Macroeconomics, 6th module, academic year 2004-2005
The motivation of the course.
This is the final part of the required macroeconomic sequence at NES. The goal of the sixth module is to utilize the methodology and knowledge obtained in the previous five modules and consider questions relevant for policy makers. Specifically, the course will cover fiscal and monetary policy in closed and open economies from theoretical, empirical, and historical perspectives. The issues of policy are highly controversial, and most of the material will be based on recent research, which is far from being the last word in the field. Hence, a great deal of creativity and open mindedness on the part of the course participants is expected.
Primary texts.
This course is more based on academic articles than particular text books. Some suggested readings are below, and they include chapters from the two books we used throughout macroeconomics 3-5:
Romer, David, Advanced
Macroeconomics. New York: McGrow-Hill, 1996. (further
Romer)
Blanchard, Olivier J. and Stanley Fischer, Lectures on Macroeconomics. Cambridge,
MA: MIT Press, 1989 (further BF)
A special note is that a chapter on fiscal policy appeared only in the second edition of Romer’s book, which is available at the NES library only in a limited number of copies.
Among books not available in multiple copies at the NES library, a useful text is
Agenor, Pierre-Richard, and Peter J. Montiel, Development Macroeconomics,
Princeton University Press, 2003, 1999 (further AM).
An updated electronic version of this syllabus with links to papers will be available on the instructor’s webpage.
Grading system.
There will be two exams during the course: a midterm quiz, which will take place in section during the fourth week, and the final exam. The course grade will be determined 30% from the midterm and 70% from the final. There will also be several homework assignments during the course, which can influence the final grade.
There will be no make-up for the midterm exam. If a student needs to miss the mid-term due to an emergency, this emergency needs to be documented (if possible, prior to the exam), and 100% of the grade will then be determined from the final examination.
Tentative schedule.
I. Fiscal policy (3 lectures)
A. Basic set-up; Ricardian equivalence
Romer, 2nd edition, Chapter 11.1-11.4,
Blanchard,
Olivier, “Debt, Deficits, and Finite Horizons,” JPE 93(2), April 1985,
Barsky,
Robert, N.Gregory Mankiw and Stephen Zeldes, “Ricardian Consumers with
Keynesian Propensities,” AER 76(4), September 1986, pp.676-91.
BF, Ch.3.3
B. Seignorage and tight money paradox
Romer, Chapter 9.7
AM, Chapter 4.3.2 – 4.3.3.
Sargent, Thomas,
and Neil Wallace “Some Unpleasant Monetarist Arithmetic,”
Federal Reserve
Bank of Minneapolis Quarterly Review 5, Fall 1981, pp.1-17.
Liviatan, Nissan, “Tight Money and Inflation,” JME 13, January 1984, pp. 5-15
Liviatan, Nissan, “The Tight Money Paradox – An Alternative View,” Journal of
Macroeconomics 8, Winter 1986, pp. 105-12.
II. Monetary policy (5 lectures)
A. Modern theories of the Phillips curve
Roberts,
John M., “New Keynesian Economics and the Phillips Curve,” JMCB 27(4),
November 1995, Part 1, pp. 975-84.
Gali, Jordi, and Mark Gertler, “Inflation Dynamics: A Structural Econometric
Analysis,” JME 44, 1999, pp. 195-222 (previously, NBER WP 7551)
Mankiw, N.Gregory and Ricardo Reis, “Sticky Information vs. Sticky Prices: A
Proposal to Replace the New Keynesian Phillips Curve,” QJE 117(4), 2002, pp. 1295-328. (previously, NBER WP 8290)
B. Monetary policy without commitment
Clarida,
Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” JEL 37, December 1999, pp. 1661-707. Sections 1-3.
C. Monetary policy with commitment
Clarida,
Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” JEL 37, December 1999, pp. 1661-707. Section 4.
D. Inflation targeting and other simple rules of monetary policy
Clarida,
Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” JEL 37, December 1999, pp. 1661-707. Sections 5-7.
Svensson, Lars E.O., “What Is Wrong with Taylor Rules?” JEL 41(2), June 2003,
pp.426-78. (previously NBER WP 9421)
III. Open economy issues (4 lectures)
A. Stabilization policy: exchange rate versus money based stabilization
Calvo, Guillermo A., and Carlos A.Végh, "Inflation Stabilization and BOP Crises in
Developing Countries," in John Taylor and Michael Woodford, Handbook of Macroeconomics (Volume C; North Holland, 1999), pp. 1531-1614Issued as NBER Working Paper No. 6925 (February 1999).
B. Real exchange rate targeting
AM, Chapter 7.2.
Calvo, Guillermo A., Carmen M. Reinhart, and Carlos A.Végh, “Targeting the real
exchange rate: Theory and evidence,” Journal of Development Economics, 47, 1995, pp. 97-133.
IV. Financial crises (2 lectures)
AM, Ch. 16.
Calvo, Guillermo A., and Carlos A.Végh, "Inflation Stabilization and BOP Crises in
Developing Countries," in John Taylor and Michael Woodford, Handbook of Macroeconomics (Volume C; North Holland, 1999), pp. 1531-1614Issued as NBER Working Paper No. 6925 (February 1999).
Krugman, Paul, “A Model of Balance of Payment Crises,” JMCB 1979.
Abbreviations:
AER = American Economic Review
BPEA = Brookings Papers on Economic Activity
CR = Carnegie-Rochester Series on Public Policy
Ema = Econometrica
JEL = Journal of Economic Literature
JEP = Journal of Economic Perspectives
JMCB = Journal of Money, Credit, and Banking
JME = Journal of Monetary Economics
JPE = Journal or Political Economy
QJE = Quarterly Journal of Economics