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Session 1: Introduction
Michael McMahon
University of Warwick
McMahon (University of Warwick) Introduction 1 / 22
To Cover
1 The Abouts2 Syllabus3 Assignments and Grading4 Some philosophical points about Economics
McMahon (University of Warwick) Introduction 2 / 22
The Abouts
About you and about me
About the course in general
Resources
McMahon (University of Warwick) Introduction 3 / 22
The AboutsAbout you and about me
Dr. Michael McMahon
Biographical information:
IrishBA in Economics from Trinity College DublinMSc, MRes and PhD in Economics from London School of EconomicsWorked as a professional economist for the Bank of England, ECB, andCentral Bank of IrelandTaught for Warwick, LSE, NYU and University of Chicago.
Your name, your area of work, your economics and statisticsbackground, and your chance to ask me any questions about me.
McMahon (University of Warwick) Introduction 4 / 22
The AboutsAbout the course
1 Lectures (40%)2 Class Discussion of Relevant Literature and current situation (40%)3 Computer Based Work (20%)
McMahon (University of Warwick) Introduction 5 / 22
The AboutsAbout the course
Economist Article....the measure of your learning.
McMahon (University of Warwick) Introduction 6 / 22
The AboutsAbout the course
There are 3 main themes to be covered in the course:
1 Macroeconomic Theory;2 Money, banking and the �nancial system (including the current crisisand policy responses);
3 Macroeconomic indicators and an introduction to the use of statisticsin macroeconomics.
McMahon (University of Warwick) Introduction 7 / 22
The AboutsAbout the timetable - Day 1
The Basic Real Business Cycle Model (Theme 1)
Introducing the RBC modelDiscussing the costs of business cycles and the argument forstabilisation policyMeasuring business cycles using data (computer based work)Understanding and interpreting macroeconomic indicators
The economics of sectoral diversi�cation (Theme 1)
Bene�ts of diversi�ed economiesHow di¤erent sectors behave over the business cycle and economicadjustment across sectors
A brief introduction to forecasting and factor models (Theme 3)
the eurocoin indicator of the CEPR
McMahon (University of Warwick) Introduction 8 / 22
The AboutsAbout the timetable - Day 2
Evening / Overnight Problem: Full problem set details to beprovided but expected to be done in 30 - 90 minutes.
Money and Banking (Theme 2)
The basics of the �nancial system including the main instrumentsWhy the current crisis? Focus on the concept of leverage and balancesheet e¤ects.Fiscal policy response including a discussion of how �scal policyoperates in the economy.A brief discussion of monetary policy including models of monetarypolicyClass discussion of the liquidity trap, the zero nominal bound oninterest rates and �quantitative easing�
McMahon (University of Warwick) Introduction 9 / 22
The AboutsAbout the timetable - Day 3
Evening / Overnight Problem: To be decided - likely to considerthe issues of oil and monetary unions (full problem set details to beprovided but expected to be done in 30 - 90 minutes).Basic approaches to the labour market (Theme 1)
Search and Matching Models of the Labour MarketE¤ects of labour market regulation
The Macroeconomic E¤ects of Oil (Theme 1)How oil a¤ects the economyAnalysing the e¤ects of oil in the US and EUThe e¤ects of oil in oil-exporting countries
The Economics of Customs Unions (Theme 1)The bene�ts of customs unionsA brief introduction to the new economic geography (Krugman andVenables)Discussion of the GCC
McMahon (University of Warwick) Introduction 10 / 22
The AboutsResources
Lectures
Course pack
http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/mcmahon/adced_course
Macroeconomic data
The Economist magazine, The FT, WSJ, etc...
McMahon (University of Warwick) Introduction 11 / 22
Grading
Students will be assessed on 5 criteria:
Understanding of the theoretical components of the course
Understanding of the practical components of the course
Ability to combine the theoretical and practical elements of the coursein answers/project;
Communication of ideas � these should be both concise and clear;
Attitude to fellow students and the lecturer.
McMahon (University of Warwick) Introduction 12 / 22
GradingGrade expectations
Top Marks: The student has an excellent understanding of the materialcovered within the lectures of the course. Moreover, the student has shownan ability to think beyond the basic material and to relate the sessions toone another in a highly perceptive way. Moreover, this student understandsthe limitations of the analytical tools developed in the course. The studentpresents ideas, both written and orally, in a clear and concise manner. Inboth class participation and also other interactions with the student, (s)hedisplays an excellent attitude; receptive to comments and eager to learn.
McMahon (University of Warwick) Introduction 13 / 22
GradingGrade expectations
Middle Grade: Good understanding with some lack of clarity on eithertheoretical or empirical issues. Presentation of ideas may be moreambiguous or less well structured. Nonetheless, the student is clearlymotivated and works well within the course.
McMahon (University of Warwick) Introduction 14 / 22
GradingGrade expectations
Lower Grade: The student has only partial understanding of some areasof the course. This leads to greater ambiguities in his/her presentation ofideas.
McMahon (University of Warwick) Introduction 15 / 22
Grading
Each participant will be individually assessed via the following:
1 Two "within course" problem sets (20 points)
these short problems will involve the use of data from large databasessuch as FRED database at the St. Louis Fed, IMF and World Bankdatabases, or ILO data.each problem will be submitted by individual participants and will beworth up to 10 points.
2 2-week individual research exercise (80 points)
Assignment provided at the end of the course
McMahon (University of Warwick) Introduction 16 / 22
Basics Concepts You Must Be Aware OfGDP - Real versus Nominal Concepts
Nominal GDP in year t =N
∑i=1pit .qit (1)
Real GDP (year K prices) in year t =N
∑i=1piK .qit (2)
De�ning the price level as a de�ator
Base Z de�atort =nominal GDPt
(real GDP in year Z prices)t(3)
Calculating growth
Growth between t and t + 1 =
�Xt+1Xt
� 1�
(4)
� lnXt+1 � lnXtMcMahon (University of Warwick) Introduction 17 / 22
Philosophical Points about Economics
Economics is a way of thinking - not a set of laws and rules
This framework for thinking can then be applied to many topics
Freakonomics
Empirical work is very tricky
LSE (my alma mater!) - motto is "Rerum Cognoscere Causas"
The following material is just for fun, but the frame of mind that theexercise highlights is all important for economics.
McMahon (University of Warwick) Introduction 18 / 22
Philosophical Points about Economics
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McMahon (University of Warwick) Introduction 20 / 22