Part II: Business Cycles


Winter 2012 (2nd term 2011/12)


Thijs van Rens


Barcelona Graduate School of Economics

UPF Graduate Program in Economics, Finance and Management





Weeks 1-4 and week 10 of this course are taught by Fabio Canova.



Lectures and practice session:


Monday, 9:10 - 11:00, room 20.055

Tuesday, 9:10 - 11:00, room 20.055


Practice session: Fridays 14:00 (Emma Duchini,



Office hours:


Tuesday afternoon, by email appointment (



Problem sets:


Problem sets are posted on Tuesday after class, and are due in class on Monday.


Problem set 1


Problem set 2


Problem set 3


Problem set 4 – Matlab code to help you solve the model in Dynare


Problem set 5 – Matlab code





Wednesday March 21, 9:00-13:00, room 40.006


Exam questions (part II of the course only)



Official grading guidelines



Supplementary materials:


NBER business cycle dating committee


Slides on business cycles: data and facts


Matlab codes for solving the RBC model with Dynare


Note on income and substitution effects on consumption


Note on the half-life of unemployment adjustment



Reading list


1. RBC model


*David Romer (1996). Advanced Macroeconomics, chapter 4

Kydland, Finn E. and Edward C. Prescott (1982). Time to Build and Aggregate Fluctuations. Econometrica, 50(6), pp.1345-1370.

*King, Robert G. and Sergio T. Rebelo (1999). Resuscitating Real Business Cycles. In: John B. Taylor and Michael Woodford (eds), Handbook of Macroeconomics, volume 1B, pp.927-1007.

Hall, Robert E. (1997). Macroeconomic Fluctuations and the Allocation of Time. Journal of Labor Economics, 15(1), pp.S223-S250.


2. Business cycles


*Stock, James H. and Mark W. Watson (1999). Business Cycle Fluctuations in U.S. Macroeconomic Time Series. In: John B. Taylor and Michael Woodford (eds), Handbook of Macroeconomics, volume 1A, pp.3-64 (also NBER WP 6528).

Agresti, Anna-Maria, and Benoît Mojon (2001): "Some Stylized Facts on the Euro Area Business Cycle" in I. Angeloni, A. Kashyap, and B. Mojon eds., Monetary Policy Transmission in the Euro Area, Cambridge University Press. (also ECB WP #95)

Kydland, Finn, and Edward C. Prescott (1990): "Business Cycles: Real Facts and a Monetary Myth," Quartely Review, Federal Reserve Bank of Minneapolis

Jordi Gali (1999). Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations? American Economic Review, 89(1), pp. 249-271

Jonas D. M. Fisher (2005). The Dynamic Effects of Neutral and Investment-Specific Technology Shocks, Working paper.

Stock, James, and Mark W. Watson (2005): "Understanding Changes in International Business Cycle Dynamics" Journal of the European Economic Association, September 2005, v. 3, iss. 5, pp. 968-1006

Ramey, Garey, and Valerie A. Ramey (1995): "Cross-Country Evidence on the Link Between Productivity and Growth," American Economic Review, vol. 85, no. 5., 1138-1151

Backus, David K., Patrick J. Kehoe (1992): "International Evidence on the Historical Properties of Business Cycles," American Economic Review 82, 864-888.

Stock, James, and Mark W. Watson (2002): "Has the Business Cycle Changed and Why?," NBER Macroeconomics Annual 2002, MIT Press. (also NBER WP #9127).


3. Unemployment


*Richard Rogerson, Robert Shimer and Randall Wright (2005). Search Theoretic Models of the Labor Market. Journal of Economic Literature, 43 (4): 959-988, sections 1-4.3

Christopher Pissarides (2000). Equilibrium Unemployment Theory, 2nd edition. Cambridge: MIT Press, chapter 1

*Robert Shimer (2005). The Cyclical Behavior of Equilibrium Unemployment and Vacancies, American Economic Review, 95(1): 25-49.

Marcus Hagedorn and Iourii Manovskii (2007). The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited, working paper

Eva Nagypal and Dale Mortensen (2007). More on Unemployment and Vacancy Fluctuations, Review of Economic Dynamics, 10(3), pp. 327-347

4. Monetary policy and inflation


David Romer (1996). Advanced Macroeconomics, chapter 6

*Jordi Galí (2008). Monetary Policy, Inflation, and the Business Cycle, chapters 1, 2 and 3

Jordi Galí and Mark Gertler (2007). "Macroeconomic Modeling for Monetary Policy Evaluation," Journal of Economic Perspectives, 21(4), pp.25-46

Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans (1998). Monetary Policy Shocks: What Have We Learned and to What End? in J.B. Taylor and M. Woodford eds., Handbook of Macroeconomics, volume 1A, pp.65-148

Jordi Galí (1999). Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?, American Economic Review, 89(1), pp.249-271



Background reading:


Paul Krugman on Economics in the Crisis


Ricardo Caballero on the Pretense-of-Knowledge Syndrome


Robert Solow, Sidney Winter, Scott Page, David Colander and V.V. Chari on Building a Science of Economics for the Real World


Olivier Blanchard on The State of Macro


Narayana Kocherlakota. Some Thoughts on the State of Macro


Paul Krugman. How Did Economists Get It So Wrong? NY Times Magazine, September 6, 2009


Letters replying to the article


Mulligan, Casey B. (2009). Is Macroeconomics Off Track?, The Economists' Voice: Vol. 6, Iss. 10, Article 6


Da Silva, Sergio (2010). Comment on Casey Mulligan: Keynes in Both Fresh and Salt Water, The Economists' Voice: Vol. 7, Iss. 2, Article 1


Barbera, Robert J. (2010). If It Were a Fight, They Would Have Stopped It in December of 2008, The Economists' Voice: Vol. 7, Iss. 2, Article 3


Mulligan, Casey B. (2010). Comment on Barbera: Your Gift Will Make You Rich, The Economists' Voice: Vol. 7, Iss. 2, Article 4



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