summary Examples

Here are some examples of some summaries from previous students who have taken the course

Sample 1

Sample 2

Sample 3

 

---

Reading List

 

The following are a list of papers that are listed on the syllabus and lectures page.

Click here for my suggestion on searching for and obtaining articles

Here is a useful tool to help you search for articles

Files can be viewed with Adobe Acrobat Viewer (click here to download)

Any of the paper marked below with a [†] are papers that you are required to read. The stars next to the paper refer to the anticipated difficulty of the paper from 0 stars to 3 stars.

• [†] Mankiw, N. Gregory, 1990, ‘A Quick Refresher Course in Macroeconomics’, Journal of Economic Literature, Dec 1990, 28:4, pp. 1645-1660
• [†] Woodford, Michael, 2009, “Convergence in Macroeconomics: Elements of the New Synthesis”, American Economic Journal: Macroeconomics, 1(1), 267 – 279.

Introduction to Business Cycles

• Romer, Christina, 1999, “Changes in Business Cycles: Evidence and Explanations”, Journal of Economic Perspectives, 13:2, Spring 1999, pp. 23-44
• Basu, S. and A. Taylor, 1999, “Business Cycles in International Historical Perspective”, Journal of Economic Perspectives, 13:2, Spring 1999, pp. 45-68
• Zarnowitz, V. , 1999, “Theory and History Behind Business Cycles: Are the 1990’s the Onset of a Golden Age?”, Journal of Economic Perspectives, 13:2, Spring 1999, pp. 69-90
• [***] Berge, Travis and Jordà, Òscar (2011), “Evaluating the Classifications of Economic Activity into Recessions and Expansions”, American Economic Journal: Macroeconomics, 3(2) , 246 – 277.

Stylized Facts:

• [†] Kydland, F. and Edward Prescott, 1990, ‘Business Cycles: Real Facts and a Monetary Myth,’ Quarterly Review, Federal Reserve Bank of Minneapolis, Vol. 14, No. 2, Spring, 3-18.
• [*] Cecchetti, S., A. Flores-Lagunes and S. Krause, ‘Assessing the Sources of Changes in the Volatility of Real Growth’. In C. Kent and D. Norman (Eds.), The Changing Nature of the Business Cycle, October 2005, pp. 115-138. Focus on sections 1, 3 -5.

Business Cycles from a Historical Perspective

Great Depression:

• [†] Bernanke, Ben (1995), “The Macroeconomics of the Great Depression: A Comparative Approach”, Journal of Money, Credit and Banking, 27 (1), pp. 1 – 28.
• [**] Bernanke, Ben (1983), “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression”, American Economic Review, 73, pp. 257 – 276.
• [**] Hamilton, James (1987), “Monetary Factors in the Great Depression”, Journal of Monetary Economics, 19, pp. 145 - 169.

Great Moderation:

• [†] Morley, James (2009), “The Great Moderation: What Caused it and Is It Over?”, Macroeconomic Advisors’ Macro Focus,  4(8), December, pp. 1 – 11
• Clark, Todd (2009), “Is the Great Moderation Over? An Empirical Analysis”, Economic Review, Federal Reserve Bank of Kansas City, Fourth Quarter, pp. 5 – 42.
• [**] Stock, James and Mark Watson, 2002, "Has the Business Cycle Changed and Why?", NBER Macroeconomics Annual 2002, Vol. 17, Issue 1, pp. 159 - 218.
• [**] Gali, Jordi and Gambetti, Luca (2009), “On the Sources of the Great Moderation”, American Economic Journal: Macroeconomics, 1(1), 26 – 57.

Great Recession:

• [†] Mishkin, Frederic (2010), “Over the Cliff: From the Subprime to the Global Financial Crisis”, Journal of Economic Perspectives, 25 (1), pp. 49 – 70.
• Blinder, Alan (2010), “Quantiative Easing: Entrance and Exit Strategies”, Federal Reserve Bank of St. Louis Review, pp. 465 – 479.
• Mishkin, Frederic (2009), “Is Monetary Policy Effective During Financial Crises”, American Economic Review, 99 (2), pp. 573 – 77.
• Reinhart, Carmen and Rogoff, Kenneth (2009), “This Time Is Different: Eight Centuries of Financial Folly”, Princeton, NJ: Princeton University Press.
• Hall, Robert (2010), "Why Does the Economy Fall to Pieces after a Financial Crisis?", Journal of Economic Perspectives, 24 (4), Fall 2010, 3 - 20.
• [*] Taylor, John and Williams, John (2009), “A Black Swan in the Money Market”, American Economic Journal: Macroeconomics, 1 (1), pp. 58 – 83.
• [**] Uhlig, Harald (2010), “Some Fiscal Calculus”, American Economic Review, 100 (2), pp. 30 – 34.
• [***] Hall, Robert (2009), “By How Much Does GDP Rise If the Government Buys More Output?”, Brookings Papers on Economic Activity, no. 2, pp. 183 – 249.

