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McGill University

Fall 2021-Winter 2022

Economics 352 D1 and D2

Macroeconomic Theory Honours

Credits: 3

Method: Two lectures per week in person

Meeting Times and Location: Tue and Thu 16:05-17:25 RPHYS 118 in Fall

Meeting Times and Location: Tue and Thu 14:35-15:55 ARTS 150 in Winter

Professor: Francisco Alvarez-Cuadrado

E-mail: francisco.alvarez-cuadrado@mcgill.ca

Office: Leacock 321E

While classes remain online, there will be one-on-one office hours using the waiting room feature of Zoom. These office hours are for

issues not related to the course content. Course-content related questions will be addressed in the weekly Zoom session. Once we are

back to campus we will go back to standard in-person office hours, like the old good days.

Office hours (online): Thu 16:00-17:00 Recurring Zoom link: https://mcgill.zoom.us/j/88604189390

Office hours (in-person): TBD. Once classes return to campus, I will schedule in-person office hours and cancel the online ones.

Teaching Assistant: Hongtao Hui

Email: hongtao.hui@mail.mcgill.ca

TA Conference: Fri. 11:00-12:00

TA Office hours (online): Fri. 16:00-17:00

Zoom link for both: https://mcgill.zoom.us/j/8592925290

ECON 352D is a two-term course in macroeconomics. 352D1 is the first term of 352D and is a pre-requisite for 352D2, the second term

of 352D. No credit will be given for ECON 352D unless both ECON 352D1 and ECON 352D2 are successfully completed in consecutive

terms.

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Learning Objectives: This course is centered on both basic concepts pertaining macroeconomics and the use of these concepts in analyzing

contemporary economic issues.

Prerequisites: An understanding of basic microeconomics is essential. This course is designed for a student that has successfully completed

Honours Microeconomics (250D). I will use algebra and calculus freely.

Textbook: No textbook is required, I will provide lecture notes.

Grading policy: This is the first term of a two-term course and both terms should be taken in order to receive credit. The total (for the full

year) grade will be allocated according to the following rule,

1. Problem sets (5%)

2. Exam I (17.5%). In class on Thursday, November 18th.

3. Exam II (17.5%). In class on Thursday, March 10th.

4. Group presentations (25%)

5. Final Exam (35%). Centrally administered exam in the exam period at the end of the Winter semester.

This weighting cannot be changed. You can only miss an exam if you have a medical reason (doctor’s note required, to be sent to me within

two days of the missed exam). In case of missing an exam for medical reasons, its weight will be transferred to the final exam to be

administered during the exam period in the Winter semester.

Problem sets will be made available through Mycourses. You will need to upload your answers as a single pdf document to Mycourses, in

the Assignments section. While I strongly encourage you to work on the problem sets in groups, each student in a group needs to upload

their own solution. Note that it is possible that some of the material a problem set draws on may be covered in class after its release (but

before its due date).

Exams I and II cover the material stated below. The final exam will be comprehensive including material from both terms.

Supplemental examination for those eligible will cover material from 352D1 and 352D2 and it will be held in August after 352D2 is

completed. This exam will count for 100% of the supplemental course grade. There will be no supplemental exam for the Fall or Winter

semester material alone.

Regrading policy: If you believe that there is a mistake in grading your exam, you must provide the TA a written appeal, which clearly

points out the mistake(s) you believe were made. This appeal should be emailed to the TA to get a record of the date of the appeal. Unless

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there is an obvious typo, we will regrade the entire exam (notice that you could end up with a lower grade). If after the regrade you are still

convinced that there is a mistake, you have to provide me a second written appeal, which clearly point out the mistake(s) you believe were

made, and a copy of the content of the first appeal. Finally, you have to ensure that the appeals are done in timely manner. Your first appeal

has to take place during the first seven (7) days following the date when the exam was officially handed back.

McGill University values academic integrity. Therefore all students must understand the meaning and consequences of cheating,

plagiarism and other academic offences under the Code of Student Conduct and Disciplinary Procedures (see www.mcgill.ca/integrity for

further information).

According to Senate regulations, instructors are not permitted to make special arrangements for final exams. Please consult the calendar,

section 4.7.2.1, General University Information and Regulations, at www.mcgill.ca .

In accord with McGill University's Charter of Students' Rights, students in this course have the right to submit in English or in French any

written work that is to be graded.

In the event of extraordinary circumstances beyond the University’s control, the content and/or evaluation scheme in this course is subject

to change.

All slides, video recordings, lecture notes, etc. remain the instructor’s intellectual property. As such, you may use these only for purposes

of your own learning (and research, with proper referencing/citation). You are not permitted to disseminate or share these materials; doing

so may violate the instructor’s intellectual property rights and could be cause for disciplinary action.

