ECON 503 Applied Macroeconomics




Contact Information
Dr. Brian Goff/414 Grise Hall
Phone: 745-3855 / Email:
Office Hours:  9-11 TTh
(I am in my office or on campus most days; feel free to drop in)

See posted links to readings in Course Outline  
Economics Internet Library;
Gretl (econometric software available in both Windows & Mac formats)
(There is no required text;  If you would like a reference book, here are two suggestions:  Macroeconomics: A Modern Approach by Barro is an up-to-date, upper or masters level book that is very useful but expensive;  Schaum's Outline in Macroeconomics is  straightforward and inexpensive but is somewhat antiquated in its approach and topical coverage)

Reading Summaries                                            10%
Reading Quizzes                                                 10%
Empirical Assignments                                       20%
Exam 1                                                                30%
Exam 2                                                                30%

(A >= 90%; B= 80-89; C=70-79; D=60-69; F < 60)

Reading Quizzes:  Short answer or multiple choice quizzes at the beginning of each class over assigned readings

Reading Summaries:  1-page (single-spaced, 12 pt) brief summary of main points/evidence of assigned reading(s).  Separate page for each reading. 

Empirical Assignments: Completing basic empirical macroeconometric tasks using Gretl, FRED from St Louis Fed or other sources

Exams:  These will be a midterm and final exam that are comprised of short answer and mutliple choice questions on key points.

Grades 2013 

Last day to drop course with a "W" or change from credit to audit is listed on WKU's Academic Calendar.  Any students requiring special consideration under the provisions of the ADA should register with the ADA Compliance Office first and then consult with me as soon as possible.  If you are not fluent in English or are weak in your writing abilities, you should utilize a writing "consultant" to examine your written reports before turning them in.  The WKU Writing Center is one option.  Undergraduate students willing to offer tutorial services (for a fee or free) are another.

Data Resources:

US Data

International Data

Informative Macro Blogs





1. Awareness of about current/past macro measures and measurement issues
2. Understanding of macro outlooks/forecasting
3. Understanding of analytical and empirical models in macro and their development/debates
4. Understanding of computational/statistical methods in macro

Macroeconomics is an eclectic subject.  It is partly about trying to measure where the economy has been, currently is, and maybe going.  It is also partly about coming up with explanations of aggregate outcomes or policies and testing these explanations.  Part of macro is almost purely statistical in nature with little theory.  Part of it is application of theoretical ideas from microeconomics.  Part of it is deals more with aggregate level explanations not directly tied to microeconomic models.  Part of it is explaining outcomes in particular sectors.  My objective this semester is to provide you with some exposure to various aspects of macro.


Week 1 (Aug 29)  Macro Data and Measurement     
1. A short history of Macro 
2. Key Macro variables and data sources
3. Common measurement issues in macro: frequency, seasonality

Data/Graphics: STL FRED   Gapminder Econ Graphics   Brief History of Macro
Supplemental Reading:  Macro and Macro-Finance Nobel Laureates ; The Macroeconomist as Scientist and Engineer (Mankiw JEP Fall, 2006) 

For Next Week:  Empirical Assignment 1  Accessing and Manipulating Basic Macro Data in FRED & GRETL 


Week 2 (Sept 5) Some Measurement Issues in Macro  
1. Reading and Quiz:   Personal Saving Behavior and Real Economic Activity (Richmond Fed, Spring 1993);  Measuring Inflation (STL Fed 2011)
2. Income measures and wealth measures 
3. Measuring Saving:  Declines in the U.S. Personal Saving Rate:  Is it Real and Is it a Puzzle (STL Fed, Nov 2007);
4. Measuring Inflation

Data/Graphics:  Macro Saving Calculations Excel File
Supplemental Reading: Housing and Inflation Measurement (Vox-Cecchitti);   An Alternative Measure of Inflation (Chicago Fed Q1, 2006)
                                     A Guide to Aggregate Measures of Housing Prices (KC Fed Q2, 2007) 

