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Advanced microeconomics and macroeconomics

A.A. 2019/2020

Obiettivi formativi

This course is designed to provide a rigorous introduction to both modern microeconomics and modern macroeconomics. Its objective is to equip students with the basic analytical tools to read and understand the academic literature and the policy debate on both microeconomic issues (e.g. how consumer choice and firm behaviour are affected by market design and public policy) and macroeconomic issues (e.g. the efficacy and desirability of fiscal and monetary policies).

Risultati apprendimento attesi

For the Advanced Microeconomics module: After the course, students must be able to use economic reasoning to understand the main determinants of individuals' and firms' decisions, the

functioning of markets in real world settings, and how they are influenced by public policies or changes in economic fundamentals. This theoretical knowledge is highly complementary to the data analysis techniques that students will learn in other courses (such as "Research Methods") and are key to a correct understanding and interpretation of the empirical evidence. Students will also acquire the basic knowledge needed to approach more advanced topics in other subfields of economics for which microeconomics is a pre-requisite (e.g. development, education, health, industrial, international, labour, and public economics, among others).

For the Advanced Macroeconomics module: By the end of the course, students will be equipped with analytical tools for improving their knowledge and understanding of some major real-world macroeconomic issues (for example: why delegating monetary policy to an independent central bank? Should government fiscal policy be constrained by rules? Which factors can trigger bank runs or sovereign debt crises? how can government policy help to avoid them? What are the macroeconomic and welfare effects of different social security systems? Can government use fiscal policies to affect economic growth?) Students should know as how to use economic analysis to make informed judgements about macroeconomic issues. Seminar presentations (on a voluntary basis) will enable students both to test their understanding and ability to communicate knowledge of the relevant topics and to discuss real-world macroeconomic issues with their pairs.

functioning of markets in real world settings, and how they are influenced by public policies or changes in economic fundamentals. This theoretical knowledge is highly complementary to the data analysis techniques that students will learn in other courses (such as "Research Methods") and are key to a correct understanding and interpretation of the empirical evidence. Students will also acquire the basic knowledge needed to approach more advanced topics in other subfields of economics for which microeconomics is a pre-requisite (e.g. development, education, health, industrial, international, labour, and public economics, among others).

For the Advanced Macroeconomics module: By the end of the course, students will be equipped with analytical tools for improving their knowledge and understanding of some major real-world macroeconomic issues (for example: why delegating monetary policy to an independent central bank? Should government fiscal policy be constrained by rules? Which factors can trigger bank runs or sovereign debt crises? how can government policy help to avoid them? What are the macroeconomic and welfare effects of different social security systems? Can government use fiscal policies to affect economic growth?) Students should know as how to use economic analysis to make informed judgements about macroeconomic issues. Seminar presentations (on a voluntary basis) will enable students both to test their understanding and ability to communicate knowledge of the relevant topics and to discuss real-world macroeconomic issues with their pairs.

**Periodo:** Secondo trimestre
(se vi sono più edizioni controllare anche il periodo dell'edizione, che può essere diverso)

**Modalità di valutazione:** Esame

**Giudizio di valutazione:** voto verbalizzato in trentesimi

Programma e organizzazione didattica

### Edizione unica

Responsabile

Periodo

Secondo trimestre

**Prerequisiti**

Students are expected to have fully mastered the following topics: linear algebra, intermediate calculus, static optimization. Introductory knowledge of game theory is useful. Basic knowledge of first-order differential and difference equations (qualitative solution) and of dynamic optimization under certainty is useful for the Advanced Macroeconomics module.

For the Advanced Microeconomics module, students are expected to have a reasonable knowledge of topics taught in introductory and intermediate microeconomics (i.e. consumer and producer theories, partial competitive equilibrium theory). Useful preparatory readings are: Hal Varian, Intermediate Microeconomics: A modern approach, 9th Edition (Last Edition). Regarding Mathematics, Simon, C.P. and Blume, L. (1994), Mathematics for Economists, W. W. Norton & Company, Inc.

For the Advanced Macroeconomics module, students are assumed to be familiar with intermediate macroeconomics taught on textbooks such as O.J. Blanchard (2005 or subsequent editions). Macroeconomics, Prenctice Hall, or S.D. Williamson (2014, fifth edition), Macroeconomics, Pearson.