By enrolling in a remote course, you accept that fixed sessions will be recorded. You must consent to being recorded if you attend a lecture

or participate in a component of a course that is being recorded. You will be notified through a “pop-up” box in Zoom if a lecture or

portion of a class is being recorded. If you are not comfortable being in a class that is recorded, you may decide to not take part by logging

off Zoom. Students who log off will be able to later watch the video recording in MyCourses.

For pedagogical reasons and for the enrichment of the experience of all students, attendance may be monitored and/or active participation

may be expected or required during fixed (synchronous) class time. As such, you may be asked to turn on your camera and audio. If you

do not have the necessary resources (e.g., adequate Internet bandwidth or equipment) to do so, inform your instructor at the beginning of

term so appropriate accommodations can be made.

In addition to the recording of your image and voice, your name (or preferred name) may be displayed on screen, and your instructor may

call your name during the lecture. As such, this personal information will be disclosed to classmates, whether during the lecture or in

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viewing the recording. By remaining in classes that are being recorded, you accept that personal information of this kind may be disclosed

to others, whether during the lecture or when viewing the recording.

The University recognizes the importance of maintaining teaching spaces that are respectful and inclusive for all involved. To this end,

offensive, violent, or harmful language arising in contexts such as the following may be cause for disciplinary action:

1. Username (use only your legal or preferred name)

2. Visual backgrounds

3. "Chat" boxes

To maintain a clear and uninterrupted learning space for all, you should keep your microphone muted throughout your class, unless

invited by the instructor to speak.

You should follow instructors’ directions about the use of the “chat” function on remote learning platforms.

Here is an outline of the course, with the associated readings (starred (*) readings are required). Given that our lecture time is limited, some

of the readings are aimed to complement the material covered in class.

0. Math

1. Measuring the Macroeconomy

*Frank, R.H. (2008) “Income and Happiness: An Imperfect Link” Economic View

Landefeld, J. Steven, Eugene P. Seskin, and Barbara M. Fraumeni. 2008. "Taking the Pulse of the Economy: Measuring GDP" Journal of

Economic Perspectives, 22(2): 193–216

2. Introduction

* The Economist, “The other-worldly philosophers”, July 18th 2009

Domar, E. (1970), “The Causes of Slavery or Serfdom: A Hypothesis” Journal of Economic History

3. Growth

a) Motivation

Cobb, C.W. and P.H. Douglas (1928) “A Theory of Production” AER

b) The Solow Model

Solow (1956), “A Contribution to the Theory of Economic Growth” QJE

Solow (1957) “Technical Change and the Aggregate Production Function” REStat

*Jorda et al (2020) “The long economic hangover of pandemics”

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*Krugman, P. (1994) “The Myth of Asia’s Miracle” Foreign Affairs

Bosworth, B. and S.M. Collins (2008) “Accounting for Growth: Comparing China and India” JEP

c) Piketty’s “Capital in the Twenty-First Century”

d) Education and Growth

e) Beyond physical and human capital: Fundamental causes of growth

4. Understanding business cycles

a) One-period model of consumption and leisure

b) Two-period model of saving

c) Complete macro model with flexible prices

* Plosser, Ch. (1989) "Understanding Real Business Cycles". JEP

Prescott, E. (1986) “Theory Ahead of Business Cycle Measurement”, Federal Reserve Bank of Minneapolis Quarterly Review.

Summers, L. (1986) “Some Skeptical Observations on Real Business Cycle Theory”, Minneapolis Fed Quarterly Review.

d) A short-run model with fix prices

* Hicks, J. (1937) “Mr. Keynes and the "Classics": A Suggested Interpretation” Econometrica

* Mankiw, G. (1989) "Real Business Cycles: A New Keynesian Perspective". JEP

e) Open economies

f) A medium-run model

*The Natural Rate of Interest. FRBSF Economic Letter.

*The Natural Rate of Unemployment over the Past 100 Years. FRBSF Economic Letter.

*Minding the Output Gap: What is Potential GDP and Why Does It Matter? Fed. Reserve of St. Louis.

Blinder A. (1988) “The Fall and Rise of Keynesian Economics” ER

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*Krugman, P. (1998) “Baby-Sitting the Economy. The baby-sitting co-op that went bust teaches us something that could save the world”

Slate.