For Next Week: Empirical Assignment 2  Generating Inflation and Other Graphics from FRED


Week 3 (Sept 12) Basic Models in Macro and Applications to Long Run and Cross Country Outcomes 
Reading Summary and Quiz:  Why Do Americans Work So Much More than Europeans  (Minneapolis Fed July, 2004, make sure to know the basic model equations 1-4);  Europe Payroll Taxes
1. The basic equations/constraints of macro
2. Solow growth model basics and covergence
3. Prescott's application of to cross-country work

For Next Week:  Empirical Assignment 3  GDP Levels and Measures of Protection/Freedom
Images/Data:  Gapminder Econ GraphicsIMF World GDP MapGDP per Capita by Country;
Supplemental Reading:  Solow Model Interactive Tutor;    Robert Lucas: Architect of Modern Macroeconomics ;  Gretl Script file =  prescott growth.inp
                                          Solution of a Simplified DGE Model  


Week 4 (Sept 19)  Long Run Empirical Topics & Issues 
Reading Summary and Quiz:  Determinants of Growth (Barro NBER 1996);  Empirics of Growth (Grier CEE)     Growth is the Problem
1. The "New" Growth Economics
2. What about Scandinavia and other growth questions;  Cowen's critique

Data/Graphics:  Fraser Institute Index of Econ Freedom;  MR Graphic on Inequality
Supplemental Reading: Business Cycles v. Long Term Growth (Minneapolis Fed June, 2003); Productivity of Nations (Richmond Fed, Summer 2006); Democracy and Growth (Barro J of Econ Growth 1996);  
                                 Unbundling Institutions (Acemoglu JPE early version); Reversal of Fortunes (Acemoglu NBER); Institutions and Growth (Acemoglu NBER 2004)

 For Next Week: Empirical Assignment 4   Short Run Empirical Measures & Methods  (Data file =  macroqtr


Week 5 (Sept 26) Short Run Fluctuations in Economic Activity 
Reading Summary and Quiz:    What's Real about the Business Cycle?   (STL Fed July-Aug 2005); From Cycles to Shocks (Phil Fed 2000);   
1. Basic business cycle facts
2. Variable Trends v. Deterministic Trends
3. Intro to Competing Explanations of Cycles and Evidence
4. Basic Modeling Concepts with Short Run Fluctuations

NBER Business Cycle Contractions & Expansions;  SoberLook on Job Openings & Structural Shifts   Mulligan on Married/Unmarried Differences and Seasonal Cycles and Job Openings
Supplemental Reading:  NBER Dating Committee     Theory Ahead of Business Cycle Measurement  State and National Business Cycles 14 (Philadelphia Fed Q1, 2006)        Recoveries after Financial Crises    Mulligan on   ;  
    Example of Shock VARs (Excel File)                                                                                                      
  "Beveridge Graphs" blog post


Week 6 (Oct 3) FALL BREAK

Week 7 (Oct 10) Competing Theories and Evidence on Short Run Fluctuations   

Reading Summary and Quiz:  Summary of Macro Models    and     Modern Macro Overview (Minn Fed 2010)                 
1. Competing Explanation of Cycles
2. Evidence on Competing Explanations of Cycles

Data/Graphics: Oil Prices & Recessions:  SoberLook on Job Openings & Structural Shifts   Mulligan on Married/Unmarried Differences and Seasonal Cycles and Job Openings
Supplemental Reading:    Monetary Policy in the New Neoclassical Synthesis (Richmond Fed 2004, pp. 21-36)           Macro Models Overview      FRB/US Model Summary      ISLM Interactive Tutor;    Mundell Fleming ISLM Version or TutorRBC Interactive Tutor;     Recoveries after Financial Crises  Oil Price Volatility and U.S. Macroeconomic Activity (StL Fed Nov 2005)  Mulligan on   ;  Econ Effects of Energy Price Shocks (VARs for Oil Shocks JEL Dec 2008);
Housing and the Great Recession (Richmond Fed 2011 Barsky and Miron NBER Seasonal Cycles   Response to a Skeptic (Minn Fed 1986);   
  VARs for Home Price Effects (StL Fed 2007); House Price Impulse Response Functions (STL fed conference); Modern Macro in Practice (Minn Fed 2006) 
  DeLeveraging  Econ Effects of Energy Price Shocks (VARs for Oil Shocks JEL Dec 2008); Oil Price Volatility and U.S. Macroeconomic Activity (StL Fed Nov 2005)   Example of Shock VARs (Excel File)




