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Intermediate Macroeconomics

Course PROJECT

Scope: The project consists of research, data analysis, and report-writing on a selected topic. 

Outcomes: (1) report; (2) in-class oral presentation (10 minutes each student).

Report is due: Check the Syllabus for the deadline date.

When should I start? 

The sooner, the better. If you start early, you will have plenty of time to work on your project.

Topic:

Your report should have a strong empirical component. This means the report should analyze data in some way. The word count is between 2500 (minimum) and 5000 (maximum). The word count excludes tables, charts, appendices, and bibliography. 

Available Topics to Choose From:

Topic 1: Growth Comparison 

Topic 2: Business Cycles 

Topic 3: Central Bank and Monetary Policy Comparison with the Fed

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Topic 1: Growth Comparison 

PROJECT DESCRIPTION 

1. 

Selection of Countries:

2. 

The aim of this project is to compare and contrast the growth experiences of two different countries. Select two countries for which you think a growth comparison would be interesting. Restrict your choice to countries for which the capital stock series are available in the Penn World Tables (PWT) 9.1. DO NOT CONSIDER THE U.S. 

1. 

Growth Accounting:

2. 

Identify the contributions of capital accumulation and productivity growth to growth. Construct the Solow residuals using the following equation: 

Growth in Y/L = alpha*( Growth in K/L ) + Solow Residual 

Assume alpha = 0.35, which is a common estimate for the share of capital. 

1. 

Make two plots. The first should compare the growth rates of the two countries. The second should plot the three components of the equation above to see how growth is broken into two components: the part that comes from capital accumulation (building more machines) and the part that comes from productivity improvements. 

2. 

3. 

Possible Explanations: Come up with a few fundamental explanations, which explain some of the features of the plots above. You should try to identify differences between the two economies which might generate the divergent results from the growth accounting. We want to see whether you have developed good economic reasoning. So if you present some economic explanations which may be responsible for some of the observed features, this satisfies the purposes of this class. 

4. 

The appropriate framework to think about this exercise is as follows: 

· 

Fundamental differences (e.g. government policy, institutional differences, differences in education levels etc.) 

· 

· 

Mechanical differences (more/less capital accumulation, more/less productivity improvement) 

· 

· 

Differential growth experience (more/less growth) 

· 

For example, the countries might differ in their political structure: Communist versus Capitalist. In the communist country there would be lower incentives for technological innovation, which would lead to lower productivity growth. You may wish to examine the rewards structure for managers of industrial plants in order to understand their incentives for improving productivity. Or you may argue that the monopoly of state-owned enterprises diminished the incentives for creating new products, because inventors of these products would not realize any gains from their inventions. In addition, the closed nature of the economy might lead to slower diffusion of ideas within the economy and from abroad.  

Remember, focus on explanations for differences in growth, not differences in levels. For example, a state-owned monopoly may have an inefficient level of production, but this is a statement about levels. You should examine the implications for productivity growth. There are many potential explanations. Just pick a few which you think are most responsible for the differences and try to make an economic argument that links these explanations to the mechanical observations from the growth accounting part. It is very important to show relevant data and historical evidence that supports your arguments. 

Marks will be awarded for well-constructed arguments. You must present a clear thesis and line of argument to explain the differences in growth. 

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Topic 2 - Business Cycles 

PROJECT DESCRIPTION 

1. 

Selection of Country

2. 

The aim of this project is to study and explain the dynamics of consumption, investment and other key macroeconomic variables of a single country, over a long time span. You will have to identify the cyclical components of the economy, explain the source of the fluctuations and also the relationship between the macro aggregates, through the lens of the Real Business Cycle (RBC) model. Restrict your choice to countries for which the capital stock series are available in the Penn World Tables (PWT) 9.1. DO NOT CONSIDER THE U.S.

1. 

Compute long run variables

2. 

You will have to construct the Solow residuals, and with them construct the long run versions of the key macroeconomic variables: GDP, consumption and investment.

a. 

