|Course Title||Dynamic Macroeconomics|
|Institution||International Academy of Business|
I. AIM OF THE COURSE.
The purpose of the course is to introduce the basic models macroeconomists use to study economic growth and fluctuations. The second part of the sequence critically re-examines some of the building blocks of these models and explores the implications of existing alternatives. The third part of the course discusses imperfections issues in the macroeconomics.
II. ROLE OF THE COURSE IN THE OVERALL DEGREE CURRICULUM
This course is the first part of a two-semester graduate sequence in macroeconomics.
Students are expected to be familiar with macroeconomics at the intermediate undergraduate level.
III. METHODS USED
Midterm = 30%
Final = 50%
Seminars = 20%
1. Blanchard, 0. and S. Fischer, Lectures on Macroeconomics. MIT Press 1989. (BF)
2. Barro, R.J. and X. Sala-i-Martin, Economic Growth. MIT Press 1998. (BS)
1. Romer, D., Advanced Macroeconomics. MCGraw Hill 1996.
(covers roughly the same issues as BF, but at a slightly lower level)
2. Obstfeld, M. and K.Rogoff, Foundations of International Economics. MIT Press 1996.
(focuses on open economy issues)
3. Aghion, P. and P. Howitt, Endogenous Growth Theory. MIT Press 1998.
(covers much of the material in BS, but it puts more emphasis on the Schumpterian growth model than on the Ramsey growth model).
4. Blanchard, 0., "What Do We Know About Macroeconomics that Fisher and Wicksell Did Not2" QJE, November 2000, 115:4, 1375-1410.
5. Woodford, M., "Revolution and Evolution in Twentieth-Century Macroeconomics." forthcoming in P. Gifford, ed., Frontiers of the Mind in the Twenty-First Century. Harvard University Press.
V. COURSE CONTENT
PART 1: ECONOMIC GROWTH
The Solow and Ramsey models. Applications to growth and fluctuations. A guide to this course.
BF, Chapter 2 (skip section 2.4)
BS, Chapter 1 (skip section 1.3); Chapter 2; and the appendix on mathematical methods
Solow, R. M., "A Contribution to the Theory of Economic Growth." QJE, February 1956,70, 1,65-94
Mankiw, N.G., D. Romer and D. N. Weil, "A Contribution to the Empirics of Economic Growth," QJE, May 1992, 107, 2, 401-437
Prescott, E. C., "Theory Ahead of Business Cycle Measurement." Quarterly Review, Federal Reserve Bank of Minneapolis, Fall 1986, 9-22
1.2 Basic Growth Models
The linear and convex growth models. Models of growth based on physical and human capital externalities. Two-sector growth models. Models of product variety and quality ladders. The factor bias of technical change.
BS, Chapters 4-7
Rebelo, S., "Long-Run Policy Analysis and Growth," JPE, June 1991, 99, 3, 500-521
Acemoglu, D., "Labor- and Capital-Augmenting Technical Change." NBER W7544, February 2000
1.3 Savings and Fiscal Policy
The life-cycle hypothesis. The overlapping generations model. Dynamic efficiency, Pareto optimality and the golden rule. Bubbles, existence and implications. The effects of government debt and Ricardian equivalence.
BF, Chapter 3, sections 3.1 and 3.2; Chapter 4, section 4.1 and Chapter 5, sections 5. land 5.2
Modigliani, F., "Life Cycle, Individual Thrift, and the Wealth of Nations." AER, June 1986,76,3,297-313
Barro, R.J., "Are Government Bonds Net Wealth?" JPE, December 1974, 82, 6, 1095,1117
1.4 The Cross-country Evidence
The historical evolution of the world income distribution. Growth regressions: findings and problems. Growth accounting and its interpretation.
Jones, C.I., "On the Evolution of the World Income Distribution." JEP, Summer 1997, 11,3, 19-36
BS, Chapter 10, section 10.4; Chapter 11, section 11.1; and Chapter 12
Hall, R. and C.I. Jones, "Why Do Some Countries Produce So Much Output per Worker Than Others," QJE, February 1999, 114, 1, 83-116
1.5 Capital Flows, Trade and Technology Transfer
The effects of capital flows on growth and the world income distribution. Why doesn't capital flow from rich to poor countries? The role of commodity trade: Rybcyncki and terms-of-trade effects. Learning-by-doing and leapfrogging. Models of technology transfer and imitation.
BF, Chapter 3, sections 3.3 and 3.4
BS, Chapter 3, sections 3.1 and 3.4 Blanchard, 0., "Debt. Deficits and Finite Horizons." JPE, April 1985, 93, 2, 223-247
Ventura, J., "Growth and Interdependence," QJE, February 1997, 112, 1, 57-84
Acemoglu, D. and J. Ventura, "The World Income Distribution." NBER W8083, January 2001
Brezis, E., P.R. Krugman, and D. Tsiddon, "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership." AER, December 1993, 83, 5, 1211-1219
Krugman, P.R., "A Model of Innovation. Technology Transfer, and the World Distribution of Income." JPE, April 1979, 87, 2, 253-266
PART 2: ECONOMIC FLUCTUATIONS
2.1 Cycles and Trends: Some Facts
Shocks and propagation mechanisms. Wold representation. ARMAs, VARs, SVARS. Stochastic trends. Covariances. The co-movement of GDP components. The correlations of output and money. The correlation between real wages and output.
