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Course duration: 54 hours lecture and class time (Over three weeks)
Course objective: This course aims to bring you up to date with modern developments in
macroeconomic theory and offer fresh perspectives on the macroeconomic challenges of the
day. The course is essentially structured around a series of key questions:
The approach of the course is to discuss the salient features of the data and then go on to 1
present macroeconomic models to study these issues.
Content: The course covers the following topics: macroeconomic measurement and data, the labour
market, economic growth, consumption and saving, investment, unemployment, a dynamic
macroeconomic model, money and interest rates, financial markets, business cycles and
stabilisation policy, and the limits of fiscal and monetary policy.
Textbook: For the first part of the course, chapters from S Williamson, Macroeconomics, 5th ed., Pearson
and D Weil, Economic Growth, 2nd ed., Prentice Hall. For the second part of the course, O
Blanchard and D R Johnson, Macroeconomics, 6th ed., Pearson. These readings are available in a
combined package from the Economists Bookshop.
- Measuring GDP and discussion of factors that are left out by GDP measures
- Comparing real GDP over time and across countries
Economic growth
Unemployment
Question: What are the functions of money and how is the price level determined?
Readings:
* Blanchard and Johnson, chapter 4.
- Radford, R. (1945). The Economic Organisation of a P.O.W. Camp. Economica,
12(48), 189-201.
Question: What is a central bank, and how are interest rates determined?
Application: Are central banks powerless if people no longer hold cash? What is forward
guidance?
Concepts and tools: reserves, quantitative easing, corridor system, arbitrage, Fisher
equation, Taylor rule, term structure, yield curve.
Readings:
4
* Blanchard and Johnson, chapters 14-15.
- Reis, Ricardo (2013). Central Bank Design. Journal of Economic Perspectives, 27(4),
17-44.
Question: What are the functions of banks and what is the role of the financial system?
Concepts and tools: Diamond-Dybvig model, maturity transformation, bank runs, off-
equilibrium threats, moral hazard.
Readings:
* Diamond Douglas W. (2007). Banks and liquidity creation: a simple exposition of the
Diamond-Dybvig model." FRB Richmond Economic Quarterly 93 (2), 189200.
- Brunnermeier, Markus (2009). Deciphering the Liquidity and Credit Crunch
2007-2008. Journal of Economic Perspectives, 23(1), 77-100.
Concepts and tools: twin deficits, PPP, currency crashes, UIP, trilemma, pegs and floats,
currency unions, speculative attacks.
Concepts and tools: default risk, modern banks, misallocation, amplification, multiplicity,
debt, diabolic loop.
Readings:
* Brunnermeier, Markus and Ricardo Reis (2016). A Crash Course on the Euro Crisis
- Blanchard and Johnson, chapter 9.
Concepts and tools: IS-LM model, aggregate demand, crowding out, multipliers,
fiscalists, monetarists, automatic stabilizers.
5
Readings:
* Blanchard and Johnson, chapters 3-5.
- Romer, Christina and David Romer (2002). The Evolution of Economic Understanding
and Postwar Stabilization Policy. In Rethinking Stabilization Policy, Jackson Hole
Economic Policy Symposium: Federal Reserve Bank of Kansas City.
Concepts and tools: Aggregate supply, nominal rigidities, Phillips curve, sacrifice ratio, rational
expectations, Lucas critique.
Readings:
* Blanchard and Johnson, chapters 7-8.
- Mankiw, N. Gregory (2006). The Macroeconomist as Scientist and Engineer. Journal
of Economic Perspectives, 20(4): 2946.
Question: Why isnt discretion better than rules? How to design institutions?
Redings:
* Blanchard and Johnson, chapter 22.
- Barro, Robert and David Gordon (1983). A Positive Theory of Monetary Policy in a
Natural Rate Model. Journal of Political Economy, 91(4), 589-610.
Concepts and tools: Tax smoothing, debt management, social transfers, dynamic
inconsistency, hyperbolic discounting, self commitment, debt sustainability.
Readings:
* Blanchard and Johnson, chapter 23.
- Akerlof, George A. (1991). Procrastination and Obedience. American Economic Review, 81(2),
1-19.