Compute the real, log per capita variables we need. If {y_t} is a per capita variable, regress 

b. 

log(y_t) =  a + b*t +  e_t  estimating a and b. 

Then keep the residuals {r_t}, calculating:

r_t  = log(y_t) - a - b*t

a. 

Construct the Solow residuals

b. 

c. 

Compute the savings rate s as the average Investment/GDP ratio.

d. 

e. 

Assume alpha = 0.35, and you can also set n + 未 = 0.025 to build the per capita time series for capital ( k_t ), GDP ( y_t  ), consumption ( c_t ), and investment ( i_t ) measured in logs.

f. 

g. 

Plot the simulated variables together with the observed data, showing the fluctuations of the data with respect to the theoretical long run aggregates.

h. 

1. 

Identify fluctuations and possible explanations

2. 

Comment on some of the features of the plots above. Try to identify the sources of the observed fluctuations, explaining both the nature of the potential total factor productivity (TFP) shocks. Try presenting economic explanations that are consistent with the observed fluctuations. We want to test your economic reasoning. So if you present some economic explanations which may be responsible for some of the observed features, this satisfies the purposes of this class. 

Topics to consider: 

· 

Sources of fluctuations (i.e. macroeconomic shocks, trade accounting, government policy, terms of trade fluctuations)

· 

· 

Response of macroeconomic aggregates to the shocks both in terms of sign (positive or negative) and in size

· 

· 

Co-movements between key macroeconomic variables.

· 

Focus on a particular event (a crisis fluctuation, a boom) and find a potential explanation for its source. For example, a boom could be driven by an increase in exports (driven by favorable terms of trade, high demand for the country’s main tradable goods).  

Also, you can focus your attention to a particular crisis episode, identifying the shocked sector (e.g. a financial crisis), and give an intuitive explanation of the response of the economy to it, through the lens of the Real Business Cycle (RBC) model. You must use either journalistic or academic articles to base your explanations and arguments, as well as supporting data (e.g. exports and imports, for the export boom example). 

Marks will be awarded for well-constructed arguments. You must present a clear thesis and line of argument to explain business cycles. 

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Topic 3 - Central Bank and Monetary Policy Comparison

PROJECT DESCRIPTION 

1. 

Selection of Country

2. 

The aim of this project is to compare and contrast the structure, tools, and conduct of monetary policy between the Federal Reserve System (the Central Bank of the United States) and your selected country. In addition, you have to critically assess the effects of monetary policy implementation in your selected country on the macroeconomic performance of that country. Restrict your choice to countries for which macroeconomic indicators are available in the Penn World Tables (PWT) 9.1. or in the Federal Reserve Economic Data (FRED) database. 

Suggested Resources for central banks:

a. 

The Federal Reserve System: https://www.federalreserve.gov/

b. 

c. 

Central Banks of Various Countries: http://www.bis.org/cbanks.htm

d. 

1. 

Research the structure, tools, and policy implementation of the Central Bank of your selected country;

2. 

3. 

Compare and contrast the conduct of monetary policy by the Central Bank of your selected country with that of the Federal Reserve System of the United States. 

4. 

5. 

Critically assess the effects of monetary policy implementation in your selected country on the macroeconomic performance of that country. 

6. 

Topics to consider: 

· 

Assess the economic performance of your selected country (i.e. macroeconomic indicators, government policy, terms of trade fluctuations, standard of living, etc.)

· 

· 

Assess co-movements between key macroeconomic indicators.

· 

· 

Consider how monetary policy implementation affected macroeconomic indicators and their co-movements in your selected country.

· 

· 

Compare the monetary policy implementation and its results on macroeconomic performance between your selected country and the U.S. 

· 

You must use either journalistic or academic articles to base your explanations and arguments, as well as supporting data. 

Marks will be awarded for well-constructed arguments. You must present a clear thesis and line of argument to explain monetary policy implementation results comparison. 

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FOR ALL TOPICS:  

SOME POINTS TO CONSIDER AS YOU WORK ON THE PROJECT:

1. 