BF, Chapter 1
Stock, J. and Watson, M., "Business Cycle Fluctuations in U.S. Macroeconomic Time Series," Chapter 1, Volume 1A, Handbook of Macroeconomics, John Taylor and Michael Woodford eds, North Holland, 1999
2.2 Technological Shocks?
Dynamic effects of technological shocks. Endogenizing the labor supply. The cyclical behavior of total factor productivity growth. Booms, rents, and incentives. Implementation cycles and the current high tech boom.
BF, Chapter 7
King, R. and S. Rebelo, "Resuscitating Real Business Cycles," Chapter 14, Volume 1B, Handbook of Macroeconomics, J. Taylor and M. Woodford eds, North Holland, 927-1007
Campbell J., Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model, JME, 33, June 1994, 463-506
2.3 Money and Nominal Rigidities
Money flows and the demand for money. Cash-in-advance models. Money in the utility function. The effects of money growth on capital accumulation. Dynamics of hyperinflation. The Cagan model. The budget deficit and money growth. Why does money affect output? What about other shifts in aggregate demand? Nominal rigidities, money and output. Time-dependent, and state-dependent rules. Indexation. Macro-implications of the choice of numeraire.
BF, Chapter 4, sections 4.3 to 4.7; and Chapter 10, section 10.2
Blanchard, 0., "Why Does Money Affect Output? A Survey," in B.M. Friedman and F.H. Hahn eds, Handbook of Monetary Economics, North Holland, 1990, 779-835 (BF, Chapter 8)
Taylor, J., "Staggered price and wage setting in macroeconomics," Chapter 15, Handbook of Macroeconomics, Volume 1B, North Holland, 1999, J. Taylor and M. Woodfordeds, 1009-1050
Mankiw, N.G., "The inexorable and mysterious trade-off between inflation and unemployment'", mimeo Harvard 2000
2.4 Tools for the Road: ISLM, IS-PC-IR, Mundell-Fleming
Looking at equilibrium in goods, labor, and financial markets. Expectations, investment, and consumption. The stock market and output. The perverse effects of fiscal policy. Liquidity traps and monetary policy. Exchange rates, interest rates, and output. Monetary policy and inflation targeting.
McCallum, ?., and E. Nelson, "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis." NBER W5875, January 1997
Blanchard, 0., "Output, The Stock Market, and Interest Rates." AER, March 1981, 71-1, 132-143.
Krugman, P. "It |is baaack: Japan's Slump and the Return of the Liquidity Trap." BPEA, 1998-2, 137-201
Orphanides, A. and V. Wieland, "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero." Finance and Economics Discussion Series, 1998-35, August 1998, Federal Reserve Board
Dombusch, R., "Expectations and Exchange Rate Dynamics." JPE, December 1976, 84,1161-1176.
Obstfeld, M., and Rogoff, K., "Exchange Rate Dynamics Redux."' JPE, June 1995.
PART 3. IMPERFECTIONS AND MACRO
3. 1 Labor markets
Blanchard, 0., "Flows, Bargaining, and Unemployment", Notes, February 1998 Mortensen, D. and C. Pissarides, "Job Reallocation, Employment Fluctuations and Unemployment", mimeo, March 1998
Shapiro, C. and J. Stiglitz, "Equilibrium Unemployment as a Worker Discipline Device", AER 1984,74,259-293
Caballero, R. and M. Hammour, "??? 'Fundamental Transformation' in Macroeconomics", AER, May 1997, 181-186
3. 2 Goods Markets
Rotemberg, J. and M. Woodford, "Markups and the Business Cycle", NBER Macro, 1991, 1003-1026
Phelps, E., "Consumer Demand and Equilibrium Unemployment in a Working Model of Customer-Market Incentive-Wage Economy ", QJE August 1992, 107-3, 1003-1033 Kiyotaki, N. "Multiple Expectational Equilibria Under Monopolistic Competition", QJE, 1988, 103,695-713
Murphy, ?., A. Shieifer, and R. Vishny, "Building Blocks of Market Clearing Business Cycle Models", NBER Macro, 1989 Shieifer, A., "Implementation Cycles", JPE, December 1996, 94, 1163-1190
3.3 Credit/Financial Markets
Bemanke, ?. and M. Gertler, "Agency Costs, Net Worth, and Business Fluctuations", AER, March 1989, 79, 14-31
Kiyotaki, N. and J. Moore, "Credit Cycles", JPE, April 1997, 105-2, 211-248
Diamond, D. and P. Dybvig, "Bank Runs, Deposit Insurance, and Liquidity", JPE, 1983, 91, 401-419 Krugman, P., "What Happened in Asia?", mimeo, MIT, 1998
Bemanke, B. and A. Blinder, '"Credit, Money, and Aggregate Demand", AER, May 1988, 78-2, 435-439.
Kashyap, A. and J. Stein, "Monetary Policy and Bank Lending", in Monetary Policy, N.G. Mankiw ed, NBER, 1994, 22 ? -262