Macroeconomics II: Behavioural Macroeconomics

The lecture Macroeconomics II and the tutorial are held in English. The outline of the course and the literature is presented in detail in the syllabus . The course is based on articles from the literature which students read to prepare for the lecture and the tutorials. The syllabus presents an overview of the relevant literature and a selection of those papers will be central for the course. These core papers will be announced in the lecture.

The material in this course and the link between psychology, behavioural economics and macroeconomics is subject of ongoing research. Unfortunately, this implies that there is no textbook that covers all the material which is taught in the course. Students will be rewarded for this lack by an insight into state-of-the art research and thinking. The summary of this lecture is available, however.

The literature for this course is provided in the syllabus. Links for easy access (from within the campus net or from other nets having the appropriate licences) are provided behind the titles as follows.

1 Introduction: Issues in Behavioural Macroeconomics

1.1 Macroeconomics

• Economic growth

• Business cycles

• Nominal rigidities

• Unemployment

• Saving and investment

• Infl‡ation and monetary policy

• Fiscal policy and budget de cits

1.2 Behaviour

• Akerlof (2002) “Behavioral Macroeconomics and Macroeconomic Behavior”

• Camerer and Loewenstein (2004) “Behavioral Economics: Past, Present, Future”

• Crawford (2013) “Boundedly Rational versus Optimization-Based Models of Strategic Thinking and Learning in Games”

• Fudenberg (2006) “Advancing beyond Advances in behavioral economics”

• Harstadt and Selten (2013)“ Bounded-Rationality Models: Tasks to Become Intellectually Competitive.“

• Mullainathan and Thaler (2001) “Behavioral Economics”

• Rabin (2013) “Incorporating Limited Rationality into Economics”

2 Economic growth

2.1 Convergence debate

• Baumol (1986) “Productivity Growth, Convergence, and Welfare: What the Long-run Data Show

• BLS (2012) “International Comparisons of GDP per Capita and per Hour, 1960 –- 2011”

• Sala-i-Martin (2006) “The World Distribution of Income: Falling Poverty and ... Convergence, Period”

• World Bank (2014) “World Development Report 2014”(data appendix)

2.2 Theory

• Aghion and Howitt (1992) “A Model Of Growth Through Creative Destruction“

• Galor (2005) From Stagnation to Growth: Uni ed Growth Theory

• Jones (1995) “Rn&D-Based Models of Economic Growth”

• Rebelo (1991) “Long-Run Policy Analysis and Long-Run Growth”

• Romer (1986) “Increasing Returns and Long-Run Growth”

• Romer (1990) “Endogenous Technological Change”

• Segerstrom (1998) “Endogenous Growth without Scale Effects”

• Solow (1956) “A Contribution to the Theory of Economic Growth“ (see Aghion and Howitt, 1998, ch. 1.1)

• Wälde (1999) “A Model of Creative Destruction with Undiversi able Risk and Optimising Households”

• Wälde (2012) “Applied Intertemporal Optimization”

2.3 Towards behavioural growth

• Foellmi, Rosenblatt-Wisch, Schenk-Hoppé and Reiner (2011) “Consumption paths under prospect utility in an optimal growth model”

• Fudenberg and Levine (2006) “A Dual Self Model of Impulse Control.“

3 Business cycles

3.1 Some numbers on Business cycles

• Eurocoin (2014)

• GDP per capita OECD countries 1980 - 2010

• Jones (1995) Time series test of endogenous growth models (fig. I)

• Marczak and Beisinger (2013) Real wages and the business cycle in Germany (see also special figure on growth trend and cycle)

• NBER's Business Cycle Dating Committee (2010)

• Schirwitz (2009) A comprehensive German business cycle chronology

• Wälde and Woitek (2004) R&D expenditure in G7 countries and the implications for endogenous fluctuations and growth

3.2 The real Business cycle approach

• Kydland and Prescott (1980) “A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy“

• Kydland and Prescott (1982) “Time to Build and Aggregate Fluctuations“

• Wälde (2012) “Applied Intertemporal Optimization” (ch. 8.1)

3.3 Natural volatility

• Francois and Lloyed-Ellis (2003) Animal Spirits Trough Creative Destruction“

• Wälde (2005) “Endogenous Growth Cycles“

• Wälde (2005) Introduction to natural volatility

3.4 Sunspot cycles

• Benhabib and Farmer (1994) Indeterminacy and Increasing Returns“

• Benhabib and Nishimura (1998) “Indeterminacy and Sunspots with Constant Returns

• Dixit and Stiglitz (1977) Monopolistic Competition and Optimum Product Diversity

• Farmer and Guo (1994) Real Business Cycle and the Animal Spirits Hypothesis

• Howitt and McAfee (1992) Animal spirits

3.5 Towards behavioural business cycles?

• Banerjee (1992) A simple model of herd behaviour

• Acemoglu and Ozdaglar (2011) Opinion Dynamics and Learning in Social Networks

3.6 Banks and business cycles

t.b.d.

4 Unemployment

4.1 Facts about unemployment

• Krebs and Scheffel (2013) "Macroeconomic Evaluation of Labor Market Reform in Germany"”

• Launov and Wälde (2012) Slides for "Estimating incentive and welfare effects of non-stationary unemployment benefits"

• OECD (2011) "Persistence of high unemployment: what risks? what policies? "

• Reinberg and Hummel (2005) "Höhere Bildung schützt auch in der Krise vor Arbeitslosigkeit"

• Strasser and Wälde "Unemployment stocks and flows for Germany"(see web site)

4.2 Traditional theories of unemployment

• Akerlof (1982) "Labor Contracts as Partial Gift Exchange"
• Akerlof and Yellen (1988) “Fairness and Unemployment”
• Burda and Wyplosz (2012) Macroeconomics: A European Text

• Cahuc and Zylberberg (2004) Labor Economics

• Shapiro and Stiglitz (1984) "Equilibrium Unemployment as a Worker Discipline Device"

• Solow (1979) “Another Possible Source of Wage Stickiness”

4.3 The search and matching approach

• Burdett and Mortensen (1998) “Wage Differentials, Employer Size, and Unemployment”

• Moen (1997) “Competitive search equilibrium”

• Pissarides (1985) “Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages

• Rogerson, Shimer and Wright (2005) “Search-Theoretic Models of the Labor Market: A Survey”

4.4 Behavioural views on unemployment

• Akerlof and Yellen (1988) “Fairness and Unemployment”

• DellaVigna and Paserman (2005) “Job search and impatience”?

• Paserman (2008) “Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation

• Fehr and Schmidt (1999) “A Theory of Fairness, Competition, and Cooperation

• The discouragement effect for unemployed workers

5 Saving and Investment

5.1 Saving and retirement

• Laibson (1997) “Golden Eggs and Hyperbolic Discounting“

• Strotz (1955/56) “Myopia and Inconsistency in Dynamic Utility Maximization“

• Thaler and Benartzi (2004) “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving”

5.2 Asset Prices

• Barberis, Huang and Santos (2001) “Prospect Theory and Asset Prices”

• Benartzi and Thaler (1995) “Myopic Loss-Aversion and the Equity Premium Puzzle

• Caplin Leahy (2001) “Psychological Expected Utility Theory And Anticipatory Feelings“

• Loomes and Sugden (1982) “Regret Theory: An Alternative Theory of Rational Choice under Uncertainty“

• Loomes and Sugden (1986) “Disappointment and Dynamic Consistency in Choice under Uncertainty“

• Mehra and Prescott (1985) The Equity Premium A Puzzle