EC317: MODELING AND FORECASTING THE MACROECONOMY
Fall 2004
Professor: Scott Fullwiler, Ph.D. Email: scott.fullwiler@wartburg.edu
Time and Place: T
Office Hours: MW
This syllabus is an implied contract between you and
me. Keep it, read it, and refer to it
often!
COURSE DESCRIPTION AND GOALS:
Because everyone—households and businesses alike—is affected by the economy’s performance, an understanding of macroeconomics and macroeconomic policy is a prerequisite for being an informed citizen. The contribution of economics to the business curriculum lies in the fact that economics is about the environment within which business operates. The more managers know about the structure of the economy, the nature of economic cycles, the patterns of financial stability and instability, the long- and short-term prospects for the economy, and the possible options and impacts of macroeconomic policy (to name just a few possible macro topics), the better are the chances for success.
The main goal of this course will be to learn how to think about the economy as an economist does, so that we might best understand both the environment within which business operates and how the economy and macroeconomic policies affect our world. We will achieve this goal through several objectives. First, we will gather, organize, interpret, and evaluate data and various reports on the current and projected future states of the economy. Second, we will develop a theoretical model of how the economy works and learn its characteristics and implications for policy. Third, we will analyze historical data, events, and policies within and in comparison to our model. Fourth, we will consider views that fall somewhat outside the mainstream of economics to gain a broader understanding of the economy and policy possibilities, and to see where the mainstream has left gaps (or perhaps gaping holes!). Finally, we will learn to use one of the most well-known and historically accurate large models (The Fairmodel) of the macroeconomy in order to understand the workings of the economy, run simulations, and make both predictions and policy recommendations just as an economist would.
A note on
prerequisites: You are expected to have a
basic understanding of EC 141. If you do
not recall some of this material when it arises, then it is your responsibility
to bring yourself up to date, not mine.
There is a natural progression to the material covered throughout the
business curriculum, and it simply must be expected that you have taken basic
knowledge with you from these courses (just as in progressions through a
foreign language or a math curriculum, for instance).
COURSE MATERIALS:
1.
Gary E. Clayton and Martin Gerhard Giesbrecht. 2004. A Guide to Everyday Economic Statistics
(Sixth Edition).
2.
The Fairmodel website (http://fairmodel.econ.yale.edu). The Fairmodel is a 130 equation model of the
economy developed by well-known Yale economist Ray Fair. The Fairmodel was originally developed in the
1970s and has been regularly updated since.
Fair provides the Fairmodel free to the public on this very user
friendly website and also supplies (via the website) books, articles, and other
items to aid us in using the model. We
will make extensive use of this site.
3.
The Fairmodel US Workbook and Fairmodel MCU Workbook (available at
Fairmodel website). I suggest you at
least download a copy of this for yourself (it is a bit lengthy, so you may
want to print out only parts that we deal with in class as we do so) including
the appendices and tables (the pdf versions may be
the easiest to deal with).
4.
Ray Fair. 2004. Estimating
How the Macroeconomy Works. This is
available on Fair’s website. Like the
workbooks, it is good to only print out those pages that we will be covering in
class.
5.
There will be readings assigned from the following:
·
Lakshman Achuthan and Anirvan Banerji. 2004. Beating the Business Cycle.
·
Olivier Blanchard. 2002. Macroeconomics. 3rd Edition. Prentice-Hall Publishers.
·
Thomas R. Michl. 2002. Macroeconomic Theory: A Short Course. M.E. Sharpe.
(On reserve for this course at Vogel Library.)
·
Carolyn Clark. 1992. Monetary
Policy in Theory and Action.
Unpublished manuscript.
6.
Various other articles (1) are available on the web, (2) will be handed
out in class, or (3) will be placed on reserve in Vogel Library.
7.
You will be expected to keep abreast of current events and data
emerging relevant to the macroeconomy.
Perusing daily through The Wall
Street Journal (available in business dept, Vogel Library, or on the web
through the account I have set up) or money.cnn.com should provide you with
most of the information you need. I will
provide you with other sources as they become necessary.
COURSE GRADES:
The following scale will be used in assigning grades:
93% and above A 80%
to 82.9999% B- 67% to 69.9999% D+
90% to 92.9999%
A- 77% to 79.9999% C+ 63% to 66.9999% D
87% to 89.9999%
B+ 73% to 76.9999% C 60% to 62.9999% D-
83% to 86.9999%
B 70%
to 72.9999% C- Below 60% F
The following lists the course work and weighting for the
term:
Item Weight
Take
Home “Exams” (3) 8%, 10%, 12%
Almost
Weekly Simulation Assignments 15%
Bi-Weekly
Group Reports on Economic Data 15%
Article
Review 8%
Short
Reviews of Some Required
Group
Presentation and Report 20%
Attendance 2%
100%
All decimals on final grades in each category listed above will be rounded up (e.g., a score of 79.3% will be rounded up to 80%). However, your cumulative grade for the course will not be rounded up or down (e.g., a course average of 79.999% will receive a final grade of C+).
