About the Course

This course is a blend of intuition, graphical analysis, and computer modeling. I don’t understand an economic issue until I can explain it intuitively, see it work out in a graph, and build a computer model where I combine all the equations to see how economic forces work out. This is a skill that I teach in this course.

In this course you’ll learn the introduction to the use of computer techniques in economic policy evaluation; policy applications to

  • international economics,
  • public finance,
  • development economics,
  • economic growth, and
  • environmental economics

 computer analysis of linearized and nonlinear models using Excel and GAMS.

Students required to complete a series of modeling exercises, leading up to two major modeling projects. Prerequisites: intermediate micro and macroeconomics.

I have taught this course at Duke; The University of Zagreb in Croatia; the University of Auckland in New Zealand, The Economics Institute in Boulder Colorado, Chulalongkorn University in Bangkok, and to government economists in Kuala Lumpur, Malaysia.

Here is the structure of the course:

First we discuss the strategy of economic modeling. How does one find an interesting problem, select the appropriate degree of complexity, and select the tools to analyze the problem?

My expertise is primarily in international economics, so I will draw many examples from that area. I will show you how I built a series of models to deal with some simple macro issues and lots of international trade issues. Your task is to do something similar in your area of choice.  For example,  you might want to start by illustrating important ideas in labor economics, or taxation, or macro, or other issues in international trade and international finance that I have not explored.

We see:

  •  How does the effect of money supply changes depend on whether wages are sticky or flexible?
  •  How does the international sector work under fixed and flexible exchange rates? Do tariff cuts cause unemployment? Does immigration lower wages? Does international trade shrink real US wages?
  •  How does tax policy affect economic growth?

We demonstrate some important theorems such as, why an income tax is better than a consumption tax that covers only some goods, some theorems in international trade regarding income distribution, economic growth and the pattern of trade.

We examine some examples of computer modeling from the United Nations, the U.S. International Trade Commission, and leading scholars. All of these use computer modeling to calculate the costs and benefits of alternative policies.

Students will complete weekly assignments. Sometimes these will be essays. More frequently, they will be modeling exercises, starting with toy models. These are very simple models designed to illustrate principles of economics and model building. Then we gradually add complexity to get a richer picture of the economy.

Students will use Microsoft Excel to build models and calculate the effects of economic policies, such as changing exchange rates, money supplies and tariffs as well as allowing immigration and emigration and economic growth. Students will also use the General Algebraic Modeling System, GAMS to determine the effects large changes in economic policy and to solve for optimal systems of taxation. Microsoft Excel uses matrix algebra to solve for the effects of small changes in circumstances on the economy. It is easy to understand. GAMS solves for optimum policies subject to a set of non-linear equations. Thus it is generally the tool of choice for economic modelers.

Each week you will build a model. You will give a presentation with your teammate on one capstone project half way through the term and another capstone project at the end of the term. These projects will be on issues of interest to you and your partner.