Graduate Macroeconomic Theory (Eco 601, 621, 603)


Graduate Macroeconomic Theory (Eco 601, 621, and 603)

Course Description

Eco 601, 621, and 603 are a three semester sequence of courses on macroeconomics. The topics are divided into (I) Economic Growth, including both long run growth (which determines the wealth of nations) and short run variation in growth, which is known as the business cycle, (II) monetary economics and policy, and (III) fiscal policy including bonds and deficits, distortionary taxation, and Social Security.

The first semester covers some mathematical preliminaries and economic growth. Economic growth is by far the most important issue in macroeconomics, and perhaps in all science. Tiny differences in growth rates eventually determine which countries are wealthy and which countries are poor. We will analyze three growth models: the optimal growth model, an endogenous growth model, and the stochastic growth model (a model of business cycles).

For the second semester, we will continue to apply the tools learned in the first semester to several important areas of macroeconomics. First, we will finish our discussion of business cycles. We then will move on to monetary economics and money by examining various versions of the cash-in-advance model. Then we will explore the fiscal side of the economy, looking at taxation, government spending, and deficits. Among the concepts we will examine are Ricardian equivalence and Social Security.

The approach in these courses is the microfoundations approach. That is, we will use microeconomic models of individual behavior, and then aggregate across individuals to determine the behavior of economic aggregates such as GDP. Our analysis is necessarily dynamic. For example, growth is the result of dynamic decisions such savings, which represents the trade-off between current and future consumption. Our class also uses general equilibrium analysis: we require equilibrium in all markets. This approach was pioneered by authors such as Lucas and represents the dominant and most sensible approach to macroeconomics.

General Information

Professor: David L. Kelly (Dave).

Course Meetings: Tuesday and Thursday, 3:30-4:45 pm in room Aresty 435.

Office: Room 521-B, Jenkins School of Business.

Office hours: Wednesdays 10-12 and 3:30-5 (Dave is almost always around during business hours, but try to come during office hours if you can).

Contacts: Dave can be contacted via phone (8x3725) or email (

Web Site: A website ( has been established for this course. At this site, you can download or view course material (homeworks, etc.).

Final Exam: NOW DECEMBER 19 FROM 3:30-4:45 PM in the same room, Aresty 435.


Eco 601 is an introductory course and thus has no prerequisites. However, I assume a working knowledge of calculus and basic optimization. Eco 621 requires Eco 601 and Eco 603 requires both 601 and Eco 621.


At the PhD level, there is rarely an ideal textbook. However, I recommend the Cooley book below which summarizes many of the topics covered. Sargent covers some of the monetary topics and Lucas and Stokey covers the mathematical underpinnings. Blanchard and Fisher review a few of the overlapping generations and growth topics. Cooley is used primarily in the second and third semesters, whereas Lucas and Stokey is used heavily in the first semester.

Cooley. Frontiers of Business Cycle Research. Princeton Press, 1995.

Ljungqvist and Sargent. Recursive Macroeconomic Theory. MIT Press, 2000.

Blanchard and Fisher. Lectures on Macroeconomics. MIT Press, 1989.

Lucas and Stokey. Recursive Methods in Economic Dynamics. Harvard Press, 1989.