Almost Weekly Simulation
Assignments:
These
assignments will deal both with gathering/manipulating/charting data and
comparison with our theoretical model, and with simulating the impacts of
various macroeconomic events or “shocks” and interpreting results.
Bi-Weekly Group Reports on
Economic Data:
The
class will be divided into two groups.
Each week, beginning in the third week of the semester, one of the
groups will present to the class the data that have been published in the
preceding week and discuss analysis of this data that occurred in the press and
among economists (I’ll give you several sources to watch). The presenting group will also put together a
short handout for the non-presenting group summarizing the information. I will do a report during the second week to
demonstrate what the expectations are.
The thirteenth week of the course neither team will be responsible for a
report, but data will be discussed in class.
Take Home Exams:
These
will consist of 2 questions, each of which will generally require about 500
words (in most cases, give or take) to answer correctly and completely. One of the questions will also involve
simulations using the Fairmodel. You
will be given one week to complete each of the assignments.
Presentation and Report:
Each
group will prepare a forecast of the economy for 2003 using the Fairmodel and
will prepare various alternative scenarios to anticipate the effects of
possible shocks or alternative policies that might occur. For your final exam, each group will present
its forecasts to a panel of local bankers and CEOs (as if hired by the panel as
a consultant) and will submit a report to the panel explaining the
forecasts. Much more information will be
provided later in the semester.
Article Review:
Several
articles are listed on the course outline below under the title Article
Reviews. Each student must complete one
review during the semester. A review
involves a 5-10 minute presentation to the class on the articles main
arguments, data presented, and so forth. The presenter is also required to provide a
1-2 page outline or other handout summarizing the paper to each classmate
(PowerPoint handouts are sufficient if you put together a PowerPoint
presentation).
Attendance Policy:
If
you have 1 absence during the semester, you will receive the 1% attendance
portion in full. For every class beyond 1
that you miss, your final percentage will be reduce 0.5%; if you miss 0 total classes,
1% will be added to your final percentage.
Excused absences are given at my discretion; in general, an excused
absence will only enable you to hand assignments late without penalty but will
still count toward your three allowable absences.
NOTES ON MY POLICY/VIEWS ON
ASSIGNED WORK:
1.
Regarding late work, it is not possible to grade
consistently, or be fair to people who take trouble to do assignments on time,
if I am absorbing a continual stream of late work. Therefore, late assignments will be penalized
2 points of the total possible for every day that they are late. However,
once I have either provided the class with answers or have returned an
assignment, late work will no longer
be accepted. It is your
responsibility to organize your life so work can be done on time—if you leave
it until the last minute and then something breaks down, that’s your
problem. Please do not tell me about
malfunctioning disks, printers, and so forth.
2.
All work is due in class at the moment that I choose to collect them (which
could be the beginning, middle, or end of class). An assignment is considered late if it is not
handed in at such time, unless other arrangements have already been made. If you have an excused absence on a day that an assignment is due, it will be
accepted without penalty only on the first class you attend after the absence,
unless other arrangements have already been made.
3.
Exams are
given in class on the day scheduled.
Make-up exams will be given rarely and only in documented extreme cases such as family or medical emergency or
absence due to approved Wartburg activities.
Make-ups will NOT be given for virtually any other reason.
4.
Anything
and everything you hand in will be assessed not only for content but also
writing skills such as spelling, correct language usage, and punctuation.
5. Stating in work turned in that you “do not understand”
or that you were “confused” by a reading/assignment/question is unacceptable
since you are expected to clear up such concerns long before handing something
in. In your future job, such excuses
will also not be accepted. Many
assignments require thought and organization; as a result I will make time
available for questions in class—take advantage of this! Of course, as in your future career, you will
also be expected to put some things together yourself without needing to be
hand fed every detail. Consequently, to
encourage you to think for yourself, there will be some limitations on how much
help I will give.
REACHING YOUR POTENTIAL IN THIS COURSE:
Your grade is your responsibility; I only assign a
grade—you earn the grade yourself.
Though I have substantial responsibilities as instructor of the course
that I take very seriously, your success in this class is far more a
function of your effort than mine.
It is imperative that you honestly
assess your own performance and determine where improvements can be made
throughout the semester. Your
performance will derive from a combination of (1) your own aptitude for the
course material, and (2) the quantity
and quality of effort you expend learning the course material. Regarding the latter, what follows is my best
advice to you on your approach to this class.
1.
Attend Class: Those who frequently miss my
class almost always do poorly. Notes
copied from other students are most often not a good substitute for class time
missed.
2.
Be Prepared: Keep
up with the coursework. Do at least two
hours of study outside of class for every hour in class (this is a College-wide
minimum expectation and translates to 6
hours of study per week outside of class for this course alone). The material in this course is cumulative,
and most are not able to “catch up” later in the semester. Go over your notes and relevant reading
shortly after each class to make sure you understand them. If you don’t understand something, then you
have a good question to ask me! Do homework
conscientiously and in a timely manner.
3.
