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ME122: Tools for Macroeconomists: Advanced Tools

Methods

This graduate-level course teaches state-of-the-art techniques to solve and analyse advanced models. In particular, models with heterogeneous agents, models with boundedly-rational agents, and/or learning and also models in which the economy can be at the zero lower bound for the policy interest rate. The course also teaches advanced time-series techniques such as Bayesian VARs with constant and time-varying parameters.

In addition to teaching techniques, the course also focuses on practical problems that researchers run into when using these methods. 

This course is aimed at PhD students and academics.

Course Benefits
This course will provide students with:

  • a chance to learn a solid set of advanced tools to analyse non-trivial modern macroeconomic models;
  • a better understanding of models with heterogeneous agents
  • an understanding of VARs and in particular VARS with time-varying coefficients.

Prerequisites
Knowledge of DSGE models (e.g. Euler equation, state variables, Bellman equation). Some knowledge of Matlab. Students with a rudimentary knowledge of Matlab may still take the course, but may not attain the full benefits of the afternoon computer assignments.
Some knowledge on solving simple DSGE models with perturbation methods (Dynare) and projection methods.

The first two days are spent on algorithms to solve models with heterogeneous agents and also on models with boundedly rational agents. The next two days are spent on solving continuous-time models and models with occasionally binding constraints; in particular, models in which the policy interest rate is occasionally constrained by the zero lower bound. The last day is spent on advanced time-series techniques such as Bayesian VARs with time-varying parameters. 

In the morning sessions, a lecture is given by one of the two instructors. In the afternoon sessions, students (typically in groups) work on computer assignments with the help of the instructors and teaching assistants. 

Monday and Tuesday - Solving and simulating models with heterogeneous agents

  • Aggregation
  • Approximate aggregation
  • Cross-sectional distributions as state variables
  • Incomplete markets
  • Aiyagari model
  • Solving the Aiyagari model using iterative methods
  • Krusell & Smith algorithm to solve models with heterogeneous agents and aggregate uncertainty
  • Xpa algorithm to solve models with heterogeneous agents and aggregate uncertainty
  • Calculating the ergodic distribution of the Aiyagari model in one step
  • Boundedly rational agents

Wednesday & Thursday - Solving continuous-time models and models with occasionally binding constraints

  • Continuous-time models
  • Models in which the policy rate can be at the zero lower bound

Friday - Time-varying VARs

  • Reduced-form and structural VARs
  • Sign restrictions
  • Time-varying VARs

More detailed information can be found on Professor den Haan's website|. This currently shows information for the 2014 course, however this will be updated shortly.

Software used
Dynare and MATLAB

"Professor den Haan is an outstanding teacher and mentor. He provided a tremendous amount of insight not just into the material but also spoke about aspects of research methodology, providing guidance about the kind of questions a researcher should ask, with an emphasis on selecting not the most complex and awe-inspiring, but rather the most appropriate techniques, while simultaneously emphasising that not just awareness but also deep knowledge of rival techniques is necessary."
Attendee of Tools for Macroeconomists: Advanced Tools in 2014

"Excellent. The instructor introduces several frontier fields of research."
Attendee of the 2011 LSE Macroeconomics Summer Programme

"The course sets the right focus, and is very well organized and structured. The professor is an excellent teacher and highly committed."
Attendee of the 2011 LSE Macroeconomics Summer Programme

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Course details


Dates
24-28 August 2015

Format
Lectures (15 hours)
Practical classes (15 hours)

Location
New Academic Building, LSE

Teaching faculty
Professor Wouter den Haan
|
Department of Economics
Dr Pontus Rendahl|
University of Cambridge

Tuition fees
Student rate: £725*
Academic staff/charity rate: £1,500
Professional rate: £2,300
*Students are also eligible for a £150 ESRC scholarship



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