 

Aggregate Supply Models

• [**] Jo Anna Gray, 1976, “Wage Indexation: A Macroeconomic Approach”, Journal of Monetary Economics, 2:2, pp. 221-235
• [***] Blanchard, Olivier J., and Nobuhiro Kiyotaki (1987): "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review 77: 647-666.
• [***] Julio Rotemberg, 1982, “Monopolistic Price Adjustment and Aggregate Output”, Review of Economic Studies, 49:4, pp. 517 - 531

Economic Policy

• [***] Robert E. Lucas, J.r., 1976, “Econometric Policy Evaluation: A Critique”. In Karl Brunner and Allan Meltzer (Eds.), The Phillips Curve and Labor Markets, Carnegie-Rochester Conference on Public Policy, 1, Amsterdam: North Holland, pp. 19 – 46.
• [**] Kydland, F. and E. Prescott, 1977, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy, 85:3, June, pp. 473 – 492
• [**] Barro, R. and D. Gordon, 1983, “A Positive Theory of Monetary Policy in a Natural Rate Model”, Journal of Political Economy, 91:4, August, pp. 589 – 610.
• Mishkin, F., 1995, “Symposium on the Monetary Transmission Mechanism”, Journal of Economic Perspectives, 9:4, pp. 3-10
• [†] Bernanke, B. and F. Mishkin, 1997, "Inflation Targeting: A New Framework for Monetary Policy?", Journal of Economic Perspectives, 11:2, pp. 97 - 116.
• Bernanke, B. and M. Gertler, 1995, “Inside the Black Box: The Credit Channel of Monetary Policy Transmission”, Journal of Economic Perspectives, 9:4, pp. 27-48
• Meltzer, A., 1995, “Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective”, Journal of Economic Perspectives, 9:4, pp. 49-72
• [†,*] Romer, Christina D., and David H. Romer (1989): "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," in Olivier J. Blanchard and Stanley Fischer (eds.), NBER Macroeconomics Annual 1989, Cambridge: MIT Press
• [†, **] Clarida, R., J. Gali and Mark Gertler, 2000, "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory", Quarterly Journal of Economics, February 2000, pp. 147 - 180.

Real Business Cycle Theory

• Chatterjee, Satyajit (1999), "Real Business Cycles: A Legacy of Countercyclical Policies", The Region, Federal Reserve Bank of Minneapolis, March 1999.
• [†, *] Stadler, G., 1994, ‘Real Business Cycles,’ Journal of Economic Literature XXXII, 1750-1783. Pages 1750-top of 1758 and 1772-top of 1775. Skip A.1 on page 1773.
• [†, *] Plosser, C., 1989, ‘Understanding Real Business Cycles,’ Journal of Economic Perspectives 3:3, 51-77. Focus on pages 51-66. Students comfortable with calculus should also read the appendix.
• [†, *] Mankiw, N.G., 1989, ‘Real Business Cycles: A New Keynesian Perspective,’ Journal of Economic Perspectives, 3:3, 79-90.
• [†, **]King, Robert G., Charles I. Plosser and Sergio Rebelo (1988), "Production, Growth and Business Cycles I: The Basic Neoclassical Model", Journal of Monetary Economics, 21, pp 195 - 232

