Department of Economics University of Minnesota
Phone-(612) 625-0941 4-101 Hanson Hall (off 4-179) Fed
Phone (612) 204-5528 1925 Fourth Street South Fax: (612)
624-0209 Minneapolis, MN 55455.
Homepage
http://www.econ.umn.edu/~vr0j/index.html
Wed 3:45-6:45 Hanson Hall 4-170. This is a mini course
that will last all semester so some classes will be
shorter, others will be cancelled. The whole teaching time
will be no less than a regular mini course. Off Hours:
Before and after class and by appointment.
email:
vr0j@umn.edu.
A preliminary version of the
Syllabus. It is very likely that it
will change. I will update it.
Other relevant links.
Here you may find an occasional
paper, homepage or subroutine of interest.
What are we doing?
A class by class diary.
Sept 4.
We talked about the class, and what it
is about, going over all the details. We start with a
discussion of what is the meaning of an approximation to
a function and the criterias (family of approximating
functions, criteria of distance, and method to find it)
that are used to describe a particular approximation
approach. We then go in detail over the first set of
homeworks and its purpose. We finish with a discussion
of the Solow residual. This includes the components of
GDP on the income side. You should read the
Cooley-Prescott chapter on the Cooley book or the -
appendices
here
or here
for details of the construction of the Solow residual
needed to compute it. We discussed how to use a model
to answer quantitative questions about the economy. In
particular, we talked about how calibration and
estimation operate, and what are their differences and
similarities. We put special emphasis in saying that
what matters is not the statistical techniques as much
as the sources of identification. I refer to the first 5
sections
of
this paper, but in particular, Section 3. We discuss
the next batch of homeworks if the computer works well
(and I want volunteers to present some of them in the
next class, Sept 18). Such discussion involves a minimal
description of log linearization using dynare as well as
comments on the use of software to take derivatives and
on how to implement the notions of calibration discussed
at the beginning of the class. While doing this, we
talked about how to calibrate a model economy so that
its steady state looks like the U.S. in the dimensions
that we want. A place to find Jesus Fdez-Villaverde's
examples of dynare code
is this.
Sept 11
We went into the details of what to do
in the homeworks and how does calibration answer the
question of what is the contribution of TFP shocks to
business cycles. We started the discussion of global
approximation methods talking about piecewise linear
functions (and their base represenation) with exact
solution in the grid points. I want somebody to present
Sept 18th the endogenous grid method. This
paper is a great reference to a particularly
efficient way to obtain a global approximation. Sign
up to present it. I also talked about how shocks to
wealth work in the growth model and what adjustments
it needs to generate a recession. We started to
develop an alternative to the TFP shocks: shocks that
increase savings. These ideas will end up in a
homework due October 2 that will require some thinking.
Sept 18
Tom and Chris presented
the endogenous grid method. Thanks Tom and Chris. I
started to talk about a model susceptible of having non
TFP shocks yet perhaps capable of dealing with BC as we
see them.
October 2
Sergio presented the main
homework, and we discussed many relevant issues around
it. Thanks Sergio. Then Annaliina presented the
fundamentals of the Mortensen-Pissarides model
using these slides. Thanks
Annaliina. After that we commented both homeworks. The one
for the global methods very briefly, the other one more
thoroughly. Recall that I asked you to measure the
contribution of preference shocks to the volatility of
hours worked by using a version (and a closed economy
version would be great) of the stuff in these slides
and
this paper.
I also said that a similar task that what I ask in the
homework was done in section 5.1
of this
paper using a slightly different model. One that it
essentially a neoclassical growth model. What I am asking
is to use a close economy version of the model in the
paper with Huo above to do the same exercise that is done
in the paper with Bai and Storesletten. Contact me if you
have any doubt.
October 9
Sebastian Dyrda
taught how to read and use data sets. He
used
these notes from last year that he may update. He
also
used
these slides. I
will
soon post some homeworks that require you to read some
data sets.
October 16
We had a long
class. Eugenia described global approximations and showed
us how to solve the growht model using 3 different
approaches. Thanks Eugenia. Sergio finished presenting HW
batch 2. We discussed a few issues there but the bottom
line that he found is that productvitiy shocks really do
not move hours. I then described how to compute the
household problem and the stationary distribution in the
Aiyagari economy. We then talked about how to solve the
transition and briefly about the
GEE.
