Growth and Long Term PolicyPart I - Lecture M2 - ETE

18th September 2013 – 23rd October 2013

Jean-Bernard Chatelain,

jean-bernard.chatelain@univ-paris1.fr

Office 302 with Bertrand Wigniolle

(e.g. Thursday 2pm-3pm).

google « EPI chatelain croissance»

Google « EPI UFR02 », M2 Master ETE, block « Croissance », page « Croissance et Politiques de Long Terme (part 1)».

Link to another EPI (panel data).

Plan

1. Plan of the course

2. Exams

3. Syllabus, Detailed plan.

01-06 Growth Regressions

and Growth and Finance (JB Chatelain):

1.A. Growth Regressions (Applied):

with a hands-on replication experiment on Growth and Aid (STATA).

1.B. Growth and Finance (Theory): Assumptions, methods and pitfalls

07-12. Long Term Policies in Overlapping Generations Models (Bertrand Wigniolle)

2. Exams

2013

Grading

JB Chatelain: each student provides 2 reports

a) Replication Growth and Aid (4/10) (first oral exam: november) [if enough room for differentiation, grade will be 5/10]

b) Report on Growth and Finance (6/10) (2nd oral exam: december, january) on a different paper for each student.

B Wigniolle: written exam (10/10), last wednesday of december or first wednesday of january.

.

1. Replication Assignmenton Growth and Aid: on the EPI

1. Burnside and Dollar paper

2. Data set (excel and stata)

3. Stata do-file (and word version), SAS file.

4. Stata txt compilation with results

5. Lists of questions to answer in your report (word)

Replication experiment: First Oral exam, in office 302: 14th october – 30th november

Print a copy as soon as Monday 14th of october (till 30th of november) in letter box 302 in front of office 302.

6 minutes: presentation: print slides or handout for professor.

4 minutes: questions

2 minutes: paper chosen for next report.

2. Growth and Finance reportat most 15 pages

Report: pick 1 recent (since 2009), (working or published) paper in the field.

A) Write a referee report on this paper.

B) Propose extensions and improvement: i.e. set the detailed guidelines for a new paper based on this one.

.

A1. Motivation, assumptions, data, methods, results

A2. what is missing and debatable

A3. what is relevant or not in the case of your country

B. what could be done to improve these both papers to write another paper

add printed slides (up to 6).

A couple of questions about the course may be asked during the oral exams.

Finding 1 recent paper, available since 2009 latest

Should be on a topic relevant for the course.

May be in the long list of recent REPEC 2013 provided by JBC, but not necessarily.

Working papers or published in journals.

Sources: NBER, CEPR, Repec, SSRN, Google Scholar (+editors: Elsevier, Wiley): use keywords, look for series on macro/finance, click on CITED in google scholar.

Other ways to find the paper

quoting one of the papers (Click on CITED by, in « Google Scholar » presented in the topics).

Credit cycles N Kiyotaki… - 1995 - nber.org Cité 2328 fois - Autres articles - Les 48 versions

2nd Oral exam, in office 30218th november-20th december

10-15 minutes:

give to professor:

Printed slides+your report+the research paper

3 minutes: Results and Critical Comments

3 minutes: Your proposal

Remaining time: questions, including questions on the course.

Design of a project for a research paper

Should be quite detailed.

Cf. Conceptual Art Instructions.

When an artist uses a conceptual form of art, it means that all of the planning and decisions are made beforehand and the execution is a perfunctory affair. (1967)

Low risk / low return and incentives on grades

To have a grade over 7/10 (14/20) is demanding.

The paper should have then an innovative content signalling research interest and abilities in the section of the report: « what could be done to expand or build on this paper to write another research paper»,

A grade between 5 and 7 signals you have done the work more or less.

A grade below 5 means a serious lack of work.