New Keynesian Theory and Monetary Policy

• Gordon, R.J., 1990, ‘What is New-Keynesian Economics?’ Journal of Economic Literature, 28:3, 1115-1171.
• [†] Romer, D., 1993, ‘The New Keynesian Synthesis,’ Journal of Economic Perspectives, 7:1, 5-22.
• King, R. G., (1993), “Will the New Keynesian Macroeconomics Resurrect the IS-LM Model?”, Journal of Economic Perspectives, 7:1, pp. 67-82
• [*] Chari, V. V., Kehoe, Patrick, and McGrattan, Ellen (2009), “New Keynesian Models: Not Yet Useful for Policy Analysis”, American Economic Journal: Macroeconomics, 1(1), 242 – 266.
• [*] Bernanke, Ben S., and Mark Gertler (2001): "Should Central Bankers Respond to Asset Prices?" American Economic Review Papers and Proceedings, 91(2), (May 2001), pp 253 - 257.
• [**] McCallum, Bennett T., and Edward Nelson (1999): "An Optimizing IS-LM Specification for Monetary Policy ad Business Cycle Analysis," Journal of Money, Credit, and Banking 31: 296-316.
• [**] McCallum, Bennett T. (2001): "Should Monetary Policy Respond Strongly to Output Gaps?"American Economic Review Papers and Proceedings, 91(2), (May 2001), pp 258 - 262.
• [†, **] Clarida, R., J. Gali and M. Gertler, 1999, “The Science of Monetary Policy: A New Keynesian Perspective”, Journal of Economic Literature, 37, pp. 1661 - 1707
• [**] Ahmad, Y., 2005, “Money Market Rates and Implied CCAPM Rates: Some International Evidence”, Quarterly Review of Economics and Finance, 45, pp. 699 - 729
• [***] Goodfriend, M. and R. King, 1997, “The New Neoclassical Synthesis and the Role of Monetary Policy”. In B. S. Bernanke and J. J. Rotemberg (Eds.), NBER Macroeconomics Annual, 1997, 2:1, pp. 231 – 283. Cambridge, MA: MIT Press
• [***] Rotemberg, J. and M. Woodford, 1997, “An Optimization Based Econometric Framework for the Evaluation of Monetary Policy”. In  B. S. Bernanke and J. J. Rotemberg (Eds.), NBER Macroeconomics Annual, 1997, 2:1, pp. 297 – 346. Cambridge, MA: MIT Press
• [***] Erceg, C., D. Henderson and A. Levin, 2000, “Optimal Monetary Policy with Staggered Wage and Price Contracts”, Journal of Monetary Economics, 46, pp. 281 - 313

 

Workshop Items and Group Problems

Workshop items will be posted here later in the semester. You will need your net-id and password to be able to access the files.

Workshop 1: Working with Macroeconomic Data

Please do questions 1, 3, and 4 from the end of Chapter 8 on page 309 in the AB textbook. They are from the section on "Working with Macroeconomic Data"

Questions from workshop 1

Solutions: My excel file for the questions above

Workshop 2: Business Cycle Data Analysis

Articles to be read:

1. Kydland, F. and Edward Prescott, 1990, ‘Business Cycles: Real Facts and a Monetary Myth,’ Quarterly Review, Federal Reserve Bank of Minneapolis, Vol. 14, No. 2, Spring, 3-18.
2. Morley, James (2009), “The Great Moderation: What Caused it and Is It Over?”, Macroeconomic Advisors’ Macro Focus,  4(8), December, pp. 1 – 11

Powerpoint presentation for KP (1990) paper

Powerpoint presentation for Morley (2009) paper

Questions from Workshop 2

Solutions: Excel file for Workshop 2

Workshop 3: Optimization Problems and IS-LM

Questions for Workshop 3

Please attempt question 1 - 3 from Chapter 9 (page 348) in the Numerical Problems Section of the AB textbook.

Also, please attempt question 2 and 3 from the Analytical Problem section (pages 349 - 350).

Solutions for Workshop 3

Workshop 4: An Introduction to Real Business Cycle (RBC) Theory

Article to be read: Stadler, G. (1994), "Real Business Cycles", Journal of Economics Literature, Vol. 32, pp. 1750 - 1783.

Questions for Workshop 4

Workshop 5: New Keynesian Models

Questions for Workshop 5

 

 

 

Exams and Final Paper

• Sample Exams, Actual Exams and Solutions
• UWW Writing Standards
• Final Paper Instructions and Rubric
• Samples of previous final papers

---

Sample Exams, Actual Exams and Solutions

Sample Midterm

Solutions to Sample Midterm

Midterm: (Authenticate with net-id and your password).

Solutions to Midterm

Final Exam: (Authenticate with net-id and your password). Deadline: Tuesday, December 20th by 4pm.

i) pdf version

ii) word version (for electronic submission)

---

Final Paper Instructions and Samples

Click here for instructions on how to write the final paper

Click here for the UWW Writing Standards

Click here for the rubric on how I will assess your final paper (pdf version) (Note: This is also the coversheet that you should include with your paper)

Cover sheet for final paper (MS Word version for electronic submission)

---

Samples of Final Papers Submitted Previously

Samples of Final Papers Submitted Previously.

The following are a few examples of final papers from past students. These all

Final Paper Sample 1 - This is an example of an "A" grade paper

Final Paper Sample 2 - A second example of an "A" grade paper

Final Paper Sample 3 - A third example of an "A" grade paper

Final Paper Sample 4 - An example of an "A-" paper

Final Paper Sample 5 - An example of a "B" paper

Final Paper Sample 6 - An example of a "D" paper (what not to write!!) Please note that this would have been fairly good as a paper summary. However the final paper is not to be written like a paper summary.