Macroeconomics 2 (ECOM-G313)

August 12, 2019

Please note that, if you happen to find conflicting information between this page and Courses/Sisu page, consider the Courses/Sisu page the primary source of information.

Method of completion: contact teaching

Schedule:

  • Courses page (you can view the information on this site without logging in or registering, but some of the content added by teachers to course pages may be available to course participants only, for example Moodle course enrolment key) and/or
  • Sisu page

 

Study material:

  • Can be found in the Moodle learning platform
  • A link and a Moodle course key will be sent by email before the course starts and/or they will be provided on the Courses page, see above
  • Log in with your UH username to be able to use all the features of the course workspace

 

Enrollment:

  • In UH’s Sisu with your UH username
  • To be able to register for the course in Sisu, please note that
    • You must have a valid right to study at the course host university
    • You have created your primary personal study plan (HOPS) based on your study right
    • You have added the course for which you are registering to your HOPS
    • More information can be found on the webpage How to enroll in the courses?

 

Content:

The course provides an introduction to real business cycle theory and the New-Keynesian approach modelling nominal frictions and analysing monetary policy. Consumption smoothing is the key part of the mechanism in both models. Therefore, the consumption-savings decision is studied thoroughly. The standard model and the concepts are introduced using a two-period model, which is then extended to the infinite horizon. The simple two-period model is used to study household behaviour under borrowing constraints. The household problem is extended to cover both the consumption-savings decision and the labour supply decision. The effect of taxation is examined. The firms’ problem relies on the Cobb-Douglas specification of the production function. Investment behaviour both in the frictionless economy and in the economy with the investment adjustment cost is studied. The dynamic optimisation relies on the Lagrange multiplier method.

The above modelling ingredients are put together to make a complete general equilibrium macroeconomic model, the real business cycle (RBC) model. The propagation of technology shocks is studied using the model. The model is augmented by imperfect competition and price rigidities. These are introduced and their impact is analysed stepwise. The complete model is called the New-Keynesian model, which facilitates analysing monetary policy.

The course extends the analysis of Macroeconomics 1 to infinite horizon setting. It provides an introduction to the real business cycle theory and to the New-Keynesian approach modelling nominal frictions and analyzing monetary policy. Households’ consumption behavior is emphasized since it is the key part of the mechanism in both models. Firms’ investment and labor demand behavior is studied. The dynamic optimization relies on the Lagrange multiplier method. The above modelling ingredients are put together to make a complete general equilibrium macroeconomic model, the real business cycle (RBC) model. The propagation of technology shocks is studied using the model and the mechanisms therein. The New-Keynesian model augments the real business cycle model with imperfect competition and price rigidities. It is used to analyze monetary policy. Economic growth part introduces endogenous growth model and human capital and their impact on the economic growth. The course also covers the basics of an overlapping-generation model and labor market frictions.