For the Advanced Microeconomics module, students are expected to have a reasonable knowledge of topics taught in introductory and intermediate microeconomics (i.e. consumer and producer theories, partial competitive equilibrium theory). Useful preparatory readings are: Hal Varian, Intermediate Microeconomics: A modern approach, 9th Edition (Last Edition). Regarding Mathematics, Simon, C.P. and Blume, L. (1994), Mathematics for Economists, W. W. Norton & Company, Inc.

For the Advanced Macroeconomics module, students are assumed to be familiar with intermediate macroeconomics taught on textbooks such as O.J. Blanchard (2005 or subsequent editions). Macroeconomics, Prenctice Hall, or S.D. Williamson (2014, fifth edition), Macroeconomics, Pearson.

**Modalità di verifica dell’apprendimento e criteri di valutazione**

The course is assessed with two distinct examinations, one for the Advanced Microeconomics module (taught in the second term), and the other for the Advanced Macroeconomics module (taught in the third term). The final assessment is based on a written exam. The final written exam consists of both open questions and exercises similar to those that have been solved in the course classes. The final mark will be the weighted average (with equal weights) of the mark obtained in the Advanced Microeconomics exam and of the mark obtained in the Advanced Macroeconomics exam. The Advanced Macroeconomics mark can be topped up by successfull student seminar presentation (on a first-come-first-served voluntary basis). Further details on student seminars will be given at the start of the course (in the third term).

**Module Advanced Microeconomics**

**Programma**

1. Preference and Utility

2. Demand Theory and Applications

3. Production Theory and Applications

4. Choice under uncertainty

5. Perfect Competition

6. Monopoly

7. Introduction to Oligopoly

The program could be subject to some changes from year to year. Please check the ARIEL website for updates.

2. Demand Theory and Applications

3. Production Theory and Applications

4. Choice under uncertainty

5. Perfect Competition

6. Monopoly

7. Introduction to Oligopoly

The program could be subject to some changes from year to year. Please check the ARIEL website for updates.

**Metodi didattici**

The course uses both lectures in which students will be taught microeconomic theory and classes mainly devoted to solving exercises.

**Materiale di riferimento**

Textbook

Munoz-Garcia (2017), Advanced Microeconomic Theory. An intuitive approach with examples, The MIT Press, Cambridge Massachusetts, London

England. [chapt. 1, 2, 3, 4, 5, 6, 7, 8.1-8.3. The list of chapters may be subject to changes from year to year, please check the ARIEL website for

updates.]

Exercises

Munoz-Garcia (2017), Practice Exercises for Advanced Microeconomic Theory, The MIT Press.

Other useful readings:

Hal Varian, Microeconomic Analysis, Third Edition.

Munoz-Garcia (2017), Advanced Microeconomic Theory. An intuitive approach with examples, The MIT Press, Cambridge Massachusetts, London

England. [chapt. 1, 2, 3, 4, 5, 6, 7, 8.1-8.3. The list of chapters may be subject to changes from year to year, please check the ARIEL website for

updates.]

Exercises

Munoz-Garcia (2017), Practice Exercises for Advanced Microeconomic Theory, The MIT Press.

Other useful readings:

Hal Varian, Microeconomic Analysis, Third Edition.

**Module Advanced Macroeconomics**

**Programma**

A selection of topics will be chosen among the following and will be announced on the ARIEL website before the start of the course:

Topic 1. Why delegating monetary policy to an independent central bank? (Monetary policy effects in the short and long runs; The Rational Expectations Hypothesis (REH) and the Policy Ineffectiveness Proposition; Credibility of monetary policy: the "inflation bias" problem; Reputation; Central bank Independence; Escape-clause rules and central banking in times of crisis).

Topic 2. Do we need fiscal policy rules? (The Intertemporal Government Budget Constraint; public debt sustainability; fiscal dominance; optimal fiscal policy: tax smoothing; deficit bias; fiscal rules and fiscal councils; seigniorage and inflation).

Topic 3. Coordination failures (Multiple equilibria in macroeconomics; Bank runs and the Diamond-Dybvig (1983) model; Sovereign debt crises and the Calvo (1988) model).

Topic 4. Overlapping generations models and social security (The Samuelson-Diamond two-period OLG model: equilibrium and efficiency; Social security systems; Myopia as a rationale for social security).

Topic 5. Economic Growth (The Ramsey -Cass-Koopmans model with optimal saving: market solution vs. social planner's solution; The AK model of endogenous growth. Government spending in the Ramsey and AK models ).