Week 8 (Oct 17) EXAM 1   Exam 1 Worksheet
                                                    Exam 1 Answer Sheet 



Week 9 (Oct 24)  Measuring the Impact of Fiscal Policy
Reading Summary & Quiz:  Identifying Government Spending Shocks  (Ramey QJE 2011)  John Taylor Stimulus History
1. Basic ideas and debates; fiscal constraints
2. Summary of empirical estimates and methods: 
Can Govt Purchases Stimulate the Economy (Ramey JEL 2011)

Barro Macro Data Sets 
Supplemental Reading: Macro Effects of Government Purchases and Taxes (Barro Feb 2010);  Simple Analytics and Empirics of GS Multipliers (Mulligan NBER 2010);   
Summary of Macro Models

For Next Class:   Empirical Assignment 5  Money-Inflation, Inflation-Unemployment Regressions 

Week 10 (Oct 31) Fed/Money/Monetary /Monetary Policy -- Phillips Curves & Monetary Neutrality
Reading Summary and Quiz:  Layperson's Guide to Phillips Curve (Richmond Fed, Summer 2007);
1. Fed structure and tools
2. Money's Role and Definition
3. Policy and monetary "neutrality":  Quantity Theory, Phillips Curve, Expectations

Data/Graphics:    Inflation Scatterplots FRB Cleveland    Barro and Other Inflation Graphics
Supplemental Reading:     Quantity Theory of Money;   Phillips Curve and Macro Policy Snapshots, 1958-1996 (Richmond Fed, Fall 2008) 
                                         Monetary Policy in  Volker-Greenspan Era (Richmond Fed, Spring 2008) ;   The Relationship Between Capacity Utilization and Inflation  (Philadelphia Fed Q2, 2005);    
                                        Ricardian Approach to Budget Deficits (Barro JEP 1989)

For Next Class:  Empirical Assignment 6  Taylor Rule Estimates 



Week 11 (Nov 7)  Fed/Monetary Policy -- Interest Rates & Taylor Rule 
Reading Summary & Quiz: The Taylor Rule: Is It a Useful Guide for Understanding Monetary Policy (Richmond Fed Spring, 2000);  
1. Interest rate basics and Fisher Equation
2. Policy Rules:  From monetary targets to interest rate targets and the Taylor Rule
3. Value and limits of Taylor Rule
4. Alternative Monetary Policy Rules

Data/Graphics:  Interest Rate  Excel File    
Supplemental Reading:    
(32nd Annual St. Louis Fed Conference)   Inflation Measure & Taylor Rule  (Richmond Fed Fall 2010)  Taylor Rule Estimates
Friedman and Taylor on Monetary Policy Rules  (STL Fed March  2008);    

 For Next Class:   Empirical Assignment 7  Hamilton on Interest Rates & Debt/GDP


Week 12 (Nov 14) Debt, Money, and Fiscal Policy
Reading Summary and Quiz:  Monetary & Fiscal Policy in Current Crisis (Cochrane Chicago Business School - Princeton Presentation);  Simplified, Newspaper Length Version;  
1. Considering monetary and fiscal conditions together
2. Links between fiscal crisis and hyperinflations
3. Implications for Japan, Europe, US ...