Expected Workload: 2 times 10-15 hours

3. Syllabus

2013

Part 1: Growth regressions: Why IMF cross country macroeconometrics

are so « fragile »… and what could we do to be « less wrong »

1. Multi-factor explanations, Outliers, non-linearity with poverty trap.

2. Panel data macroeconometrics

3. Endogeneity: Instruments/identification

Examples: Growth and Foreign Aid, Public Debt (Reinhart Rogoff), Finance

Part 2: Growth, Business Cycles and Finance

Methodological pitfalls:

Theory,

Facts,

Policies,

Empirical research.

Because huge and/or frequent financial crisis lead to long term instability and depression, the links between asset prices bubbles, financial structure of firms, households and banks, output growth trend and cycles and macro-policy are now on the top of the research agenda. It is particularly difficult during depressions to disentangle growth and cycles, as depressions last longer and shift downwards the growth trend.

EMBEDDED Macroeconomics: « Banking Fragile by Political Design »

Revising views

1. Allocation of capital between sectors (removing barriers to entry due to credit rationing, fostering creative destruction, risk sharing).

2. The fluctuations (risk increasing, crisis) channel of Finance on Growth emphasized.

3. Control of capital flows and regulation fostering financial stability?

4. Excess ressources into finance in developped world (excess trades, excess labour due to excess wages, too much risk-taking, excessive rents)?

4. References: part 2

2013

Topic 1: Growth, Business Cycles and Finance. Towards a paradigm change?

• Chatelain J.B. and Ralf K. (2012). The Failure of Financial Macroeconomics and What to Do about It. The Manchester School, pp. 21-53, supplement.

• Quiggin J. (2012). Zombie economics. Princeton University Press. (paperback edition with chapter 6: expansionary austerity).

• Many articles and blogs on the failure of DSGE (dynamic stochastic general equilibrium) since 2008. Bradford de Long, Buiter, Krugman, Kay, Woodford, Stiglitz, Franklin, Wieland and Wolters, Schleifer, Farmer

Topic 2: Competing paradigms and History of Economic Thought

• Bardsen G., Lindquist K-G., Tsomocos D. (2008). Evaluation of Macroeconomic Models for Financial Stability Analysis. The Journal of World Economic Review, 3(1), pp. 7-32.

• Irving Fisher (1933). The debt deflation theory of great depressions. Econometrica, vol.1 (4), 337-357.

• Krugman (2002). Crises: The Next Generation? in Economic Policy in the International Economy: Essays in the honour of Assaf Razin.

Topic 3: Financial accelerator Models (including phasis diagramma).

• Miller M. and Stiglitz J. (2010). Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?, Economic Journal, 120 (544), pp. 500-518.

• Edison H.J., Luangaram P. and Miller M. (2000). Asset Bubbles, Leverage and ‘Lifeboats’: Elements of the East Asian Crisis, Economic Journal, 110 (460), pp. 309-334.

• Kiyotaki N. and Moore J. (1997). Credit Cycles [section 2]. Journal of Political Economy, 105, 211-248.

Topic 4: Inefficient Market Hypothesis

• De Grauwe P. (2011) : Where Do Booms and Busts Come From?, Prisme 22, Centre Cournot. http://www.centre-cournot.org/?wpfb_dl=91

• Shleifer A. and Vishny R.W. (2010). Unstable banking. Journal of Financial Economics, 97(3), , Pages 306-318

Topic 5: Growth, Finance and Convergence: general overview; “Too much Finance”

• Arcand J.L., Berkes E. and Panizza U. (2012). Too Much Finance? IMF working paper 12/161.

Topic 6: Growth, Finance in Overlapping Generations Models with Multiple Equilibria.

• Matsuyama (2007). Credit traps and Credit cycles. American Economic Review. Volume 97, Number 1, March 2007, pp. 503-516(14).

• Song, Z.; Storesletten, K.; Zilibotti, F. (2011): Growing like China, American Economic Review, Volume 101, Number 1, February 2011 , pp. 196-233(38)