K. Velupillai
Autumn, 1993
Department of Economics

l. Macroeconomics in the Global Economy
by Jeffrey D. Sachs and Felipe Larrain B. [Prentice Hall, 1993]

For advanced reading:
2. Lectures on Macroeconomics
by Olivier Jean Blanchard and Stanley Fischer [The MIT Press, 1989]

Supplementary Articles:
(a). "What is a Nice Girl Like You Doing in a Place Like This? Macroeconomics after 50 Years." by R.M. Solow in: EEJ, Vol.XII,No.3, JulySep., 1986
(b). Excerpts from: "A Contribution to the Theory of Economic Growth." by R.M. Solow E in: QJE, Vol.LXX, Feb., 1956
(c) . "The Non Econometrician's Lament" by D.H. Robertson (Presented at the IEA Conference on Business Cycles, Oxford, 1952 and published in the proceedings edited by Erik Lundberg).

Course Description

The first piece by Solow and the above characteristically pungent Robertsonian piece were included in the reading list to give the students a flavour of the fascination of the subject in prose of the highest calibre by two masters who did much to shape the discipline of macroeconomics. I would have included, in the reading list, Edmund Phelps' elegant Ryde Lectures: Seven Schools of Macroeconomics; but, I felt that some maturity in applying macroeconomic concepts is a prerequisite for profitably reading that book; and, hence, reluctantly dropped the idea.

The main aim of this course is to work through the whole of the Sachs-Felipe-Larrain text, more or less systematically with special emphasis on Growth, Business Cycles and the Theory of Economic Policy in standard frameworks. A subsidiary aim is to introduce the students to the art and science of macroeconomic model constructions, the existence of varieties of macroeconomic schools debating issues at the frontiers of growth and development in open economies and some thoughts on the development of macroeconomics and related national accounting concepts and tools.

More specifically, the structure of the course is as follows:

1. Introduction to the aims and scope of macroeconomics.

(a). The historical development of macroeconomics as a separate discipline from the debates and developments of the 30s.

(b). The contributions of Hayek, the Swedes and the Keynesians in the 30s and the shaping of National Accounting Frameworks.

(c). The business cycle debates of the 30s and their contributions towards the fashioning of an independent discipline of macroeconomics; in particular, the contributions of Harrod, Haberler, Tinbergen, Frisch and Kalecki -in addition to, of course, Hayek, the Swedes and the Keynesians, as mentioned above in (b).

2. The Basic Concepts of Macroeconomics and the Emergence of National Accounting Statistics.

(a). Real vs. Nominal Variables.
(b). Stocks and Flows.
(c). Intertemporality and Expectations.
(d). Long-run vs. Short-run in variables and modelling.
(e). GNP, GDP, NNP etc. and their sub-categories.

3. The Notions of Aggregate Supply and Aggregate Demand.

(a). The determinants of aggregate demand and the definitions of demand components.
(b). The role of demand components in simple macroeconomic and macroeconometric models. (c). The determinants of aggregate supply .
(d). The notion of the production function.
(e). Demand-and supply-based characterization of schools of macroeconomics.

4. The Analytical Foundations of Aggregate Demand Components.

(a). Macroeconomic theories of consumption behaviour.
(b). Theories of investment behaviour and their role in business cycle models.
(c). The government sector.
(d). The accounts of an open economy.

5. The Monetary System.

(a). The demand for money.
(b). The money supply process.
(c). Monetary issues in an open economy.
(d). Inflation.

6. The IS-LM Apparatus.

(a). The genesis of the IS-LM framework.
(b). IS-LM in a closed economy.
(c). Open economy IS-LM analysis.
(d). The analysis of policy using the comparative statistics of the IS-LM model.
(e). A critique of the analytical foundation of IS-LM.
(f). The introduction of the labour market in a classic IS-LM model: the contributions of A.W. Phillips.
(g). The decline and fall of the 'neoclassical synthesis'.

7. Business Cycles.

(a). Theories of the business cycle in a historical setting.
(b). The facts of business cycles.
(c). The peculiar contributions of Frisch in shaping the agenda of research in the mathematical modelling of business cycles.
(d). Models of business cycles; From Frisch to Lucas -and beyond.

8. Growth.

(a). The Kaldorian 'stylized facts' of growth.
(b). A framework for growth accounting.
(c). The development of growth theories: from Harrod to Solow -and beyond.
(d). The Solow model.

9. Economic Policy.

(a). The development of the theory of economic policy: From Lindahl and Myrdal to Frisch, Tinbergen and Bent Hansen; targets and instruments codified mathematically.
(b). Fine tuning, optimal control, dynamic programming and all that: the formalization of the theory of economic policy -and its indiscriminate applications.
(c). The "Lucas Critique" towards the ineffectiveness of policy.
(d). Rules, discretion, time consistency, credibility and optimality of economic policy.
(e). Whither economic policy?

10. Miscellaneous Issues.

(a). The Problem of intercountry comparison of economic performance and standards of living across countries.
(b). The problem of country debt.
(c). The problem of high inflations.
(d). New frontiers of macroeconomics: Making a Miracle with increasing returns to scale production structures; new foundations for rationality etc.
(e). The computable, the combinatorial and the computational foundations of a "new" macroeconomic dynamics.

The hope is that, at the end of the course, the students will have a grasp of the conceptual underpinnings, theoretical frameworks and tools of macroeconomics to engage in intelligent debate at the highest policy levels; and, moreover, that they will be able to follow advanced courses in macroeconomics at the best graduate schools in Western Europe and North America -and, perhaps, Japan too.

Evaluation of course performance will be in terms of one mid-term examination of two hours duration (30%), one final examination of three hours duration (60%) and the submission of an essay of about 5 -7 pages for the remaining ENS.

CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996


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