Data/Graphics: Hamilton on 
Japan  US   Excel File for US, Japan et al 
Supplemental Reading:  Cochrane on Fiscal FallaciesDebt, Deficits, and Looming Disaster (STL Fed 2009);  On the Needed Qty Govt Debt (MN Fed 2007);   
                                         Do Countries Default in Bad Times (SF Fed 2007);  CMA Sovreign Risk Reports ;     Sustainability of U.S. Debt (Goff & Kim)
Economics of Sovereign Defaults (Richmond Fed 2007) ;  Fed Debt Simulations;   Predicting Debt Crisis (Manassee & Roubini) 

                                        Hamilton on Fiscal Cliff  + additional links on possible changes 


For Next Week:  Empirical Assignment 8    Using Yield Curve to Forecast GDP 



Week 13 (Nov 21) Assessing Where the Economy Is (in Real Time) and Looking Forward  
Reading and Quiz: How Did Leading Indicators Perform During 2001 Recession? (Richmond Fed, Summer 2003); Financial Stress: What is Is, How it can be measured, and Why does it matter?  (KC Fed 2nd QTR 2009)
1. Historical v. Current and Forward-looking Measures
2. Useful Indexes and Indicators
3. Yield Curve as Predictor

Data/Graphics:  Excel File Output Predictions    Interest Rate  Excel File

Supplements:   Interest Rates;   Rate influences pptUnderstanding the Term Structure of Interest Rates  (William Poole StL Fed Sept-Oct, 2005)
                         STL Monetary Trends;  Excel File on Interest Rate graphs, regressions, data ;       Fed & Rates ppt;  Offsetting & Predicting Rates ppt
                             Excel File on Forward Rates & Yield Curve   The Effectiveness of Monetary Policy Fedwatch 
                          Using Fed Fund Futures to Predict Monetary Policy -- 9 (Richmond Fed Spring, 2001);  Macroeconomic News and Real Interest Rates (StL Fed March-April, 2006)
                            The Rise in Personal Bankruptcies -- (StL Fed Jan-Feb, 2007) Rare Disasters and Stock Crashes (Barro 2005)  
                              JEP Symposium on Financial Crisis; Financial Crisis Timeline;  Financial Markets & The Real Economy (Cochrane sweeping background but technical);
Too Big To Fail Conundrum (City Journal)  Financial Stress: What is Is, How it can be measured, and Why does it matter?  (KC Fed 2nd QTR 2009)
Financial Crisis and Fed's Actions as Lender of Last Resort (Dallas Fed, March 2009)


Week 14 (Nov 28) Thanksgiving Break 

 Week 16 (Dec 5)  Exam 2

Week 17 (Dec 12)  Exam 2




ISLM Interactive Tutor;  Mundell Fleming ISLM Version or Tutor

Stock Markets:  Siegel; Milken;  ; Cochrane on

RBC Interactive Tutor

Interest Rates, Credit Markets, Asset Prices, and the 2008 Crash
Reading Quiz:  Stock Market Crashes and Depressions (Barro 2009)
1. Basics of interest rates and credit markets:  Rate basics ppt;   Excel File on Interest Rate graphs, regressions, data   Fama on Does the Fed Control Interest Rates 
2. Rates and recessions; Financial market stress indicatiors:  StL Fed Fred 
3. Relationships between asset prices and major economic disruptions
4. The 2008 financial and economic crises: 
Goff PowerPoint on 2008 Financial Crisis;


  Ray Fair Macro Model (Site Index & Model Solving Links; Model Explanation;    U.S. Model Equations/Variables AppendixForecast Record (pick variable); 

Using Fed Fund Futures to Predict Monetary Policy -- 9 (Richmond Fed Spring, 2001)                Excel File on Forward Rates & Yield Curve;

Why are FX Rates So Hard to Predict?  Dallas Fed Econ Letter June 2008 or FX Rate Conundrum -- Richmond Fed Fed Region Focus Winter 2006

