ECON. 604 MACROECONOMICS Michael G. Bradley Office: Econ. 111 Office Hours: 1-3 MWF or by appointment Office Phone: 492-8268
University of Colorado Spring 1984
This course is the second Part of a two-semester integrated sequence in macroeconomics. It is assumed that students enrolled have completed Economics 602 and are, therefore, familiar with: William H. Branson, Macroeconomic Theory and Policy, Harper & Row, 2nd ed., 1979. (Branson in course outline below). Rudiger Dornbush and Stanley Fisher, Macroeconmics, McGraw-Hill, 2nd ed., 1981. (D-F below). Robert J. Gordon, Macroeconomics, Little, Brown, 2nd ed., (Gordon below). Selected readings from these texts are indicated below in the course outline and should be treated as optional background reading. Students with weak preparation will definitely want to consult the indicated selections in one or more of these texts. Course Requirements: There will be two midterms and a comprehensive final examination. The first midterm will be in late February and the second in late March or early April. Each midterm represents 30 percent of your grade. The final exam counts 40 percent. Homework: I will hand out several homework problems (review questions) throughout the term which are not to be handed in -- they are for your own consumption (investment?) Students are encouraged to work together on these problems. Textbook: Turnovsky, S.J., Macroeconomic Analysis and Stabilization Policy (Cambridge University Press, 1977). Other Readings: All the books mentioned in the course outline will be on reserve or I will have the relevant sections at the copy center. Journals are not on reserve but are noncirculating material. Many of the journal articls can also be found at the copy center. Course Outline: Optional readings are denoted by an*· Background reading is optional depending upon the student's previous exposure to the material. All other readings are required.
-2I.
Introduction and Overview Turnovsky, Chapter 1. (It is expected that the two readings below will be completed by the end of the term.) Gordon, R. J., "Postwar Macroeconomics: The Evolution of Events and Ideas," in The American Economy in Transition, ed. by Martin Feldstein, pp. 101-162. Tobin, J., "Stabilization Policy Ten Years After," in Brookings Papers on Economic Activity, 1980, pp. 19-71.
II.
Static Income Determination Theory A.
The "IS-LM" Model Background: Branson (Chapters 3, 4, 5): (Chapters 3, 4) .
Gordon (Chapters 3, 4, 5); D-F
Turnovsky, Chapter 2. *Bailey, M. J., Chapter 2 in National Income and the Price Level, McGraw-Hill, 1971. *Hicks, J. R., "Mr. Keynes and the Classics": A Suggested Interpretation," Econometrica, 1937. B.
Formulation of a Consistent Model Turnovsky, Chapter 3 (pp. 36-43 only) Patinkin, D., Money, Interest and Prices, 2nd ed., (Harper and Row 1965) Chapters 3-4.
C.
The Neoclassical Full-Employment Model Patinkin, op. cit., Chapter 10-12 (Skip Section 6). *Barro, R. and Grossman, H., Money, Employment and Inflation, Cambridge University Press, 1976, Chapter 1 .
D.
Some Keynesian Underemployment Models Background: Branson (Chapters 6, 7, 8); Gordon (Chapters 6, 7): D-F (Chapters 11 - 12) Patinkin, op. cit., Chapter 13 (Sections 1 and 4) *Bailey, op. cit., Chapter 3
E.
Disequilibrium Models Clower, R., "The Keynesian Counter-Revolution: A Theoretical Appraisal", in F. Hahn and F. Brechling (eds.) The Theory of Interest Rates, (McMillan, 1965). Weintraub, E. Roy , Microfoundations (Cambridge University Press, 1979) Chapter 7. Barro, R. and Grossman, H., "A General Disequilibrium Model of Income and Employment," AER, 61 (1971). *Patinkin, op. c i t . ,Chapters 13 - 14 .
