Published Nov 30, 2022
The main purpose of this course is to provide students with the methodological tools that underlie dynamic equilibrium analysis of the macro-economy.
In the Winter 2023 version of ECON 602, we will formally analyze the basic models used in modern macroeconomic theory and their applications to the study of various economic issues. Topics covered will include recursive methods, asset pricing, growth, business cycles, and markets with frictions.
| Apply recursive methods to solve dynamic economic models; set up and solve dynamic optimization problems using dynamic programming; define a recursive competitive equilibrium for a dynamic economy. |
| Explain and interpret asset prices; derive and interpret equilibrium asset pricing equations from a macroeconomic model; calculate the prices of complex securities using an arbitrage approach. |
| Summarize the stylized facts related to economic growth and business cycles; describe Kaldor’s growth facts, and discuss the extent to which they align with the implications of the neoclassical growth model; summarize the stylized facts of real business cycles and assess how well a macroeconomic model fits the data. |
| Advance an economic model of a frictional market; describe an economic environment with search-and-matching frictions; solve the model to show how trading frictions affect prices and allocations. |
Week | Date | Topic | Readings |
|---|---|---|---|
1 | Jan 9 – 13 | Recursive Methods I | LS ch. 3 & 4; K ch. 4 & 5; M ch. 5, 6 & 7 |
2 | Jan 16 – 20 | Recursive Methods II | |
3 | Jan 23 – 27 | Competitive Equilibrium I | LS ch. 8 & 12; K ch. 2; M ch. 13 |
4 | Jan 30 – Feb 3 | Competitive Equilibrium II | |
5 | Feb 6 – 10 | Asset Pricing I | Supplementary Materials |
6 | Feb 13 – 17 | Asset Pricing II | |
| Feb 21 – 24 | Reading Week | |
7 | Feb 27 – Mar 3 | Growth I | K ch. 3; M ch. 14
|
8 | Mar 6 – 10 | Growth II | |
9 | Mar 13 – 17 | Real Business Cycles I | K ch. 6; Supplementary Materials |
10 | Mar 20 – 24 | Real Business Cycles II | |
11 | Mar 27 – 31 | Markets with Frictions I | LS ch. 6, 29, & 30; Supplementary Materials |
12 | Apr 3 – 6 | Markets with Frictions II |
| Title / Name | Notes / Comments | Required |
|---|---|---|
| Krueger, Dirk (2013). “Macroeconomic Theory,” unpublished manuscript. | No | |
| Ljungqvist, Lars and Thomas J. Sargent (2018). “Recursive Macroeconomic Theory,” Fourth Edition, MIT Press, Cambridge, MA. | No |
Lecture slides and other course materials will be posted on LEARN. The course is divided into six topics that each span about two weeks (see Tentative Course Schedule above for the list of topics and approximate dates). Students should check LEARN regularly for course materials and announcements.
| Component | Value |
|---|---|
| Problem Sets | 20% |
| Midterm Exam (in class, Feb 16) | 30% |
| Final Exam | 50% |
Problem Sets
Several (approximately five) problem sets related to course material will be assigned during the course. Each student must complete the problem sets independently. We will use the dropbox feature on LEARN for submitting solutions to the assigned problem sets. You can submit typed or handwritten solutions, but please (i) submit all your work in one document (PDF or MS Word), (ii) check that the pages are in the correct order and properly oriented, (iii) ensure that your work is legible, (iv) double-check and re-submit if you do not receive the Email Confirmation Receipt, and (v) keep all your Email Confirmation Receipts until the end of the course as proof of submission. Problem sets are due by 11:59 pm (EST) on the posted due date. Late submissions will not be accepted without a self-declared absence or VIF – missing a deadline will result in a grade of zero. A deadline extension may be used to accommodate a self-declared absence or VIF.
Midterm and Final Exams
Exams will draw on material covered in the lectures and assigned readings. The midterm and final exams are closed-book exams. The final exam will emphasize the post-midterm material. In the case of a self-declared absence or VIF, the weight of a missed midterm exam will be transferred to the final exam. A deferred exam may be used to accommodate a self-declared absence or VIF that impacts the final exam.
Alternative Arrangements for a Cancellation of In-Person Classes
In the event that the university cancels in-person classes, additional course materials will be posted on LEARN. These additional materials may include lecture notes, short videos and practice problems.
Alternative Arrangements for a Cancellation of an In-Person Exam
In the event that the university cancels the midterm exam, the exam will be replaced by an additional problem set. All problem sets (including the exam alternative) will be re-weighted such that (i) the problem sets have equal weight, and (ii) the course assessment weightings sum to 100%. For example, if there are five regular problem sets and the midterm exam is cancelled due to a short-term (e.g. one-week) cancellation of in-person classes, a sixth problem will be assigned in lieu of the midterm exam, and each of the six problem sets will have a weighting of 8.33%. The same alternative arrangements will be implemented in the event of a cancellation of the final exam, with the additional re-weighting of the in-person midterm exam to 50%. If both exams are cancelled, the course assessments will consist of six equally-weighted problem sets.
No assignment screening will be used in this course.
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Students should be aware that this course contains the intellectual property of their instructor, TA, and/or the University of Waterloo.
Intellectual property includes items such as:
Course materials and the intellectual property contained therein, are used to enhance a student’s educational experience. However, sharing this intellectual property without the intellectual property owner’s permission is a violation of intellectual property rights. For this reason, it is necessary to ask the instructor, TA and/or the University of Waterloo for permission before uploading and sharing the intellectual property of others online (e.g., to an online repository).
Permission from an instructor, TA or the University is also necessary before sharing the intellectual property of others from completed courses with students taking the same/similar courses in subsequent terms/years. In many cases, instructors might be happy to allow distribution of certain materials. However, doing so without expressed permission is considered a violation of intellectual property rights.
Please alert the instructor if you become aware of intellectual property belonging to others (past or present) circulating, either through the student body or online. The intellectual property rights owner deserves to know (and may have already given their consent).
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Important notes
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We acknowledge that we are living and working on the traditional territory of the Attawandaron (also known as Neutral), Anishinaabe and Haudenosaunee peoples. The University of Waterloo is situated on the Haldimand Tract, the land promised to the Six Nations that includes ten kilometres on each side of the Grand River.
For more information about the purpose of territorial acknowledgements, please see the CAUT Guide to Acknowledging Traditional Territory.
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Please note that a cross-listed course will count in all respective averages no matter under which subject code it has been taken. For example, a PHIL/PSCI cross-list will count in a Philosophy major average, even if the course was taken under the Political Science subject code.
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Turnitin.com: Text matching software (Turnitin®) may be used to screen assignments in this course. Turnitin® is used to verify that all materials and sources in assignments are documented. Students' submissions are stored on a U.S. server, therefore students must be given an alternative (e.g., scaffolded assignment or annotated bibliography), if they are concerned about their privacy and/or security. Students will be given due notice, in the first week of the term and/or at the time assignment details are provided, about arrangements and alternatives for the use of Turnitin in this course.
It is the responsibility of the student to notify the instructor if they, in the first week of term or at the time assignment details are provided, wish to submit alternate assignment.