Research: We expect that all of you will SPEND TIME IN THE LIBRARY looking for further data and non-quantitative evidence in support of your arguments. Econlit, which indexes and abstracts more than 550 international economic journals, is a great starting point for finding relevant articles.

2. 

3. 

Thesis: We cannot emphasize this enough. It is imperative that you have an argument and state that argument clearly and concisely early on in the report (i.e in Section 1!!!) For example, for the growth exercise, using the Solow model as a lens through which you initially consider the question of how your two countries developed, you must state and then prove WHY you get your growth accounting results.

4. 

5. 

Style: Grammar, spelling, proper citation and overall presentation (e.g. page numbers, clearly delineated sections etc.) are all very important. We are using the Chicago-Author-Date style of citations. Data citations are clearly explained here. 

6. 

Organizing Your Report:

Section 1: Introduction. 

In Topic 1 you will have to explain WHY you’ve chosen your 2 countries, highlight the main results of your growth accounting analysis and offer a CLEAR THESIS STATEMENT as to why you think you got those results. 

In Topic 2, you have to explain why you chose your country, and offer a summary of the particular fluctuation events that you will be focusing on. 

In Topic 3, you have to explain why you have chosen your country to compare with the U.S. and offer a summary of the differences in monetary policy that you have discovered. 

Section 2: Data and Methodology

Present your data and methodology. (think visuals: EQUATIONS, TABLES, GRAPHS!!!) 

Section 3: Analysis

This is the heart of your report. You may even divide it up into sub- sections if there is some sort of logical break in the way you structure your arguments. Here you will fully flesh out your thesis statement explaining, for example, WHY you got your growth accounting results. You may introduce new models or new data in this section. Whatever you do, please remember that this is an economics paper first and foremost and you must make economic arguments. You must have strong economic reasoning and DATA to support your ideas. Of course, some narrative and cohesive interpretation of the data is important as well. 

Section 4: Conclusion. 

Summarize your key results. 

Organizing your Oral Presentation:

Your 10-minute presentation will follow the logical progression of your report. 

Step 1: start by making a PowerPoint presentation deck of slides. They will follow the sections of your report. However, you need to summarize and synthesize to be able to fit everything into a 10 minutes time frame. The points will be deducted for going over time. 

Step 2: when you are done, upload your presentation slide deck to the Discussion Forum for your date of presentation. Please upload the file. Do NOT give the link!

Step 3: you will use Zoom to talk. I will share my screen with your presentation from the Discussion Forum to avoid technical difficulties. YOu will tell me when to advance your slides. You MUST put your camera on when you are presenting. Your microphone should be on also. 

Professionalism of Your Presentation:

Important points:

1. 

You must appear on the video in a professional attire. It should be business casual attire (at least from the waist up).

2. 

3. 

You must create a professional background for your video. This means that the viewer should not see a bed, a cramped basement, a kitchen with dirty dishes, or anything that will appear sloppy and not professional. In fact, the suggestion is to even remove any objects that can take the focus away from your face to that object in the background. Select a room with the least mess in the background. Turn your camera towards a clear wall or a door. Make it less distracting. There are opportunities nowadays to make a blurred background or to upload a screen background. 

4. 

5. 

You must prepare your script (so you are not searching for words) and speak loudly and clearly, so the viewer understands clearly what your message is.

6. 

Unprofessional appearances online are more damaging to your reputation than the unprofessional appearance during an interview in-person. During the in-person meeting, your posture, your personality, your passion can correct for any imperfections. During the video, you do not have any opportunity to correct the imperfect impression of yourself. 

 

Best of luck!

 

Acknowledgement:

Project ideas, directions, and execution (with modifications) came from the MIT Open Course Catalogue under Creative Commons License. 

 

George-Marios Angeletos. 14.05 Intermediate Macroeconomics. Spring 2013. Massachusetts Institute of Technology: MIT OpenCourseWare, https://ocw.mit.edu. License: Creative Commons BY-NC-SA. eAlik