Syllabus

ECON 419 - 01: MACROECONOMICS II
Spring 1996

Prof. Steven R. Cunningham
Mondays and Wednesdays, 4:00 - 5:30 PM
Classroom: 319 Monteith Hall
Office: 308 Monteith Hall
Tel.: 486-3550

 

Course Summary

This is a course in macroeconomic modeling for students pursuing the Ph.D. in Economics. Competing approaches are compared and contrasted. Coverage includes equilibrium and disequilibrium, static and dynamic models of open and closed economies. Along the way, current issues in theory and policy are highlighted and discussed. The course assumes a thorough preparatory course in macroeconomic theory and policy like ECON 309.

Required Text

McCafferty, Stephen, Macroeconomic Theory. NY: Harper & Row (1990).

Course Organization

This a course on macroeconomic modeling. We will work closely from the readings. At this level, students should be able grasp much of the material in the articles by their own efforts. During class time, I will highlight important material and present whatever that I feel will most benefit the students. Sometimes this will mean spending the class period building the requisite mathematical skills. Sometimes it will involve stepping through the model solutions explicitly, or discussing alternative uses of the same model structure. Sometimes it will involve discussing the underlying economic theory.

There will be serveral homework problem sets assigned in class that will collectively form 60% of the final course grade. The remaining 40% will come from the final exam. The final exam will consist of a series of discussion questions, whereas lengthy mathematical exercises will be covered in the homework assignments.

Students are expected to deliver all assignments on time, and to appear at the assigned examination period, except when arrangements have been made in advance. Extended absences, planned or unplanned, should be discussed with the instructor. Late papers may be penalized by reducing the grade by one letter for weekday that it is late. (A paper due on Friday, but received on the following Monday is penalized one letter grade.)

Class Schedule

  • Course Introduction & Organization
  • Representative Agent vs. Overlapping Generations Models
  • Neutral vs. Dichotomous Models
  • Representative Agents, Composite Commodities, and Production Functions
  • Equilibrium (Flexible Price) Macroeconomic Models
  • Fix-Price (Exogenous Price) Models
    •

    Required Readings:

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapters 1 - 3.

  • Disequilibrium Models
  • Dual Decision Hypothesis
    •

    Required Readings:

    Barro, Robert J., and Herschel I. Grossman. "A General Disequilibrium Model of Income and Employment," American Economic Review (March 1971), pp. 82-93.

    Drazen, A. "Recent Developments in Macroeconomic Disequilibrium Theory," Econometrica (March 1980), pp. 283-306.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 3.

    Optional Readings:

    Clower, R.W. "The Keynesian Counter-Revolution: A Theoretical Appraisal." In Hahn, F.H., and F.P.R. Brechling, eds.: The Theory of Interest Rates. London: MacMillan, 1965 (original lecture, 1962).

    Leijonhufvud, A. On Keynesian Economics and the Economics of Keynes. Oxford: Oxford University Press (1968)

    Required Readings:

    Lucas, Robert E., Jr., and Leonard A. Rapping. "Real Wages, Employment, and Inflation," Journal of Political Economy (September/October, 1969), pp. 721-754.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 4-5.

  • Unemployment-Inflation Tradeoffs: The Phillips Curve
  • Job Search Theory
    •

    Required Readings:

    Barro, Robert J. "The Persistence of Unemployment," American Economic Review (May 1988), pp. 32-37.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 7.

    Santomero, Anthony, and John Seater. "The Inflation-Unemployment Trade-off: A Critique of the Literature," Journal of Economic Literature vol. 16 (June 1978), pp. 499-544.

    Optional Readings:

    Cunningham, Steven R., and Jon Vilasuso."The Problem with Interim Employment," working paper, 1993.

  • NeoClassical Growth Theory
  • Optimal Growth
  • Money and Growth
    •

    Required Readings:

    Chari, V.V., Larry E. Jones, and Rodolpho E. Manuelli. "The Growth Effects of Monetary Policy," Federal Reserve Bank of Minneapolis Quarterly Review (Fall 1995), 18-32.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 8.

    Solow, Robert M. "A Contribution to the theory of Economic Growth," Quarterly Journal of Economics (February 1956), pp. 65-94.

  • The New Growth Economics
  • Miscellaneous Topics and Catch-up
  • Adaptive and Rational Expectations
  • Incorporating Expectations
  • Stochastic Models: Methods of Solution
    •

    Required Readings:

    Cagan, P. "The Monetary Dynamics of Hyperinflation." In M. Friedman, ed.: Studies in the Quantity Theory of Money. Chicago: University of Chicago Press, 1956.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 6.

    Muth, John. "Rational Expectations and the Theory of Price Movements," Econometrica vol. 29 (July 1961).

    Required Readings:

    Barro, Robert J. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy (August 1978).

    Lucas, Robert E., Jr. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review (June, 1973), 326-334.

    __________. "Econometric Policy Evaluation: A Critique," in The Phillips Curve and Labor Markets, Journal of Monetary Economics Supplement, K. Brunner and A. Meltzer, eds. (1976).

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapter 10.

    Sargent, T. J., and N. Wallace. " ‘Rational’ Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy Vol. 83 No. 2 (April 1975), pp. 241-254.

    __________. "Rational Expectations and the Theory of Economic Policy," Journal of Monetary Economics 2, pp. 169-183.

  • More on Models with Uncertainty
  • A Stochastic IS-LM Model
  • Endogenous Expectations
    •

    Required Readings:

    Barro, Robert J. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy (August 1978).

    Kydland, Finn E., and Edward C. Prescott. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy (December 1978), pp. 971-987.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapters 11 and 12.

    Miller, M.H., and D. Orr. (1966) "Precautionary Demand for Money," Quarterly Journal of Economics (1966).

    Poole, William. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," Quarterly Journal of Economics (May 1970), pp. 176-216.

    Required Readings:

    King, R., and C. Plosser. "Money, Credit and Prices in a Real Business Cycle," American Economic Review (June 1984).

    Long, John B., Jr., and Charles I. Plosser. "Real Business Cycles," Journal of Political Economy (February 1983), pp. 39-69.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapters 14-15.

    Marquis, M.H., and Steven R. Cunningham. "Financial Innovation, Price Smoothing, and Monetary Policy", Economic Inquiry Vol. 28 No. 4 (October 1990), pp. 831–850.

    Nelson, Charles R., and Charles I. Plosser. "Trends and Random Walks in Macroeconomic Time Series," Journal of Monetary Economics (September 1982), 139-162.

    Required Readings:

    Fischer, Stanley. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy vol. 85 (February 1977), pp. 191-205.

    McCafferty, Stephen. Macroeconomic Theory. NY: Harper & Row (1990), Chapters 13 and 15.

    Mussa, M. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review 71 (1981), 1020-1027.

    Rosen, Sherwin. "Implicit Contracts: A Survey," Journal of Economic Literature (September 1985), pp. 1144-1175.