*Lucas, R. “What Economists Do”

Sweeney and Sweeney (1977), Monetary Theory and the Great Capital Hill Baby Sitting Co-op Crisis: Comment, Journal of Money Credit

and Banking

5. Monetary Policy

Haksar, V. and E. Kopp (2020), “Back to Basics: How Can Interest Rates Be Negative?” IMF eLibrary

*Friedman, M. (1968) “The Role of Monetary Policy” AER

*Krugman (2012), “Earth to Ben Bernanke” NYT Magazine

*Bernanke (2005), Global saving glut

*Summers (2014), Secular stagnation

Presentations

Presentations should last between 45-65 minutes. Then, the group presenting will have time to answer questions from the rest of us. In

some cases, there will be a discussant. In this case the presentation should last 45-60 minutes. The discussants will have 5-10 minutes to

present their case. Then, the group presenting will have time to respond to the presenters and to answer questions from the rest of us.

A week before each presentation the group should send me a two-page summary of the material they will present that I will post in

MyCourses. Everyone attending the presentation should read this summary in advance (at random, in the day of the presentation, I might

choose to conduct a five-minute quiz on that day’s summary, the grade of such a quiz will never be more than 3% of the presentation grade).

As opposed to my lectures, where attendance is voluntary, attendance is required for the presentations.

Topics

A. Misallocation

1. Misallocation

Gollin, D., D. Lagakos and M. Waugh (2014) "The Agricultural Productivity Gap in Developing Countries," Quarterly Journal of

Economics 129(2): 939-993.

Vollrath, D. (2009) How Important are Dual Economy Effects for Aggregate Productivity?, Journal of Development Economics, 2009, 88,

pp. 325-334.

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Hayashi, F. and E. C. Prescott, (2008) "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of

Political Economy.

Hsieh, C.T. and P. J. Klenow (2010) "Development Accounting," American Economic Journal: Macroeconomics

Hsieh, C.T. and P. J. Klenow (2009) "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics

Discussant: None

B. Fundamental causes of growth.

2. Institutions

Acemoglu, D. and J.A. Robinson (2012) Why Nations Fail: the origins of power, prosperity, and poverty.

(it might be helpful to organize the material in the book to take a look at Acemoglu, D., S. Johnson and J. Robinson (2004) “Institutions as

the Fundamental Cause of Long-Run Growth” NBER)

Discussants: Group 3

3. Geography

Diamond, J., Guns, Germs and Steel, W.W. Norton & Co. (in the library they have a documentary based on the book that should do the

job)

Bloom, D. and J. Sachs. (1998) “Geography, Demography, and Economic Growth in Africa” Brookings

Sachs, J. (2003) “Institutions don’t rule: Direct effects of geography on per capita income” NBER

Alsan, M. (2015) “The Effect of the TseTse Fly on African Development” American Economic Review

Discussants: Group 2

4. History

Nunn, Nathan, (2009) “The Importance of History for Economic Development”, Annual Review of Economics

Nunn, Nathan and Leonard Wantchekon, (2011), “The slave trade and the origins of mistrust in Africa” AER

Banerjee A, Iyer L, Somanathan R. (2005) “History, social divisions and public goods in rural India”. J. Eur. Econ. Assoc.

Dell, M. (2010) “The Mining Mita: Explaining Institutional Persistence”, Econometrica

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Discussant: None

5. Two Views on Property Rights

Ostrom, E. (1990) Governing the Commons

De Soto, Hernando (1989) The Mystery of Capital

Discussant: None

C. Policies.

6. Policy I

Kevin M. Murphy, Andrei Shleifer and Robert W. Vishny (1989) “Industrialization and the Big Push” Journal of Political Economy

Burnside, C. and D. Dollar, (2000) “Aid, Policies, and Growth” American Economic Review

Sachs, J. (2005) The End of Poverty

Discussants: Group 7

7. Policy II

Easterly, W. (2006) The White Man’s Burden

Easterly, W. (2008) “Institutions: Top Down or Bottom Up?” American Economic Review

Easterly, W. (2006) “The Big Push Déjà Vu: A Review of Jeffrey Sachs’s The End of Poverty: Economic Possibilities for Our Time”

Journal of Economic Literature

Discussants: Group 6

8. Policy III

Henry, P.B. and C. Miller (2009) "Institutions versus Policies: A Tale of Two Islands," American Economic Review.

Rodrik, D. (2004) “Growth Strategies” Handbook of Economic Growth

R. Hausmann, B. Klinger, and R. Wagner (2008) “Doing Growth Diagnostics in Practice: A 'Mindbook’”

Rodrik, D. (2008) "Second-Best Institutions," AER

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Discussant: None

D. Monetary Policy

Blinder, A. (1998) Central Banking in Theory and Practice

Taylor, J.B. (1993) “Discretion versus policy rules in practice” Carnegie-Rochester Conference Series on Public Policy

Wang, J. (2021) Central Banking 101

Bernanke, B. (2020) “The New Tools of Monetary Policy” AER

Discussant: None

Articles: Articles can be downloaded from JSTOR (www.jstor.org), the library or the web. The NBER articles can be downloaded from

www.nber.org.