Topic 6. Macroeconomics and the labour market (Efficiency wage models; Search and matching models; Hysteresis).

Seminar topics will be announced on the ARIEL website before the start of the course. As an example, last year's seminar topics were as follows: i) Central bank independence under threat? ii) Do we need fiscal policy rules? iii) Sovereign debt crises. iv) Pension systems and reforms.

Study program for not attending students

1. Review of the AD-AS model.

2. Dynamics in aggregate demand and supply;

3. Rational expectations and economic policy;

4. The government budget deficit;

5. Dynamic inconsistency in public and private decision making;

6. Exogenous economic growth;

7. Overlapping generation models and social security.

Topic 1. Why delegating monetary policy to an independent central bank? (Monetary policy effects in the short and long runs; The Rational Expectations Hypothesis (REH) and the Policy Ineffectiveness Proposition; Credibility of monetary policy: the "inflation bias" problem; Reputation; Central bank Independence; Escape-clause rules and central banking in times of crisis).

Topic 2. Do we need fiscal policy rules? (The Intertemporal Government Budget Constraint; public debt sustainability; fiscal dominance; optimal fiscal policy: tax smoothing; deficit bias; fiscal rules and fiscal councils; seigniorage and inflation).

Topic 3. Coordination failures (Multiple equilibria in macroeconomics; Bank runs and the Diamond-Dybvig (1983) model; Sovereign debt crises and the Calvo (1988) model).

Topic 4. Overlapping generations models and social security (The Samuelson-Diamond two-period OLG model: equilibrium and efficiency; Social security systems; Myopia as a rationale for social security).

Topic 5. Economic Growth (The Ramsey -Cass-Koopmans model with optimal saving: market solution vs. social planner's solution; The AK model of endogenous growth. Government spending in the Ramsey and AK models ).

Topic 6. Macroeconomics and the labour market (Efficiency wage models; Search and matching models; Hysteresis).

Seminar topics will be announced on the ARIEL website before the start of the course. As an example, last year's seminar topics were as follows: i) Central bank independence under threat? ii) Do we need fiscal policy rules? iii) Sovereign debt crises. iv) Pension systems and reforms.

Study program for not attending students

1. Review of the AD-AS model.

2. Dynamics in aggregate demand and supply;

3. Rational expectations and economic policy;

4. The government budget deficit;

5. Dynamic inconsistency in public and private decision making;

6. Exogenous economic growth;

7. Overlapping generation models and social security.

**Metodi didattici**

20 two-hour lectures; 4 two-hour problem-solving classes; 4 two-hour students' seminar presentations.

**Materiale di riferimento**

Students attending the course.

Outlines of lectures (slides and handouts) will be uploaded on the ARIEL website as the course proceeds. There is no single textbook for this module. However, lectures will refer to textbooks such as G. Alogoskoufis (2019) [AG]. Dynamic macroeconomics, MIT Press.s J.P.Bénassy (2011) [JPB]. Macroeconomic Theory, Oxford University Press, O.J. Blanchard and S. Fischer (1989) [BF]. Lectures on Macroeconomics, MIT Press; B. B. Heijdra (2017) [H]. Foundations of Modern Macroeconomics (3nd edition), Oxford University Press (previous editions are also useful); D. Romer (2006, 2012) [DR06, DR12]. Advanced Macroeconomics. McGraw Hill; C. Walsh (2003, 2010) [WA03, WA10]. Monetary theory and policy, MIT Press. Note: Both AG and BF and JPB and WA are set at a higher technical level than either H or DR .

Students not attending the course.

Ben Heijdra, Foundations of modern macroeconomics, third edition, 2017 Oxford University Press. Chapter 1 (review of the AD-AS model); chapter 3.1-3.4 ( dynamics in aggregate demand and supply); ch. 5.1-5.3 (rational expectations and economic policy); ch.6 (the government budget deficit); ch. 9 (Dynamic inconsistency in public and private decision making); ch. 12.1-12.3 (Exogenous economic growth: Solow-Swan); ch. 13.1-13.3 (Exogenous economic growth: Ramsey-Cass-Koopmans); ch. 16.1-16.2 (Overlapping generations and social security). Mathematical appendices are useful for techniques. Knowledge of static and dynamic optimization techniques in continuous and discrete time is required for a thorough knowledge of the material.