-3III. Recent Controversies in Monetary and Fiscal Policy A. Government Borrowing and Wealth Effects Barro, R., "Are Government Bonds Net Wealth?" JPE, 82, 1974. *Discussion of Barro in JPE, March/April 1976. *Drazen, A., "Government Debt, Human Captial and Bequests in a Life-Cycle Model," JPE, June 1978, pp. 505-16. *Bailey, op. cit., Chapter 9. B. The Government Budget Constraint Turnovsky, Chapter 4. Blinder, A. and Solow, R., "Does Fiscal Policy Matter?" Journal of Public Economics, November 1973. (Be forwarned --t they make some algebra errors). Friedman, B., "Crowding Out or Crowding In? Economic Consequences of Financing Government Deficits," in Brookings Papers on Economic Activity, Vol. 3, 1978, pp. 593-654. Christ, C., "On Fiscal and Monetary Policies and the Government Budget Restraint," AER, 69 (1970). *JPE, Special Issue on Monetary Theory, Sept./Oct. 1972 ~ Read J. Tobin (pp. 852-63) and M. Friedman (pp. 912-23) only. IV.
Topics in Inflation Theory A.
The Phillips Curve Background: Branson (Chapters 17, 18); Gordon (Chapters 8, 9, 10); D-F (Chapter 13). Turnovsky, Chapter 5. Santomero, A. and Seater, J., "The Inflation-Unemployment Tradeoff: A Critique of the Literature," JEL, June 1978.
B.
The Effects of Anticipated and Unanticipated Inflation Turnovsky, Chapter 6 (pp. 104-114 only). *Bailey, op. cit., Chapter 4 *Gordon, Chapter 11.
C.
Expectations and Economic Policy Sheffrin, S., Rational Expectations (Cambridge University Press, 1983) Chapter 1. Maddock, R. and Carter, M., "A Child's Guide to Rational Expectations," JEL, March .1982. Sargent, T. and Wallace, N., "Rational Expectations and the Theory of Economic Policy," JME, 1976, pp. 169-83. Fischer, "Long-term Contracts, Rational Expectations and the Optima Money Supply Rule," JPE 85 (1977). Canzoneri, M., "Labor Contracts and Monetary Policy," JME 1978. *Barro, R., "Rational Expectations and the Role of Monetary Policy," JME, 2 (1976). *Modigliani, F., "The Monetarist Controversy or, Should we Forsake Stabilization Policies?" AER, March 1977, pp. 1-17.
. -4D.
V.
Government Budget Constraint Dynamics and Inflation Nguyan, D. T. and Turnovsky, s., "Monetary and Fiscal Policies in an Inflationary Economy: A Simultation Approach," JMCB, 1979, pp. 258-83 .
Short-Run and Medium Run Dynamics Turnovsky, Chapters 6 and 7 Taylor, D., "A Simple Model of Monetary Dynamics", JMCB, 9 (1977). *Tobin, J., "A Gene ral Equilibrium Approach to Monetary Theory," JMCB, 1 (1969).
VI.
Continous Time Analysis Turnovsky, Chapter 3 (Sections 8-12). Karni, E., "Period Analysis and Continuous Analysis in Patinkin's Macroeconomics Model," JET, 17 (1978) Foley, D., "On Two Specifications of Asset Equilibrium in Macroeconomic Models," JPE, 83 (1975). Intrilgator, M., Mathematical Optimization and Economic Theory, pp. 326-42, 344-70.
VII . Controllability and Stability in Macromodels Turnovsky, pp. 308-09 and 333-34. Aoki, A. and Canzoneri, M., "Sufficient Conditions for Control of Target Variables and Assignment of Instruments in Dynamic Macroeconomic Models," IER, 20 605 (1979). Mundell, R. , "The Appropriate Use of Monetary and Fiscal Policies," IMF Staff Papers, 9, 70 (1962). Turnovsky, S., "The Stability Properties of Optimal Economic Policies," AER, 64, 136 (1974). *Chiang, A., Fundamental Methods of Mathematical Economics, pp. 503-72. VIII. Long-Run Models Turnovsky, Chapter 8 Jones, H., An Introduction to Modern Theories of Economic Growth, (McGraw-Hill, 1976) Chapter 4. *Tobin, J., "Money and Economic Growth," Econometrica, 33 (1965). *Uzawa, H., "On a Two-Sector Model of Economic Growth", R.E.STUD, 29 (1961 or 62). *Foley, D. and Sidrausky, M., "Portfolio Choice, Investment and Growth," AER, 60 (1970). IX.
The Open Economy Turnovsky, Chapters 9-12 Kuska, E.A., "On the Almost Total Inadequacy of Keynesian Balance of Payments Theory," AER, 68 (1978) . Buiter, W. and Eaton, J., "Keynesian Balance of Payments Models: Comment," AER, 71 (1981).