Date Contents HW* Online delivery Readings** 1 02-Sep-21 Thursday Hello

2 07-Sep-21 Tuesday Math 1 HW1

3 09-Sep-21 Thursday Math 2

4 14-Sep-21 Tuesday Measurement 1

5 16-Sep-21 Thursday Measurement 2 Income and Happiness: An Imperfect Link (Frank)

6 21-Sep-21 Tuesday Measurement 3

7 23-Sep-21 Thursday Measurement 4

8 28-Sep-21 Tuesday Measurement 5 / Applications Due

9 30-Sep-21 Thursday Intro

The other-worldly philosophers (The

Economist)

10 05-Oct-21 Tuesday Growth: Motivation HW2

11 07-Oct-21 Thursday Solow 1

11-Oct-21 Monday Thanksgiving

12-Oct-21 Tuesday Reading break

14-Oct-21 Thursday Monday schedule

12 15-Oct-21 Friday Solow 2

13 19-Oct-21 Tuesday Solow 3

14 21-Oct-21 Thursday Solow 4 The long economic hangover of pandemics (Jorda)

15 26-Oct-21 Tuesday Solow 5 The Myth of Asia's Miracle (Krugman)

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16 28-Oct-21 Thursday Solow 6

17 02-Nov-21 Tuesday Piketty Due

18 04-Nov-21 Thursday Education and growth 1

19 09-Nov-21 Tuesday Education and growth 2

20 11-Nov-21 Thursday Beyond K and H

21 16-Nov-21 Tuesday One-period model 1

22 18-Nov-21

Thursda

y

Exam 1 (up to Beyond K and H,

included)

23 23-Nov-21 Tuesday One-period model 2

24 25-Nov-21 Thursday One-period model 3 HW3

25 30-Nov-21 Tuesday Two-period model 1

26 02-Dec-21 Thursday Two-period model 2

1 06-Jan-22 Thursday Two-period model 3 Zoom meeting

07-Jan-22 Friday Recordings for Two-period model 3, Complete model 1 and 2

2 11-Jan-22 Tuesday Complete macro model flex prices 1 HW4

3 13-Jan-22 Thursday Complete macro model flex prices 2 Due HWIII Zoom meeting

14-Jan-22 Friday Recordings for Complete model 3 and 4

4 18-Jan-22 Tuesday Complete macro model flex prices 3

5 20-Jan-22 Thursday Complete macro model flex prices 4 Zoom meeting

21-Jan-22 Friday Recordings for Complete model 5 and Short-run model fix prices 1

6 25-Jan-22 Tuesday Complete macro model flex prices 5 Due Plosser (1989)

7 27-Jan-22 Thursday Short-run model fix prices 1 HW5 Zoom meeting

28-Jan-22 Friday Recordings for Short-run model fix prices 2 and 3

8 01-Feb-22 Tuesday Short-run model fix prices 2

9 03-Feb-22 Thursday Short-run model fix prices 3 Zoom meeting Hicks (1937) and Mankiw (1989)

10 08-Feb-22 Tuesday Open economy

11 10-Feb-22 Thursday Medium-run model 1

The Natural Rate of Interest / The Natural Rate of

Unemployment over the Past 100 Years / Minding the

Output Gap

12 15-Feb-22 Tuesday Medium-run model 2

13 17-Feb-22 Thursday Medium-run model 3

14 22-Feb-22 Tuesday Medium-run model 4 Due Kugman (1998) and Lucas "What Economists Do"

15 24-Feb-22 Thursday Monetary policy 1 Friedman, M. (1968), Krugman (2012)

28-Feb-22 Monday Reading break

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04-Mar-22 Friday

16 08-Mar-22 Tuesday Monetary policy 2 Bernanke (2005), Summers (2014)

17 10-Mar-22

Thursda

y

Exam 2 (from one-period model to

monetary policy, both included)

18 15-Mar-22 Tuesday Pres 1

19 17-Mar-22 Thursday Pres 2

20 22-Mar-22 Tuesday Pres 3

21 24-Mar-22 Thursday Pres 4

22 29-Mar-22 Tuesday Pres 5

23 31-Mar-22 Thursday Pres 6

24 05-Apr-22 Tuesday Pres 7

25 07-Apr-22 Thursday Pres 8

26 12-Apr-22 Tuesday Pres 9

*Some of the material required to complete the assignment will be covered in the lectures that follow the date of release of the assignment ** You should read them before corresponding lecture