October 23
We talked about the
problems of the Third HW Batch. We looked at two issues,
first what is Nash Bargaining, how it works and what is
what determines the surplus for each of the two sides. We
also talked about how to determine the price of non
tradables. This required us to look at monopolistic
competition. We also talked about the concept of
equilibrium and how a recession out of a financial crisis
or impoverishment can happen. We will continue talking
about this issue next week.
October 30
We
talked a bit about the problems of the Third HW Batch. I
used the discussion of the Nash bargaining
problem (see these notes) to
argue about models where everything is described in terms
of fundamentals and models where we want to account for
allocations and arrangements. We talked about the Krusell
Smith methods and about the Bankruptcy problem including
the issue of credit scores. We also discussed the
problems with Non-Markov equilibria, and how to think of
types.
November 6
Joaquin talked about
the data homeworks. We discussed various issues.
November 27
I talked about a
positive theory of Time Consistent economic policy. Mons
talked about homework 7, the Aiyagari economy; Thanks
Mons. I discussed a few things during his presentation
including the simultanous posing of some targets of
calibration.
December 4
I talked about two
important technical issues: one the Krusell-Smith type of
approximations to solutions to business cycles in Aiyagari
type economies (both with aggregate capital as sufficient
statatistics for prices and when that is not the case);
and algorithms to solve a large system of equations for
calibration. Sergio presented the Fella paper. Thanks
Sergio.
December 11
We will finish the
discussion of HW 3. I will continue talking about the
endogenous determination of policy and the GEE. This
completes the course.
Course Description
The target of this course is for you to be able to go to a
macro seminar and to realize after the layout of the model
that you are able to solve it, and relate it to data, probably
much better than the presenter.
This course can be thought of as an addendum to the Macro
sequence, it follows naturally after 8105-8108. Its purpose is
to learn the map from models to data, i.e. to answer
quantitative questions that we are interested in (in the
process of doing so, some interesting theoretical questions
arise). We will develop tools by stating general questions,
and then discussing how to approach its answer. The tools
that we will be developing beyond those already covered in the
first year can be grouped into:
Theoretical tools. While most of
the necessary theoretical tools have been acquired in the
first year, we may on occasion develop some additional
theory to look at a particular issue. We will use
representative agent models, models with a continuum of
agents represented with measures, overlapping generations
models, as well as models where agents form households. We
will look at models where equilibria are optima and where
they are not. We will look at stationary and
non--stationary equilibria. We will look at models without
perfect commitment and without perfect
information.
Empirical tools. A necessary
condition to be able to do applied theory is to be able to
characterize some properties of the world. This involves
the capability of accessing data sets and of understanding
the way they are organized as well as the principles that
guide the construction of the main data sources. This
requires some knowledge of NIPA and of some software to
read data (eviews, stata, gretl, R).
Computational Tools. Students should
be able to construct and characterize the properties of the
equlibrium allocations of artificial model economies. This
is the main element of the course and where you will spend
most of the time.
Calibration. We will spend a good
deal of time thinking of how a model is related to the
data. This is, I think, the more important part of the
learning process.
This is a Ph.D. course not a Masters course. As such students
are not expected to learn what other people have discovered, but
the tools that are needed in order to discover things by
themselves. Because of this reason the active work of the
students is crucial to achieve the objective of mastering the
tools that are described above. This is a course to learn to do
things, and, therefore, it requires to do some things.
Every class except the first one we will devote the first
twenty minutes or so to students presentations of
homeworks. I expect professional competence in this regard.
Course Requirements
There are various types of requirements that are a necessary
part of the course, all of which are pertinent in order to
achieve fulfillment of the course goals. This course believes
drastically in Learning by Doing but, on the other hand, you
are adults.
Regular Homeworks.The ones posted
here. Full credit only if on time. Partial credit otherwise.
Students will place the solution to the homeworks and to
other requirements in electronic form. You have to send an
email ASAP to help@cla.umn.edu stating your name and
university email and username and that you are in my course
to have access to a directory named /pkg/econ8185 and a
subdirectory your user name.
Class Presentations Every student
will make at least two class presentations with at least
one being of a subset of a homework. The first
presentation should take no more than 15 minutes and it
will be absolutely professional. Every second wasted,
every statement not planned, every bad thing will be
highlighted. The second presentation (that will depend on
class size and interests) maybe on a paper or on another
homework.