Alternatively, students may prepare their examination on one of the following textbooks: G. Alogoskoufis (2019) [AG]. Dynamic macroeconomics, MIT Press.; J.P. Bénassy (2011) [JPB]. Macroeconomic Theory, Oxford University Press; O.J. Blanchard and S. Fischer (1989) [BF]. Lectures on Macroeconomics, MIT Press; M. Obstfeld and K. Rogoff (1996) [OR], Foundations of International Macroeconomics, MIT Press; D. Romer (1995, 2000, 2006, 2012) [DR]. Advanced Macroeconomics. McGraw Hill; C. Walsh (2003, 2nd edition, 2010 third edition) [WA]. Monetary theory and policy, MIT Press. Note: Both AG and BF and OR and WA are set at a higher technical level than either H or DR or JPB. Please contact the teacher (Michele.Santoni@unimi.it) well in advance of your examination to discuss the details of your alternative study program.

Outlines of lectures (slides and handouts) will be uploaded on the ARIEL website as the course proceeds. There is no single textbook for this module. However, lectures will refer to textbooks such as G. Alogoskoufis (2019) [AG]. Dynamic macroeconomics, MIT Press.s J.P.Bénassy (2011) [JPB]. Macroeconomic Theory, Oxford University Press, O.J. Blanchard and S. Fischer (1989) [BF]. Lectures on Macroeconomics, MIT Press; B. B. Heijdra (2017) [H]. Foundations of Modern Macroeconomics (3nd edition), Oxford University Press (previous editions are also useful); D. Romer (2006, 2012) [DR06, DR12]. Advanced Macroeconomics. McGraw Hill; C. Walsh (2003, 2010) [WA03, WA10]. Monetary theory and policy, MIT Press. Note: Both AG and BF and JPB and WA are set at a higher technical level than either H or DR .

Students not attending the course.

Ben Heijdra, Foundations of modern macroeconomics, third edition, 2017 Oxford University Press. Chapter 1 (review of the AD-AS model); chapter 3.1-3.4 ( dynamics in aggregate demand and supply); ch. 5.1-5.3 (rational expectations and economic policy); ch.6 (the government budget deficit); ch. 9 (Dynamic inconsistency in public and private decision making); ch. 12.1-12.3 (Exogenous economic growth: Solow-Swan); ch. 13.1-13.3 (Exogenous economic growth: Ramsey-Cass-Koopmans); ch. 16.1-16.2 (Overlapping generations and social security). Mathematical appendices are useful for techniques. Knowledge of static and dynamic optimization techniques in continuous and discrete time is required for a thorough knowledge of the material.

Alternatively, students may prepare their examination on one of the following textbooks: G. Alogoskoufis (2019) [AG]. Dynamic macroeconomics, MIT Press.; J.P. Bénassy (2011) [JPB]. Macroeconomic Theory, Oxford University Press; O.J. Blanchard and S. Fischer (1989) [BF]. Lectures on Macroeconomics, MIT Press; M. Obstfeld and K. Rogoff (1996) [OR], Foundations of International Macroeconomics, MIT Press; D. Romer (1995, 2000, 2006, 2012) [DR]. Advanced Macroeconomics. McGraw Hill; C. Walsh (2003, 2nd edition, 2010 third edition) [WA]. Monetary theory and policy, MIT Press. Note: Both AG and BF and OR and WA are set at a higher technical level than either H or DR or JPB. Please contact the teacher (Michele.Santoni@unimi.it) well in advance of your examination to discuss the details of your alternative study program.

**Moduli o unità didattiche**

Module Advanced Macroeconomics

SECS-P/01 - ECONOMIA POLITICA - CFU: 6

Lezioni: 40 ore

Docente:
Santoni Michele

Module Advanced Microeconomics

SECS-P/01 - ECONOMIA POLITICA - CFU: 6

Lezioni: 40 ore

Docente:
Bratti Massimiliano

Siti didattici

Docente/i

Ricevimento:

Mercoledì 15.00-17.00 su MS Teams salvo diverso avviso in questo sito (si prega di contattarmi per conferma). Office hours of Sept 30 postponed the same day at 17-19.

stanza 21 (DEMM, Via Conservatorio 7)

Ricevimento:

Gli studenti possono inviarmi una email cui risponderò. Se necessario, si fisserà un incontro online su Microsoft Teams.

online