Dynamic Macroeconomics

PhD in Economics (Università di Torino)
Master in Economics (Collegio Carlo Alberto)

Course Description

The course presents basic dynamic macroeconomic models in several specific fields of macroeconomics: consumption and investment theory, growth theory and labor economics. The aim is to provide key methodological tools for the dynamic analysis of a broad range of macroeconomic issues, mainly based on dynamic optimization techniques. Lecture note handouts and problem sets will be provided throughout the course. All necessary material is available on this web page.



There will be a two-hour, closed-book, written exam at the end of the course.

Course outline and material

1. Dynamic consumption theory

      ∙  Permanent income theory with rational expectations
      ∙  Empirical issues and puzzles
      ∙  The role of uncertainty: precautionary savings
      ∙  Intertemporal consumption and portfolio allocation

Lecture notes on dynamic consumption theory:   DynCons_part 1     DynCons_part 2  

Solutions to Problem set: DynCons_solutions part 1  DynCons_solutions part 2  

  General references:

  Romer (2012) Advanced Macroeconomics, fourth edition, ch. 8
  Bagliano F.C.-Bertola G. (2007) Models for dynamic macroeconomics, ch. 1;

   Specific references:
   Deaton A. (1992) Understanding consumption, especially ch. 3, 4
   Attanasio O. (1999) "Consumption demand", in Handbook of Macroeconomics, vol. 1B, ch. 11 
   Campbell J. (1999) "Asset prices, consumption, and the business cycle", in Handbook of Macroeconomics, vol. 1C, ch. 19
   Carroll C. (2001) "A theory of the consumption function, with and without liquidity constraints", Journal of Economic Perspectives  ("graduate students version" NBER wp 8387)
   Angeletos et al. (2001) "The hyperbolic consumption model: calibration, simulation and empirical evaluation", Journal of Economic Perspectives  
    Meghir C. (2004) "A retrospective on Friedman's theory of permanent income", Economic Journal  
    Attanasio O. and G. Weber (2010) "Consumption and saving: models of intertemporal allocation snd their implications for public policy", Journal of Economic Literature  

    Jappelli T. and L. Pistaferri (2010) "The consumption response to income changes", Annual Reviews of Economics  

2. Dynamic investment models

      ∙  Dynamic optimization in continuous time
      ∙  Adjustment costs and Tobin's forward-looking "q"
      ∙  Investment dynamics, interest rates, productivity and wages in partial equilibrium

Lecture notes on dynamic investment models: DynInvest

Solutions to Problem set: DynInvest_solutions part 1    DynInvest_solutions part 2 

    General references:
    Romer (2012) Advanced Macroeconomics, fourth edition, ch. 9
    Bagliano-Bertola (2007) Models for dynamic macroeconomics, ch. 2
    On mathematical methods:
    Barro-Sala-i-Martin (1995) Economic Growth, Mathematical Appendix
    Specific references:
    Yoshikawa H. (1980) "On the `q' theory of investment", American Economic Review, 70, 4, 739-743
    Hayashi F. (1982) "Tobin's marginal q and average q: a neoclassical interpretation", Econometrica, 50, 1, 213-224
    Abel A. - Blanchard O.J. (1983) "An intertemporal model of saving and investment", Econometrica, 51, 3, 675-692
    Caballero R. (1999) "Aggregate Investment", Handbook of Macroeconomics, vol. 1B, ch 12

 3. Economic growth in dynamic general equilibrium

∙  Balanced growth, steady state and optimal convergence

     ∙  Decentralization of production and investment decisions

     ∙  Endogenous growth and market imperfections.

Lecture notes on economic growth in dynamic general equilibrium:  DynGrowth 
 to Problem set: DynGrowth_solutions


  General references

  Romer (2012) Advanced Macroeconomics, fourth edition, ch. 1, 2 (Part A), 3

  Bagliano-Bertola (2007) Models for dynamic macroeconomics, ch. 4  

  Specific references

  Mankiw N.G., D. Romer, D. Weil (1992) "A contribution to the empirics of economic growth", Quarterly Journal of Economics, May

  Romer P. (1994) "The origins of endogenous growth", Journal of Economic Perspectives, 8, Winter

  Barro-Sala-i-Martin (1995) Economic Growth, ch. 1, 2, 4

  Aghion-Howitt (1998) Endogenous Growth Theory, ch. 1

 4. Flow dynamics in the labor market

      ∙  Participation externalities in the labor market
      ∙  Features of search models of the labor market
      ∙  Job matching and unemployment dynamics

Lecture notes on search and matching models: DynLabor 

Solutions to Problem set: DynLabor_solutions

    General references:
    Romer (2012) Advanced Macroeconomics, fourth edition, chapter 10
    Bagliano-Bertola (2007) Models for dynamic macroeconomics, chapter 5, sections 5.2-5.4

    Specific references:
    Pissarides (2000) Equilibrium Unemployment Theory, 2^{nd} ed., ch. 1-3
    Petrongolo-Pissarides (2001) "Looking into the black box: a survey of the matching function", Journal of Economic Literature

    Nickell S., Nunziata L., Ochel W., Quintini G. (2002) "The Beveridge curve, unemployment and wages in the OECD from the 1960s to the 1990s", Centre for Economic Performance, LSE

    Hornstein A., Krusell P., G.L. Violante (2005) "Unemployment and Vacancy fluctuations in the matching model: inspecting the mechanism", Federal Reserve Bank of Richmond Economic Quarterly
    Shimer R. (2005) "The cyclical behavior of equilibrium unemployment and vacancies", American Economic Review, March

    Hall R. (2005) "Employment fluctuations with equilibrium wage stickiness", American Economic Review, March

    Pissarides C. (2011) "Equilibrium in the labor market with search frictions", American Economic Review

    Diamond P. (2011) "Unemployment, vacancies, wages", American Economic Review

    Elsby M., R. Michaels, D. Ratner (2015) "The Beveridge curve: a survey", Journal of Economic Literature