The focus of this course is on the main models and methods used in contemporary macroeconomic theory. Students are expected to be familiar with basic macroeconomics. This course pursues a fairly narrowly defined objective: introducing students to the most important methods and models used in contemporary macroeconomics.
This course does not cover most of macroeconomics. In particular: data, econometrics, stochastic models, computational methods, and much more. Math is kept at a basic level. Thus, the role of the course consists of introducing to the basic and intermediate theory of methods and modelling in macro. There will be a set of homeworks, a midterm (40%), and a final exam (60%). Homeworks do not count towards the course grade, but doing them is absolutely essential practice. Students should also work through all review questions.
The dominant method is the construction of artificial economies. It is fair to say that 90% of macro research uses variations of this method, so we’d like to use it as well.
Theme 1. BASIC CONCEPTS IN MACROECONOMICS
Gross Domestic Product (GDP) and Gross National Product (GNP). Real and nominal variables. Indexes in macroeconomics. Stocks and flows in macroeconomics. The interest rate and discounting. Review of the national accounting system.
Theme 2. CLASSICAL MACROECONOMIC MODEL
Production, distribution and consumption of the national income. Equilibrium on the market of goods and services. Equilibrium on the financial markets. Consequences of the budgetary and tax policy, Investment demand and its influence on equilibrium.
Theme 3. MODELING OF CONSUMPTION
Keynesian consumption function. The theory of an intertemporary choice. Aggregate consumption function as a result of the decisions of various groups of consumers. The theory of an intertemporary choice and hypothesis of life cycle. A hypothesis of the permanent income.
Theme 4. MODELING OF THE INVESTMENT
Keynesian approach to the modelling of the investment function. Neoclassical model of the investment: investment in the fixed assets of enterprises, investment in residential structures, investments in stocks. The market of securities and Tobin q-theory. Model of interrelations between neoclassical and Tobin q-theory of investment. Models of investment gap. Portioned gaps.
Theme 5. ECONOMIC GROWTH
Harrod - Domar model. Caldor model. Solow model. Population growth and technological changes in Solow model. Incompletness of the Solow model. Methods of calculations of sources of economic growth.
Case study: the analysis of the factors of economic growth in Ukraine.
Theme 6. UNEMPLOYMENT
Natural rate of unemployment and its determining factors. The reason for unemployment: friction unemployment and unemployment of expectation. The laws on the minimal wages. Models of monopoly power of trade unions. Effective wages. A Solow condition for definition of the effective rates of wages. Schapiro - Stiglitz model. Parameters of unemployment.
Case study: the analysis of parameters of unemployment in Ukraine.
Theme 7. INFLATION
Money. The quantitative theory of money. The Cambridge equation. The theory of the nominal rate of interest and quantitative theory of money. Modelling of the real income from seniorage. A neutrality of money. The theory of liquidity preference and demand for money. Portfolio theories of money demand. The theory of transaction demand for money. Baumol - Tobin model. Model of demand on money because of precaution. Money supply. Money multiplier. Instruments of money policy.
Case study: research of influence of money policy on process of inflation in Ukraine.
Theme 8. THE THEORY OF ECONOMIC FLUCTUATIONS
Model aggregate demand - aggregate supply (AD-AS) with perfectly inelastic (long-run period) and perfectly elastic (short-run period) aggregate supply. Process of transition from short-run to long-run equilibrium. IS - LM model: LM curve, IS curve, modelling of influence of budgetary and tax policy and credit and money policy on equilibrium. Efficiency of budgetary - tax and credit - money policy depending on parameters of model. Tactical purposes of budgetary - tax and credit - money policy A conclusion of a curve of aggregate demand from 1S-LM model, Process of the adaptation of the prices at transition from short-run to long-run equilibrium (AD-PA model).
Theme 9. THE AGGREGATE SUPPLY
Neoclassical and neokeynesian models of aggregate supply. Phillips curve as a model of the aggregate supply. The theory of adaptive and rational expectations. These theories & estimation of consequences of macroeconomic policy. Hysteresis. Dynamic model, aggregate demand - aggregate supply.
Theme 10. THE THEORY OF BUSINESS CYCLES
Concept of a business cycle. Models of interaction of multiplier and accelerator (Samuelson-Hiks and Tevice). Caldor model. Gambling model of a business cycle.
Theme 11. THE THEORY OF A REAL BUSINESS CYCLE
The theory of intertemporary replacement and the labour supply. Model of a real business cycle. Macroeconomic analysis of the labour supply function for verification of model of a real business cycle. Consequences of budgetary - tax policy and sharp changes in the "know-how" in the model of a real business cycle.
Theme 12. OPEN ECONOMY
The real and nominal exchange rates. Parity of the purchasing power, provided and enouncing parity of interest rates. The factors determining the real and nominal exchange rates. IS - LM model in light of foreign trade. Influence of sensitivity of the net export to the income and exchange rate on efficiency of budgetary - tax and credit-money policy. Model of open economy in the short-run and long-run periods (Mandell - Flemming model). Small open economy with floating and fixed exchange rates. Model of the large open economy in the long-run and short-run. Modelling of consequences of budgetary - tax and credit-money policy in open economy.
Theme 13. DEFICIT OF THE STATE BUDGET AND STATE DEBT
Traditional sight on a state debt. Barro - Ricardo hypothesis. A problem of measurement of deficiency of the state budget. Solvency of the state.
Theme 14. PROBLEMS OF EFFICIENCY OF MACROECONOMIC POLICY
Neoclassical school: active or passive macroeconomic policy, Lucas criticism; discretionary policy or hard rule policy, Neokeynesian school: an opportunity of existence of nonequilibrum condition and necessity of active macroeconomic policy, discretionary policy in the neokeynesian concept. Opposition and generality of economic schools.
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