ECO 6204--Fundamentals of Macroeconomics
Dr. Cem Karayalcin
Office Hours: T & Th 1:00-2:00pm
Tentative Syllabus
This course is a graduate-level introduction to the main issues in modern macroeconomics. The topics to be covered (with varying degrees of depth of coverage) include Keynesian and neoclassical theories of consumption and investment, government spending and budget deficits, income determination, unemployment, and inflation.
Most of the time we will be using standard basic mathematical techniques commonly employed in macroeconomics, so you may want to brush up on your knowledge of the relevant techniques. Two good and relatively easy books that deal with this topic is Chiang's Fundamental Methods of Mathematical Economics and Dixit's Optimization in Economic Theory.
The reference text for the course is Essentials of Advanced Macroeconomic Theory (EAMT) by Ola Olsson. This book is available from the University Bookstore. We will use several chapters of it. Students are also expected to read a few chapters by themselves and refresh their memory of some fundamental macroeconomic concepts. As you will see below, in addition to the chapters in the textbook, you are strongly recommended to read additional articles many of which contain the classic expositions of the issues we will discuss.
There will be two midterm exams and one final exam, with respective weights of 20%, 30%, and 40%. Occasional homeworks and class participation carry a weight of 10%.
PLAN OF THE COURSE
1. Short Run Aggregate Economic Fluctuations
Ch. 11, EAMT
Romer, D. (2005) Advanced Macroeconomics Macroeconomics. Boston: McGraw-Hill.
Phillips, A.W. (1958), "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957" Economica 25: 283-299.
Friedman, M (1968) The role of monetary policy" American Economic Review 58: 1-17.
Phelps, A.W. (1968) "Money-wage dynamics and labor market equilibrium" Journal of Political Economy 76: 678-711.
Lucas, R.E. (1972) Expectations and the neutrality of money. Journal of Economic Theory, 4(April), 103–124.
Lucas, R.E. (1973) Some international evidence of output-inflation tradeoffs. American Economic Review, 63(3), 326–334.
Mankiw, G. (1985) "Small menu costs and large business cycles: A macroeconomic model of monopoly" Quarterly Journal of Economics 100: 529-539.
Woodford, M. (2010) "Financial intermediation and macroeconomic analysis" Journal of Economic Perspectives 24: 21-44.
2. Fiscal Policy
Ch. 12, EAMT
Barro, R.J. (1974) Are government bonds net wealth? Journal of Political Economy, 82(November), 1095–1117.
Barro, R.J. (1979) On the determination of the public debt. Journal of Political Economy, 87(October), 940–971.
Barro, R.J. (1989) The Ricardian approach to budget deficits. Journal of Economic Perspectives, 3(2), 37–54.
Reinhart, C. and K.S. Rogoff (2009a) The aftermath of financial crises. American Economic Review: Papers and Proceedings, 99(2), 466–472.
Reinhart, C. and K.S. Rogoff (2009b) This Time Is Different? Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.
Alesina, R. and G. Tabellini (1990) A positive theory of fiscal deficits and government debt. Review of Economic Studies, 57, 403–414.
Krugman, P. (1988) Financing vs forgiving a debt overhang. Journal of Development Economics, 29, 253–268.
3. Inflation and Monetary Policy
Ch. 13, EAMT
Romer, D. (2005) Advanced Macroeconomics Macroeconomics. Boston: McGraw-Hill.
Kydland, F. and E. Prescott (1977) Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(June), 473–492.
Rogoff, K. and A. Sibert (1985) The optimal degree of commitment to an intermediate monetary target. Quarterly Journal of Economics, 100(4), 1169–1189.
Taylor, J.B. (1993) Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.
Alesina, A. and A. Stella (2010) The politics of monetary policy. NBER Working Paper 15856, NBER.
4. Equilibrium Business Cycles
Ch. 6, EAMT
Kydland, F. and E. Prescott (1982) Time to build and aggregate fluctuations. Econometrica, 50, 1345–1370.
Long, J.B. and C.I. Plosser (1983) Real business cycles. Journal of Political Economy, 91, 39–69.
Rebelo, S. (2005) Real business cycle models: Past, present, and future. NBER Working Paper 11401, NBER.
5. Financial Crises
Ch. 7 EAMT
Diamond, P. (1982) Aggregate demand management in search equilibrium. Journal of Political Economy, 90(5), 881–894.
Chang, R. and A. Velasco (2001) A model of financial crises in emerging markets. Quarterly Journal of Economics, 116(2), 489–517.
Reinhart, C. and K.S. Rogoff (2009a) The aftermath of financial crises. American Economic Review: Papers and Proceedings, 99(2), 466–472.
Reinhart, C. and K.S. Rogoff (2009b) This Time Is Different? Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.
6. Consumption and Saving
Ch. 8, EAMT
Romer, D. (1993) The new Keynesian synthesis. Journal of Economic Perspectives, 7(1), 5–22.
Friedman, M. (1957) A Theory of the Consumption Function. Princeton, NJ: Princeton University Press.
Ramsey, F. (1928) A mathematical theory of saving. Economic Journal, 38(152), 543–559.
Hall, R.E. (1978) Stochastic implications of the life cycle-permanent income hypothesis. Journal of Political Economy, 86(6), 971–987.
7. Investment
Ch. 9, EAMT
Romer, D. (2005) Advanced Macroeconomics Macroeconomics. Boston: McGraw-Hill.
Branson, W.H. (1989) Macroeconomic Theory and Policy, 3rd edition. New York: Harper & Row.
Caballero, R. (1997) Aggregate investment. NBER Working Paper 6264, NBER.
8. Unemployment
Ch. 10, EAMT
Mortensen, D. and C. Pissarides (1994) Job creation and job destruction in the theory of unemployment. Review of Economic Studies, 61(3), 397–415.
Diamond, P. (1982) Aggregate demand management in search equilibrium. Journal of Political Economy, 90(5), 881–894.
Shapiro, C. and J.E. Stiglitz (1984) Equilibrium unemployment as a worker discipline device. American Economic Review, 74(3), 433–444.
Lindbeck, A. and D. Snower (1986) Wage setting, unemployment, and insider-outsider relations. American Economic Review, 76(2), 235–239.
Acemoglu, D. and D. Autor (2009) Lectures in labor economics. Unpublished teaching material, http://econ-www.mit.edu/faculty/acemoglu/courses, accessed May 10, 2011.