Macroeconomics Theory I

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Macroeconomics Theory I (ECON 705)Spring 2004

Peter Skott Lectures: Tu/Th 11:15-12:30

Thompson 904 Thompson 919

Tel: 545-6358 Office Hours: MW 11-12Email: [email protected]

SCOPE

This course is an introduction to macroeconomics at the Ph.D. level. The objectives of

the course are: (1) to review the main theories developed in the macroeconomicsliterature over the last half century; (2) to review the empirical evidence on these

theories.

EXAMS AND GRADING

The final grade is based on a midterm (40%), a final exam (40%), homework assignments(15%), and class attendance and participation (5%). The midterm exam will be givenoutside of the regular lecture (Friday, weekend, or evening) to save time.

READINGS- Textbook (available for purchase at the Food for Thought bookshop): Romer, D.

(2006). Advanced Macroeconomics, 3rd edition.

- Journal articles: Copies of required journal articles will be made available.

COURSE OUTLINE AND READINGS

I. Overview, history and methodology (1 week)

Readings:

• Akerlof, G.A. (2007) "The Missing Motivation in Macroeconomics". AmericanEconomic Review, 5-36.

• Blanchard, O.J. (2008) "The state of macro". NBER Working paper 14259.http://www.nber.org/papers/w14259

• Kirman, A.P. (1992) “Whom or what does the representative individual

represent?” Journal of Economic Perspectives, Vol 6, 117-136

• Lucas, R. E. Jr. (1976). "Econometric Policy Evaluation: A Critique," in The

Phillips Curve and the Labor Markets, ed. K. Brunner and A. Melzer, Carnegie-Rochester Conference Series on Public Policy, 1: 19-46.

• Rabin, M. (2002) “A perspective on psychology and economics”. EuropeanEconomic Review, 657-685.

• Woodford, M. (1999) “Revolution and evolution in twentieth-century

macroeconomics”

II. Long-run models with full employment (2 weeks)



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The Solow-Swan model

Infinite horizon and OLG models with optimization“Endogenous growth”

Readings:

• Romer, chapters 1-3• Mankiw, N.G., D. Romer, and P. Weil (1990) "A Contribution to the Empirics of

Economic Growth," Quarterly Journal of Economics, 407-437.

• Pogge, T. (2008) "Growth and inequality: understanding recent trends and political choices". Dissent (http://www.dissentmagazine.org/article/?article=990)

• Romer, P. (1990). "Endogenous Technological Change," Journal of PoliticalEconomy, 98: 71-102.

• Solow, R.M. (1994) “Perspectives on growth theory”. Journal of Economic

Perspectives, 45-54.

III. Classical and new classical macro (1 week)General Walrasian equilibrium

Old and new monetarism

RBC models: theory, methodology and evidence

Readings:

• Romer, chapters 4 and 6A

• Camerer, C. , Babcock, L., Loewenstein, G. and Thaler, R. (1997) “Labor supplyof New York City cabdrivers: one day at a time”. Quarterly Journal of

Economics, 407-441.

IV Keynesian Macroeconomics (2 weeks)Setup and comparative statics

Stability issues

Phillips curves

Readings:

• Romer, chapter 5.

• Dutt, A.K. and Skott, P. (1996) “Keynesian theory and the Aggregate-Supply /

Aggregate-Demand framework”. Eastern Economic Journal, 313-331.

• Keynes, J.M. (1936) The General Theory of Employment, Interest and Money,

Macmillan, chapters 1-3 & 19.• Tobin (1975) “Keynesian model of recession and depression”, American

Economic Review, 195-202

V. “New Keynesian” Macroeconomics (2 weeks)

Motivation, assumptions and methodology

The microfoundations of price stickiness



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Readings:

• Romer, chapter 6

• Bewley, T. (1998) “Why not cut pay?” European Economic Review, 459-90.

• Blinder, A. (1991) “Why are prices sticky? Preliminary results from an interview

study”. American Economic Review P&P, 89-100.• Carlin, W. and Soskice, D. (2005) " The 3-Equation New Keynesian Model —A

Graphical Exposition". Contributions to Macroeconomics, Volume 5, Issue 1,

Article 13

• Levy, D., Bergen, M., Dutta, S. and Venable, R. (1997) “The magnitude of menu

costs: direct evidence from large US supermarket chains”. Quarterly Journal of

Economics, 791-825

V1. Aggregate consumption functions (1 week)Life cycle and permanent income theories

Empirical evidenceAlternative theories

Readings:


• Easterlin, R.A. (2001) “Income and happiness: towards a unified theory”.

Economic Journal, 465-484.

• Frederick, R.A., Loewenstein, G. and O’Donoghue, T. (2002) “Time discountingand time preference: a critical review”. Journal of Economic Literature, 351-401.

VII Aggregate investment (1 week)

Capital adjustment and accelerator modelsThe q theory of investment

Finance, liquidity and investment

Readings:


• Stiglitz, Joseph and Andrew Weiss (1981). “Credit Rationing in Markets withImperfect Information,” American Economic Review, 71(3), pp. 393-410.

VII Labor markets and unemployment (2 weeks)

Efficiency wage model

Search theory and unemploymentOther theories: implicit contracts, unionism and insider-outsider theories, segmented

labor markets.



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Macroeconomics Theory I