Learn to Solve Problems: More than
just the study of the economy or businesses, economics and finance are ways of
thinking that involve logical reasoning and attention to detail. This is difficult for many to pick up at
first. If you are unfamiliar with this
method, you will need to practice (a lot!) if you expect to be successful. It is extremely important that you practice solving problems covered in
class or in the book, in addition to
studying concepts and facts. Most
problems have obvious variations, which you should also practice since you are
more likely to see these on an exam.
4.
Ask Questions Often, and Be Receptive to the Answers: You will have
questions—but I don’t know if you don’t ask them. I encourage you to contribute your comments
and questions during class time—they will help all of us. If you are not comfortable doing that, be
sure and find some other avenue to regularly
(e.g., office hours, email) have your questions answered (don’t wait until the
last minute!). If you never have
questions, the quantity or quality of your studying is probably lacking.
5. Be
Specific When You Ask Questions: “How do I do #4?” is a passive question that
implies that I should do the work for you.
Take extra time preparing to be more specific in your questions—find out
what part you do not understand, or tell me what you do know and work your way
to what you do not know. If you are
specific, my help will help more; you will retain and understand better. If you don’t prepare well enough to ask a
specific question, my help won’t help as much as it could.
IMPORTANT HOUSEKEEPING ITEMS:
1. Academic
Integrity/Honesty: Academic integrity is one of the basic
principles of a college community. By
attending
ALL assignments are done by you (and nobody else) with
no help or collaboration whatsoever unless EXPLICITLY allowed in writing by
me. This means that you cannot defend
yourself after the fact by claiming that I did not explicitly prohibit such
activity on any assignment.
Any form of academic dishonesty will result in one or more of the
following sanctions: a) loss of points
for that specific assignment or exam; b) reduction in the final course grade;
c) issuance of a grade of “F” for the entire course.
2.
Commitment to Students with Disabilities:
3.
Harassment: Everyone in the class will conduct themselves
in a mature and professional manner. I
will not, nor will
4.
Incompletes:
Incompletes will be given only
in rare cases of extreme personal or familial difficulties that prevent a
student from completing the semester’s work, and in those cases only if the
student has a passing grade (C- or better) and
has completed a substantial percentage of the course.
5. Extra
Credit: You should expect that there will be no opportunities
for extra credit during the semester. In
particular, there will be absolutely NO opportunities for extra credit on an
individual basis, as this would be unfair to others in the class. Rather than hoping for extra credit
opportunities, take responsibility for your performance in the course throughout
the semester by following the advice provided above.
COURSE OUTLINE:
The
following lists the topics, assignments, readings, and the order in which we
will do each. Numbers in parentheses
refer to the number of classes I expect will be necessary to cover material in
that section.
Class 1: September 14
TOPIC: How Economists Look at
the Macroeconomy
q
Required
·
Ray Fair. 2004.
·
Ray Fair. 2004. MCU
Model
Class 2: September 21
TOPIC: The Goods Market
q Required
·
Lackshman Achuthan and Anirvan Banerji. 2004.
“The Resurrection of Risk.” Beating the Business Cycle.
·
Ray Fair. 2004. “The Wealth Effect.” Estimating
How the Macroeconomy Works, pp. 91-96.
q
Textbooks
·
·
Class 3: September 28
TOPIC: Adding Expectations and Openness to the Goods
Market
q Required
·
Lackshman Achuthan and Anirvan Banerji. 2004.
“Why the Economy Rises and Falls.” Beating
the Business Cycle.
q Textbook
·
·
·
q
Article Reviews for Next Week:
·
Jonathan McCarthy. 2004. “What Investment Patterns across Equipment Industries
Tell Us about the Recent Investment Boom and Bust.” Federal Reserve Bank of
·
Charles P. Himmelberg, James M. Mahoney, April
Bang, and Brian Chernoff. 2004. “Recent
Revisions to Corporate Profits: What
We Know and When We Knew It.” Federal Reserve Bank of
Class 4: October 5
TOPIC: Adding Interest Rate Determination
q Required
·
Ben Bernanke.
2003. “The Jobless
Recovery.” Speech given November 6. http://www.federalreserve.gov/boarddocs/speeches/2003/200311062/default.htm. Read the section on the payroll survey and
the household survey only for a key discussion of two different measures of job
creation.
·
Tao Wu. 2004. “Two Measures of Employment: How Different Are They?” Federal Reserve Bank of
q Required
·
Ray Fair. 2004.
·
Ray Fair. 2004. “Nominal vs. Real Interest Rate
Effects.” Estimating How the Macroeconomy Works, 71-76. (Give this a shot, see how much you
understand.)
q Textbook
·
·
Class 5: October 12
TOPIC: Adding Stock and Bond Markets
q
Textbook
·
q
Required
·
Ray Fair. 2004. “Testing for a New Economy in the
1990s.” Estimating How the Macroeconomy Works, 97-109 only.
·
Arturo Estrella and Frederic S. Mishkin. 1996. “The Yield Curve as a Predictor of