Macroeconomic Theory
Fall 2005
Cushing Hall 335
EC202.01: Tuesday and Thursday,
EC202.02: Tuesday and Thursday,
Syllabus
Fabio Ghironi
Room 473
617-552-3686
http://www2.bc.edu/fabio-ghironi
Welcome, Purpose of the Course, Prerequisites, Office Hours, Textbook, Requirements and Grading, Course Outline
Feel free to address me as Fabio. You can
address me as Professor Ghironi if you prefer to do so. You can find out
a lot about me by visiting my web site.
This course covers the theory of modern
macroeconomics in detail. We will discuss several examples of
macroeconomic phenomena in the real world. We will focus on the determination
of macroeconomic variables in the short, medium, and long run, and we will
address a number of policy issues. A central theme will be to understand
the powers and limitations of macroeconomic policy in stabilizing the business
cycle and promoting growth.
There is only one formal prerequisite:
You must have successfully completed EC 131-132, Principles of Economics.
However, some familiarity with calculus will be
useful. In general, I strongly encourage you to strengthen your knowledge
of math and more rigorous economics as much as possible while at
I will hold office hours on Tuesdays
from
I will often use e-mail to communicate with
the class, so make sure you check your e-mail frequently, and reply promptly if
I am asking for a reply. However, do not e-mail me questions that I cannot
answer with a “yes” or “no.” Use my office hours or schedule appointments to
discuss your questions on homework or other course-related matters. It is much
more efficient.
The textbook for the course is Macroeconomics, by Olivier
Blanchard, Prentice Hall, Fourth Edition, 2005, available at the BC
Bookstore. The Study Guide by David Findlay is also required.
Textbook and study guide should be bundled in a "value pack"
including also an Interactive CD and a subscription to the online version of The Economist. I encourage you to
explore the textbook’s web site.
Additional readings are listed in the course outline below. I also suggest that
you follow current economic events by reading newspapers (Financial Times, The New York Times, The Wall Street Journal, The Washington Post) and magazines (Business Week, The Economist, Fortune ). The IMF’s World
Economic Outlook is a good source of information on recent economic
developments (and you can also download figures and data). Course
materials will be posted in the teaching section of my web
site.
Active class participation is not a formal
requirement, but you should feel free to ask questions at any time during
lectures.
Your grade for the course will be based on a combination of requirements:
- Weekly Homework Assignments;
- A Midterm Exam;
- A Policy Advising Exercise;
- A Final Exam.
I want you to learn how to think about
macroeconomic issues and to interpret phenomena that are discussed in the
media. Homework Assignments will help you to develop the ability
to "think macro." You should work very hard on them. The
harder you work on your assignments, the more likely it is that you will do
well in the exams. You are allowed to work in groups on the homework, but
each member of any group must turn in her/his own answers. Free-riding on
the work of other members of your group will not be a successful
strategy. Exams will consist mostly of homework-type questions. If
you do not work hard on the homework, you will fail the exams. Your
homework answers will be graded by my Teaching
Assistant (Radostin (Rado) Djeliov, Radostin.Djeliov.1@bc.edu).
You should rely on him as an additional resource for the class. He will
prepare homework answers that will be posted in the teaching section of my web
site. He will hold review sessions as well as office hours at times
and in locations to be announced.
Important: Homework answers turned in after Rado’s answers have been posted online will receive zero credit. If you turn in your answers after the due date and time but before the answer key is available, you will be penalized with an automatic 20-point deduction from the maximum possible score of 100 per each day of delay (10 points for a half day). There are no exceptions to this rule. (I will generally post Rado’s answers online within three days of the homework’s due date.)
The Midterm Exam will take place in class, at our usual meeting time on Tuesday, October 18. It will consist of homework-type questions. For this exam, you will be responsible for the material covered up to and including the last lecture before the exam date. You should use the exercises in the Study Guide as well as the material in the Interactive CD 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 approximately
(and at most) 20 minutes in which the group will have to provide a convincing
answer to the following question: Should the Federal Reserve increase,
lower, or leave the Federal Funds Rate unchanged at its next policy meeting?
The group will have to make a case for its recommendation by using theory and
data. (Suggestions on data sources are in the appendix to Chapter 1 of
the textbook – for instance, the Bureau of
Economic Analysis. See also the sources available through
the BC Economics Department and the FRED database of the Federal
Reserve Bank of
The Final Exam will take place on
Monday, December 19,
Each
requirement will be graded on a scale from 0 to 100. Your overall
homework score will be the average of your scores for individual
homeworks. You should not panic if you
do not score in the nineties in any of the requirements. That does not mean that you are doing poorly.
I do not assign letter grades to intermediate tests – the only letter grade I assign is your final grade. So, for instance, you should not ask me about a letter grade based on your midterm score, as I think about letter grades only when I have the information on how you did in all requirements.
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.
There will be no makeup exam, except for well documented, acceptable excuses ahead of time, such as medical reasons or family emergencies. (I will verify your excuses.)
If I catch anyone cheating, the consequences will be drastic. At a minimum, whoever is caught cheating will fail the test in which she or he was caught in the act. I require that you abide by BC's standards of Academic Integrity.
Grade Complaints: There is a standardized procedure for submission of
grade complaints in the
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 (A Tour of the Book).
- The International Macroeconomic Outlook, Blanchard, Chapter 1 (A Tour of the
World).
Additional
- IMF, World Economic
Outlook, (read Chapter 1 of the most recent issue – the WEO is usually
published in April and September).
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.
Additional
- 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.)
- Romer, David (2000): “Keynesian Macroeconomics without the LM
Curve,” Journal of Economic Perspectives 14(2): 149-169. (Link: NBER
Working Paper version.)
- Taylor, John B. (2000): “Reassessing
Discretionary Fiscal Policy,” Journal of Economic Perspectives
14(3): 21-36. (Link: John Taylor’s web site.)
Note: You should be able to access the published versions
of these papers in JSTOR from BC computers.
You will also need to use a BC computer to access NBER Working papers.
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.
Additional
- 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. (Available in JSTOR.)
Time permitting, we will
cover some material from the following parts (even if time does not permit
covering them, you will be exposed to discussion of some material in these
parts during my treatment of the core):
Part III. The Role of
Expectations
- Basic Tools, Blanchard,
Chapter 14 (Expectations: The Basic Tools).
- Financial Markets and Expectations, Blanchard, Chapter 15.
- Expectations, Consumption, and Investment, Blanchard, Chapter 16.
- Expectations, Output, and Policy, Blanchard, Chapter 17.
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 (Monetary Policy: A Summing Up).
- Fiscal Policy, Blanchard, Chapter 26 (Fiscal Policy: A Summing Up).
Following is a list of
readings that will help you develop a deeper understanding of issues in
monetary policymaking 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
- Friedman,
- 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):
"Discretion vs.
Policy Rules in Practice," Carnegie-Rochester Conference Series
on Public Policy 39: 195-214. (Link: John Taylor’s web site.) 4