 International Pricing in New Open-Economy Models (Richmond Fed 2001);      NY Fed on Foreign Exchange Market
                                            Rational Speculation and FX Rates (JME 2005) ;  Econbrowser on FX & Commodity Prices;  

Deficits (Journal of Economic Literature 1993 go through WKU EJournals);

How Did Leading Indicators Perform During 2001 Recession? (Richmond Fed, Summer 2003); 

After the Baby Boom: Population Trends and the Labor Force of the Future -- 14 (Philadelphia Fed Q4, 2005)
Supplemental Readings: Why are Married Women Working More: Some Macroeconomic Explanations -- 10 (Philadelphia Fed Q4, 2004):
Work and Taxes: Allocation of Time in OECD Countries -- (KC Fed 3rd Quarter 2007);   

 Exchange Rates and Business Cycles Across Countries --20(Richmod Fed Winter, 2007)
What We Don't Know Could Hurt Us: Reflections on the Measurement of Economic Activity -- 16 (Journal of Economic Perspectives Summer, 2005)
Manufacturing Jobs Increasingly Undercounted   (Chicago Fed March, 2007)
Econbrowser on Recession Probability RisesRecession Probability Index
NBER & Recession Dating --see econbrowser:
Are U.S. and 7th District Business Cycles Alike?  -- (Chicago Fed Q3, 2006)
Excel File on Prices (graphs, regressions, data)
The Macroeconomics of Oil Shocks -- (Philadelphia Fed Q1, 2007) 
Energy Markets and the Midwest Economy -- 13 (Chicago Fed Q4, 2005)
Recent Trends in Home Ownership -- (StL Fed Sept-Oct, 2006)
Hamilton Jackson Hole Comments 
Holman Jenkins on Subrime Problem: Overdone?  Payback
The SubPrime Market Problems & Liquidity Crises  -- Econbrowser (What is a Liquidity Event?)
Subprime Mess Involved German Bank,,2172243,00.html
The Effectiveness of Monetary Policy -- (lots of graphs; read beginning of each section closely, skim the rest) (StL Fed Sept 2007) Fedwatch 
Using Fed Fund Futures to Predict Monetary Policy -- 9 (Richmond Fed Spring, 2001)
Understanding the Term Structure of Interest Rates -- 8 (William Poole StL Fed Sept-Oct, 2005)
Macroeconomic News and Real Interest Rates -- (StL Fed March-April, 2006)
The Rise in Personal Bankruptcies -- (StL Fed Jan-Feb, 2007)
Excel File on Interest Rate graphs, regressions, data
Excel File on Forward Rates & Yield Curve

On the Size and Growth of Government -- (StL Fed Jan-Feb, 2006)
Debt Graphs
Considering the Capital Account --  (StL Fed -- Nov 2004)
A Perspective on US Capital Flows --  (StL Fed -- 2004)
The Increasing Importance of Proximity for Exports from U.S. States -- (StL Fed Nov-Dec, 2004)
Exchange Rates and Business Cycles (Richmond Fed, Winter 2007)

Higly Technical Readings:    Common Risk Factors in Currency Markets -- UCLA Working Paper 2008;  Asset Prices & Current Account -- STL Fed


Marginal Revolution:  Common Mistakes by Economists 
Financial Stress: What is Is, How it can be measured, and Why does it matter?  (KC Fed 2nd QTR 2009); 
Two Approaches to Macroeconomic Forecasting (Richmond Fed Summer, 1999)

  Interest Rate VARs (Data file =   Irates Monthly


-- Yield curve slope, differences in 10 year Treasury rate and 3 month Treasury rate in quarter t-1, t-2 as predictor of GDP in quarter t;
(See    and WKU masters student project -- I will email to you)

-- Using squared percent change from prior year oil prices (or similar) as an "oil shock," what is the relationship of oil shocks to recessions since WWII, and are there any "false positives?"
(see St. Louis Fed background article
-- Did the Fed diverge from a Taylor-type rule during 2002-2005?