Department of Economics
Spring Term 2005
Tuesday and Thursday,
Room: Computer Science 104
Office: 312 Fisher Hall
Office Hours: Tuesday, and
Nicolas Depetris and Rujikorn Pavasuthipaisit
This course covers the
theory of modern macroeconomics in detail.
We will focus on the determination of macroeconomic variables –
such as output, employment, prices, and the interest rate – in the short,
medium, and long run, and we will address a number of policy issues. We will discuss several examples of
macroeconomic phenomena in the real world.
A central theme will be to understand the powers and limitations of
macroeconomic policy in stabilizing the business cycle and promoting growth.
The prerequisites for this course are ECO 100 and ECO 101.
The textbook for the course is Some additional readings are listed in the Course Outline section of the syllabus, including links to downloadable versions when available. These readings are also available on reserve. In addition, you should also follow current economic events by reading newspapers ( , , , ) and magazines ( , , ). Textbook and study guide can be bundled in a "value pack" including also an Interactive CD and a subscription to the online version of . Alternatively, you can subscribe to The Economist at http://www.EconomistAcademic.com. The is a good source of information on recent economic developments (and you can also download figures and data). Other course materials – such as my lecture notes, homework, and homework solutions – will be posted in the course web site on Blackboard., by Olivier Blanchard, Prentice Hall, Third Edition, 2003. The Study Guide by David Findlay is also required.
Your grade for the course will be based on a combination of requirements:
- (Approximately) Weekly Homework Assignments
- A Midterm Exam
- A Final Exam
Active class participation is not a formal requirement, but I encourage you to ask questions at any time during lectures.
I want you to learn how to think about macroeconomic issues and to interpret phenomena that you are exposed to in the media. Homework Assignments will help you to develop this ability. The harder you work on the assignments, the more likely it is that you will do well in the exams, since these will consist mostly of homework-type questions. I encourage you to form groups to discuss the homework, but each member of a group must turn in her/his own answers. Your homework answers will be graded by the Preceptors, Nicolas Depetris and Rujikorn Pavasuthipaisit. Grades will be on a scale from 0 to 100. Nicolas and Rujikorn will prepare homework answers that will be distributed and reviewed in precept meetings. (Precept meetings will also be occasions to discuss the additional readings mentioned in the Course Outline section of the syllabus.)
The Midterm Exam will take place in class, at our usual meeting time on Tuesday, March 8. For this exam, you will be responsible for the material covered up to and including the last lecture before the exam. You should use the exercises in the textbook’s Study Guide to practice for the midterm and final exams.
The Final Exam will take place on DATE, TIME, AND ROOM TBA. The exam will again consist of homework-type questions. It will cover material from the entire course.
The weights of the various requirements in your final grade will be as follows:
- Homework Assignments: 20 percent
- Midterm Exam: 30 percent
- Final Exam: 50 percent
Important: At the end of the Course Outline, I describe an exercise that will allow those of you who participate to receive extra credit.
Following is a list of the topics we will cover, along with the references to textbook and additional readings.
- The Vocabulary of
Macroeconomics, Blanchard, Chapter 2. (Read chapters 2 and 1 in advance –
in that order.)
- Macroeconomics in the Real World, Blanchard, Chapter 1.
- IMF, World Economic Outlook, September 2004, Chapter 1.
Part II. The Core
The Short Run
- The Goods Market,
Blanchard, Chapter 3.
- Financial Markets, Blanchard, Chapter 4.
- Goods and Financial Markets: The IS-LM Model, Blanchard, Chapter 5.
The Medium Run
- The Labor Market,
Blanchard, Chapter 6.
- Putting All Markets Together: The AS-AD Model, Blanchard, Chapter 7.
- The Natural Rate of Unemployment and the Phillips Curve, Blanchard, Chapter 8.
- Inflation, Activity, and Nominal Money Growth, Blanchard, Chapter 9.
- Ball, Laurence, and N. Gregory Mankiw (2002): “The NAIRU in Theory and Practice,” Journal of Economic Perspectives 16(4): 115-136. (Link: NBER Working Paper version.)
- Romer, David (2000): “Keynesian Macroeconomics without the LM Curve,” Journal of Economic Perspectives 14(2): 149-169. (Link: JSTOR.)
- Taylor, John B. (2000): “Reassessing Discretionary Fiscal Policy,” Journal of Economic Perspectives 14(3): 21-36. (Link: JSTOR.)
The Long Run
- The Facts of Growth,
Blanchard, Chapter 10.
- Saving, Capital Accumulation, and Output, Blanchard, Chapter 11.
- Technological Progress and Growth, Blanchard, Chapter 12.
- Technological Progress, Wages, and Unemployment, Blanchard, Chapter 13.
- Ball, Laurence, and Robert Moffitt (2001): “Productivity Growth and the Phillips Curve,” NBER Working Paper 8421.
- Oliner, Stephen D., and Daniel E. Sichel (2000): “The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?” Journal of Economic Perspectives 14(4): 3-22. (Link: JSTOR.)
Part III. The Role of Expectations
- Basic Tools, Blanchard,
- Financial Markets and Expectations, Blanchard, Chapter 15.
- Expectations, Consumption, and Investment, Blanchard, Chapter 16.
- Expectations, Output, and Policy, Blanchard, Chapter 17.
Time permitting, we will cover some material from the following parts:
Part IV. The Open Economy
- Openness in Goods and
Financial Markets, Blanchard, Chapter 18.
- The Goods Market in an Open Economy, Blanchard, Chapter 19.
- Output, the Interest Rate, and the Exchange Rate, Blanchard, Chapter 20.
- Exchange Rate Regimes, Blanchard, Chapter 21.
Part V. Policy
- Should Policy Makers Be
Restrained? Blanchard, Chapter 24.
- Monetary Policy, Blanchard, Chapter 25.
- Fiscal Policy, Blanchard, Chapter 26.
Focus: Monetary Policy (Extra Credit)
Throughout the class, we
will often talk about the conduct of macroeconomic policy in the
- Ball, Laurence, and Niamh Sheridan (2003): “Does Inflation Targeting Matter?” NBER Working Paper 9577. 8
- Ball, Laurence, and Robert Tchaidze (2002): “The Fed and the New Economy,” NBER Working Paper 8785. 9
- Blinder, Alan S. (2000): Central Banking in Theory and Practice,
- Friedman, Benjamin M. (2004): "Why the Federal Reserve Should Not Adopt Inflation Targeting," International Finance 7(1): 129:136. 7
- King, Mervyn (1999): "Challenges for Monetary Policy: New and Old," in New Challenges for Monetary Policy, proceedings of a symposium organized by the Federal Reserve Bank of Kansas City. 3
- Mishkin, Frederic S. (2002): “The Role of Output Stabilization in the Conduct of Monetary Policy,” NBER Working Paper 9291. 5
- Mishkin, Frederic S. (2004): "Why the Federal Reserve Should Adopt Inflation Targeting," International Finance 7(1): 117-127. 6
- Taylor, John B. (1993):
vs. Policy Rules in Practice," Carnegie-Rochester
Conference Series on Public Policy 39: 195-214. (Link: