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Univ.Prof.Dr. Michael Landesmann

Advanced Macroeconomics Macroeconomics II

SS 2014

This course covers advanced topics in macroeconomics. It will be cover topics in macroeconomic theory as well as applications of that theory to understand the foundations of macro-economic policy and specific macroeconomic events (such as the recent financial and economic crisis).

Basic textbooks:

Theory:

D. Romer: Advanced Macroeconomics, McGraw-Hill; M. Wickens:

Macroeconomic Theory; Princeton Univ. Press; Benassy:

Macroeconomic Theory, Oxford Economic Press. J. Gali: Monetary

Policy, Inflation and the Business Cycle; Princeton Univ. Press; W.

Carlin and D. Soskice: Macroeconomics and the Financial System; Oxford Univ. Press, forthcoming.

Handbook of Monetary Economics, North-Holland; Handbook of Macroeconomics, North-Holland;

Obstfeld and Rogoff: Open Economy Macroeconomics. Woodford:

Interest and Prices, Foundations of a Theory of Monetary Policy;

Princeton Univ.Press. Mankiw and Romer, eds.: New Keynesian

Macroeconomics, 2vols, MIT Press;

Policy:

A. Benassy-Quere, B. Coeure, P. Jacquet, J. Pisani_Ferry:

Economic Policy; Theory and Practice; Oxford University Press.

Requirements and student participation:

Half the course will be taught in the form of lectures (there will be a mid-term

examination); in the other half of the course students are expected to present sections of

the book by Benassy-Quere et al on Economic Policy and the forthcoming book by Carlin and Soskice Macroeconomics and the Financial System.

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Topics to be covered:

1. Introduction

i. Short review of the (post war) history of macroeconomic

theory

ii. Circular flows and national income accounts

iii. Expectations formation iv. Intertemporal savings - expenditure plans

Blanchard (2000; 2008), Woodford (2003, 2009), Hejdra and van der Ploeg, Ch. 3

Benassy: Macroeconomic Theory; Ch.3

2. Intertemporal budget constraints - transversality conditions

- for a country

- for the household sector

- for the consolidated private sector

- discussion of the Modigliani-Miller theorem

- discussion of the Ricardian aquivalence theorem

- balance of payments and the real exchange rate

Romer, sections 2.7-2.9, 11.1-11.3

3. Modern consumption theory

Romer, Ch. 7, Attanasio (1999), Deaton (1992)

4. Modern investment theory

Romer, Ch. 8; Caballero (1999)

5. Real business cycle theory and other cycle theories

Romer, Ch.4, King and Rebelo (1999), Mankiw (1989)

Benassy: Ch.10

Aghion and Howitt, Ch. 8, Benhabib and Farmer (1999)

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6. Microeconomic foundations of New Keynesian

Economics

- product markets

- labour markets

- capital markets

Romer, Ch. 6, Mankiw and Romer, Introduction and Chs. 3,6,21-23,26,27,

Benassy: Ch.5: Non-clearing markets and imperfect

competititon; Ch. 6: Uncertainty and Financial Assets

Gali Jordi (2008): Monetary Policy, Inflation and the Business

Cycle, An Introduction to the New Keynesian Framework; Princeton Univ. Press

Gali Jordi (2011): Unemployment Fluctuations and Stabilization Policies, A New Keynesian Perspective; MIT Press 2011.

Greenwald and Stiglitz (1993), Shleifer (2000)

Bertola and Rogerson (1997), Blanchard and Giavazzi (2003), Nickell and Layard (1999), Blanchard (1997)

7. Monetary Policy and Fiscal Policy

Blanchard, Friedman, Fisher: Chs. 15, 22, 21 in: Handbook of

Monetary Economics; Romer, Ch. 9 and Ch.11; Stiglitz and

Greenwald (2003); Woodford (2003), Ch. 1, Woodford (2006),

Goodfriend (2007)

Giavazzi and Pagano (1996), Gali and Perotti (2003), Bernanke & Gertler (1995)

Chs. 3 and 4 in Benassy-Quere et al: Economic Policy; Ch3: Fiscal Policy; Ch. 4: Monetary Policy

10. Topics in Open Economy Macroeconomics

Wickens: Macroeconomic Theory; Ch. 12; Obstfeld and Rogoff (2000), Obstfeld and Rogoff: Open Economy Macroeconomics

Ch. 5 in Benassy-Quere et al: Economic Policy; Ch5: International Financial Integration and Foreign-Exchange Policy

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9. The DSGE Model, its critics and reactions to the recent

economic crisis

Romer (Ch. 7), Christiano et al (2005), Smets and Wouts (2003),

Chari, Kehoe et al (2007); Christiano et al (2009), Benassy (2010): Ch. 13

Buiter (2009), Krugman (2009), Blanchard (2008), Gordon (2009)

Ch. 8 in Benassy-Quere et al: Economic Policy; Ch 8: Economic Policy and the 2007-09 Crisis

Literature referred to:

Blanchard (2000): What do we know about macroeconomics that Fisher and Wicksell did not?; NBER Working Paper 755.

Woodford M (look at his Website): Revolution and Evolution in

Twentieth-Century Macroeconomics'

Blanchard, O. (2008): The State of Macro; NBER Working Paper

14259

Solow R. (2008): Comment; Journal of Economic Perspectives, 22(1), 243-246.

Chari, V.V. and Kehoe P.J. (2007): The Heterogeneous State of

Modern Macroeconomics: A Reply to Solow; NBER Working Paper 13655.

Woodford M. (2009): Convergence in Macroeconomics: Elements

of a New Synthesis; American Journal of Macroeconomics; vol

1(1); 267-279.

Attanasio (1999), Caballero (1999), King and Rebelo (1999),

Benhabib and Farmer (1999) are all in: Handbook of Macroeconomics (edited by Taylor and Woodford), North-Holland.

Deaton, A. (1992): Understanding Consumption; Oxford University Press.

Mankiw (1989): Real Business Cycles: A New Keynesian

Perspective; Journal of Economic Perspectives; Summer, pp. 79-

90.

Caballero and Hammour (1994): The Cleansing Effect of Recessions; American Economic Review, Dec. 1994, pp. 1350-68.

Aghion and Howitt (1998): Endogenous Growth Theory; MIT Press.

Mankiw and Romer, eds.: New Keynesian Economics, 2 vls., MIT Press.

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Greenwald and Stiglitz (1993): New and old Keynesians, Journal

of Economic Perspectives; pp. 23-44.

Stiglitz and Greenwald (2003): Towards a New Paradigm in

Monetary Economics; Cambridge Univ. Press.

Schleifer (2000): Inefficient markets: An introduction to behavioural finance; Oxford University Press.

Goodfriend M. (2007): How the World achieved Consensus on Monetary Policy; NBER Working Paper 13580.

Woodford M. (2006): How Important is Money in the Conduct of

Monetary Policy?; Paper; Columbia University (check his Web-

site)

Bertola and Rogerson (1997): Institutions and labor reallocation;

European Economic Review, 41, pp. 1147-1171.

Nickell and Layard (1999): Labor Market Institutions and

Economic Performance; Handbook of Labor Economics, 3, pp. 3029-3084

Blanchard and Giavazzi (2003): Macroeconomic effects of

regulation and deregulation in goods and labor markets;

Quarterly Journal of Economics , Dec 2003; see also Blanchard Web-site for larger version.

Blanchard (1997): The medium run; Brookings Papers on Economic Activity: 2, pp 89-158

Giavazzi and Pagano (1996): Non-Keynesian Effects of Fiscal

Policy Changes; NBER WP 5332, Oct. 1996

Gali and Perotti (2003): Fiscal Policy and Monetary Integration in Europe; Discussion Paper, see Gali website

Bernanke & Gertler (1995): Inside the black box: the credit

channel of monetary policy transmission; Journal of Economic Perspectives, 9(4), pp 27-48.

Obstfeld and Rogoff, The Six Major Puzzles in International

Macroeconomics; NBER Macroeconomics Annual 2000, pp. 339-412

Christiano, L.J., R. Motto, and M. Rostagno (2005): Nominal

Rigidities and the Dynamic Effects of a Shock to Monetary Policy; Journal of Political Economy.

Smets, F. and R. Wouts (2003): An estimated Stochastic General

Equilibrium Model of the Euro Area; Journal of the European

Economic Association; 1, 1123-75.

Chari, Kehoe; McGratten (2009): New Keynesian Models: Not yet

Useful for Policy Analysis; American Economic Journal of

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Macroreconomics; vol 1(1); 242-266.

Kiyotaki, N. and J.H. Moore (1997): Credit Cycles; Journal of Political Economy, 105, 211-248.

Christiano, L.J., R. Motto, and M. Rostagno (2009): Financial

Factors in Economic Fluctuations; paper presented at the DG EcFin Research Conference; Brussels 16/17 October 2009.

Some critical contributions on the state of

macroeconomics in the wake of the current crisis:

Gordon, R. (2009): Is Modern Macro or 1978-era Macro More

Relevant to the Understanding of the Current Economic Crisis? Paper; Northwestern University.

Buiter,W. (2009): The Unfortunate Uselessness of most State of

the Art Academic Monetary Economics; see on CEPR Vox-EU.

Luigi Spaventa: Economists and economics: what does the crisis

tell us?; CEPR Policy Insight no 38