512b, Macroeconomic Analysis (Basic)
Spring Term 2005
Tuesday, , Robertson 001
and Wednesday, , Robertson 002
Office: 312 Fisher Hall
Office Hours: Tuesday, and
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 prerequisite is WWS 511b or equivalent. However, no previous exposure to macroeconomics is assumed. I will keep math to the minimum necessary. Students who have already taken an intermediate-level course in macroeconomics should seriously consider taking WWS 512c.
The textbook for the course is 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 Policy Advising Exercise
- 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 Preceptor, Peter Bondarenko. Grades will be on a scale from 0 to 100. Peter 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 Policy Advising Exercise will be structured as follows: You will have to form groups of four/five
students. Each group will have to give a
presentation of at most 20 minutes in which the group will have to provide a
convincing answer to the following question:
Should the Federal Reserve raise, lower, or leave the Federal Funds Rate
unchanged in its next FOMC meeting? The
group will have to make a case for its recommendation by using theory and
data. (Useful data sources are the Bureau of Economic Analysis and the
of the Federal Reserve Bank of
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: 15 percent
- Midterm Exam: 25 percent
- Policy Advising Exercise: 15 percent
- Final Exam: 45 percent
Following is a list of the topics we will cover, along with the references to textbook and additional readings. The latter are mainly articles from the Journal of Economic Perspectives published after 2000 on topics or policy issues that we will mention in the course. A list of readings that you should do as you prepare for the Policy Advising Exercise is at the bottom of this section.
- 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.
- Hoshi, Takeo, and Anil K.
Kashyap (2004): “
- Ludvigson, Sydney C. (2004): “Consumer Confidence and Consumer Spending,” Journal of Economic Perspectives 18(2): 29-50. (You can download this from the Publications section of Sydney Ludvigson’s web page.)
- Sellon, Gordon H. Jr.
Policy and the Zero Bound: Policy
Options When Short-Term Rates Reach Zero,” Economic Review, Federal Reserve Bank of
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.)
- Barsky, Robert B., and Lutz Kilian (2004): “Oil and the Macroeconomy since the 1970s,” Journal of Economic Perspectives 18(4): 115-134. (Link: NBER Working Paper version.)
- Blanchard, Olivier (2004): “The Economic Future of Europe,” Journal of Economic Perspectives 18(4): 3-26. (Link: NBER Working Paper version.)
- Lucas, Robert E., Jr. (1996): “Nobel Lecture: Monetary Neutrality,” Journal of Political Economy 104(4): 661-682. (Link: JSTOR.)
- Romer, David (2000): “Keynesian Macroeconomics without the LM Curve,” Journal of Economic Perspectives 14(2): 149-169. (Link: JSTOR.)
- Svensson, Lars E. O. (2003): “Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others,” Journal of Economic Perspectives 17(4): 145-166. (Link: NBER Working Paper version.)
- 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.
- Mankiw, N. Gregory, David Romer, and David N. Weil (1992): “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics 107(2): 407-437. (Link: JSTOR.)
- 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.)
- Yousef, Tarik M. (2004):
“Development, Growth and Policy Reform in the
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.
- Browning, Martin, and Thomas F. Crossley (2001): “The Life-Cycle Model of Consumption and Saving,” Journal of Economic Perspectives 15(3): 3-22.
- Carroll, Christopher D. (2001): “A Theory of the Consumption Function, With and Without Liquidity Constraints,” Journal of Economic Perspectives 15(3): 3-22. (Link: NBER Working Paper version.)
- Modigliani, Franco (1986): “Life Cycle, Individual Thrift, and the Wealth of Nations,” American Economic Review 76(3): 297-313. (Link: JSTOR.)
- Sargent, Thomas J. (1982):
“The End of Four Big Inflations,” in Robert E. Hall (ed.), Inflation: Causes and Effects,
- Shiller, Robert J. (2003): “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives 17(1): 83-104.
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.
- Calvo, Guillermo A., and Frederic S. Mishkin (2003): “The Mirage of Exchange Rate Regimes for Emerging Market Countries,” Journal of Economic Perspectives 17(4): 99-118. (Link: NBER Working Paper version.)
- Eichengreen, Barry (2003): “The Euro: Filling the Half-Full Water Glass,” Milken Institute Review, Fourth Quarter, 47-55.
- Eichengreen, Barry, and Jeffry Frieden (2001): “The Political Economy of European Monetary Unification: An Analytical Introduction,” in Barry Eichengreen and Jeffry Frieden (eds.), The Political Economy of European Monetary Unification, Westview Press. (Link: Manuscript version in Barry Eichengreen’s web page.)
- Mann, Catherine L. (2002):
“Perspectives on the
- Obstfeld, Maurice, and Kenneth Rogoff (2004): “The Unsustainable U.S. Current Account Position Revisited,” NBER Working Paper 10869.
Part V. Policy
- Should Policy Makers Be
Restrained? Blanchard, Chapter 24.
- Monetary Policy, Blanchard, Chapter 25.
- Fiscal Policy, Blanchard, Chapter 26.
- Barro, Robert J., and David B. Gordon (1983): "A Positive Theory of Monetary Policy in a Natural-Rate Model," Journal of Political Economy 91(4): 589-610. (Link: JSTOR.)
- Kydland, Finn E., and Edward C. Prescott (1977): "Rules Rather than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy 85(3): 473-491 (link: JSTOR).
- PANEL: “The Future of the European Growth and Stability Pact,” interventions by Barry Eichengreen and Lucas D. Papademos, CESifo Forum 2/2003. (Read Papademos first.)
- Ball, Laurence, and Niamh Sheridan (2003): “Does Inflation Targeting Matter?” NBER Working Paper 9577.
- Ball, Laurence, and Robert Tchaidze (2002): “The Fed and the New Economy,” NBER Working Paper 8785.
- 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.
- 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.
- Mishkin, Frederic S. (2002): “The Role of Output Stabilization in the Conduct of Monetary Policy,” NBER Working Paper 9291.
- Mishkin, Frederic S. (2004): "Why the Federal Reserve Should Adopt Inflation Targeting," International Finance 7(1): 117-127.
- Taylor, John B. (1993):
vs. Policy Rules in Practice," Carnegie-Rochester
Conference Series on Public Policy 39: 195-214. (Link: