ECON3410 – Introductory dynamic macroeconomics
Course description
Course content
The course gives and elementary but concise introduction to dynamic models and dynamic analysis in macroeconomics. The method of dynamic analysis is applied to wage-and price formation and inflation, and to fiscal policy and monetary policy analysis in an open economy context. The course also contains an introduction to the real business cycle model. At the beginning of the course we explain why a dynamic approach is required to understand and predict how an economy realistically reacts to shocks or a policy change. The course gives a step-by-step introduction to the key theoretical concepts relating to statics and dynamic analysis and to the corresponding model types. The supply side of the open economy, is one main area of application of dynamic analysis, and the course shows how competing models of wage and price setting can be formulated within one and the same dynamic framework, and how the different models lead to different predictions about how the economy react to shocks and policy changes. In the analysis we are also able to integrate the market for foreign exchange and the choice of monetary policy regime (instruments and targets) and to show that the dynamic response of the macro economy is regime-dependent. Since the emphasis is on dynamics analysis for the ‘policy horizon’ the models are formulated in discrete (calendar) time.
Learning outcome
Knowledge outcomes:
In the course extends the conceptual macroeconomic framework from static models (such as the Keynesian income-expenditure models) to dynamic models. You learn how to define and recognize static and dynamic models. You learn how the static models you know from before can be re-interpreted within a dynamic framework. You also learn under which assumptions a a static analysis is a relevant approximation to real life behavior, and when an explicit dynamic analysis is required. You learn the distinction between short-run effects of policy changes, the dynamic effects, and the long-run effects, and how to make these concepts precise. You learn how to solve simple dynamic models with the aid of algebra, and how to solve more complex model qualitatively.
Skills:
You will be able to formulate dynamic models in discrete time, and to use start using them in substantive application, for example in connection with the master thesis. Having formulated the model you can derive a full set of dynamic multipliers for simple models, and the short-run and long-run multipliers for more complex models. You can also use simple dynamic models to understand the principles of rational economic forecasting. You will be able to rationalize why multipliers depend on theoretical choices or assumptions, as well as on policy regimes. Building on these skills you have a good background for further studies in macroeconomic dynamics, for example for a course in optimization based macroeconomic theory, in open economy macroeconomics, or in economic growth theory; or in a course in time series econometrics.
Admission
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