Referee Report. I will assign a
paper to each of you as we go along to write a referee
report and perhaps also to present the paper in no more
than 20 minutes. The refere report should be no longer
than five pages and should contain a clear and concise
exposition of the main points of the article as well as a
critical evaluation of the article's contributions. In
addition, you should write a letter to the editor with
your personal recommendations. If very good, I will use
them, anonymously.
Wikipedia Article. Optional, but
excellent training. This is something that should be done
by the end of the course. The moment you post it email me
and place a copy in your directory. Think of a topic of
the course no matter how silly.
Class schedules.
This class occurs mostly on Wed 3:45 to 6:45 in Hanson Hall
4-170 for the whole first semester. This is a mini length
course yet, the need for long homeworks on your regard makes
advisable to extend its duration. In addition, due to
travels and other things we will teach on other times
(Thursdays 2-4)whenever I am out of town on Wednesdays.
What about knowledge of Computers?
This is not a course in computer languages so students are
responsible to learn to write computer programs. Students are
also responsible for learning their way around McNeil
computational facilities. I do not expect anybody to have a
computer at home or anything like that. It is better to work
in McNeill's computer room because you can talk to each other.
There are various general classes of computer languages.
Fortran 90. This is the best and more powerfull computer
language. Among economists very few prefer C. It is a little
bit hard at the beginning (you have to declare variables and
the like) but students have told me it is well worth to learn
as soon as possible. A very good introduction to fortran can
be
found
here.
MPI and open MP. This is the mother of all serious
calculations. It is a form of using f90 to parallelize code
and take advantage of various hardwares.
Matlab, Gauss, Scilab, Octave and R. These are very
popular packages in economics. They are relatively easy to
learn and code writing is easy. They generate a lot slower
code than F90 (about 100 times) but they are probably a good
choice to solve some problems. They may have an interface
with f90 but I have never seen it working. Matlab is by now
used in 90% of the cases. R and Octave are free. Dynare works
with Matlab and Octave and it is dumb simple.
Stata, Eviews, R, Gretl, and Maple, SAS. These are
packages best suited for reading data. State is the most
popular and expensive. (I have used fortran for this which is
insane, others have used Gauss). Still it is worth to learn
stata.
Mathematica and Maple. These are packages capable of
doing symbolic manipulation of equations. Occasionally they
can also be used to do numeric calculations. It does not hurt
to know them. They may work together with matlab and sciword.
Excel, open office Calc. A dirty thing to do fast data
manipulation. Perfect for grades. And to get output of
models. Calc is free and slow.
A program to write plots. Sciword does it as matlab and
excel and gauss. Some dinosaurs like me use gnuplot.
Students should be able to write code in F90 in addition to matlab
or gauss and to stata. Most students tell me in later years that I
should have enforced harder the learning of F90, but I am willing
to consider exceptions. If somebody has a serious reason not to
use F90, please come and talk to me. At least one homework should
be answered in f90.
Grading Rules
To satisfactorily complete the course, students have to do the
requirements well.
For those that do not register but take the course, I recommend
that they do the homeworks. We learn to solve problems by facing
them. Learning jointly with others greatly speeds the process.
Cooley and Prescott,
[1995]. It is now dated but it contains some important
lines of attack on business cycles. The computational
techniques are a little bit obsolete, but the questions less
so.
Judd, [1998].
is a general computational textbook with special attention
to economists. While it is short on some details that we
care about (complicated equilibrium considerations,
multidimensional value functions, multidimensional
interpolation) it is a very useful book for many topics.
Marimon and Scott,
[1998]. It has a bunch of chapters that deal with
specific problems. I find the continuous time chapter nice
as well as some scattered other chapters.
Miranda and Fackler,
[2002]. It is quite a nice book. Like others it is too
irrelevant in some places and too easy in others. It is
designed for matlab which is a pity, but it has a nice
implementation (via a <a
href="http://www4.ncsu.edu/unity/users/p/pfackler/www/compecon/toolbox.html"
> downloadable toolbox</a>) of function global
approximations.
Heer and Maussner,
[2004].
This is a nice book with a lot more economics than the others. Its
consideration of the theory is closest to what we do. It has also many
examples. The codes can be found
here.