MACROECONOMICS. Dr. Alessandro Piergallini

Transcription

1 MACROECONOMICS (Dr. Alessandro Piergallini) TEACHING STAFF RESPONSIBLE FOR THE COURSE Dr. Alessandro Piergallini Availability: Wednesday 5 8 Building B 3th Floor Office D12 LEARNING OBJECTIVES This course is concerned with macroeconomic theory and policy. We study the links between key macroeconomic variables like output, unemployment, inflation, interest rates, exchange rates, asset prices, oil prices. We focus on the implications for business cycles and the design of fiscal and monetary policy. We examine the topics from two perspectives: 1. Real world issues and case studies using historical and contemporary data (particular emphasis is given to the current economic and financial crisis); 2. Analytical concepts and frameworks that enable us to deal with the interactions between goods, labor and assets markets. At the end of the course, the students will be able to 1. analyze and discuss the connection between the main macroeconomic variables; 2. explain what are the main determinants of business cycle fluctuations; 3. examine how fiscal and monetary policies can affect real macroeconomic activity through their interaction with goods, labor, and assets markets; 4. evaluate theories on the basis of the empirical evidence; 5. use both theory and evidence to investigate the actual economic and financial crisis; 6. analyze and critically discuss actual problems that government, central banks, and international institutions have to face; 7. investigate policies and strategies can macroeconomic policy makers adopt to solve economic and financial problems, and evaluate their strengths and weaknesses. 1

2 THE COURSE STRUCTURE The course is divided into 10 lectures, three hours each. The scheme of the lectures is as follows: Lecture Introduction to the course. 1.2 Macroeconomic issues. 1.3 Stock prices, oil prices, unemployment, output growth, inflation, interest rates, exchange rates: An international comparison. 1.4 Empirical regularities. 1.5 The language of Macroeconomics. 1.6 Macroeconomic models: agents and markets. 1.7 Budget constraints and the Walras law. 1.8 Flexible prices and the law of demand and supply. 1.9 Fixed prices and the effective demand principle Voluntary and involuntary unemployment Short run and long run Macroeconomic Schools. Lecture Aggregate expenditure and effective demand. 2.2 Stylized facts on consumption and investment. 2.3 The consumption function. 2.4 Microfoundations of the consumption function. 2.5 Consumption smoothing. 2.6 The Income Expenditure (YE) model with households and firms. 2.7 The dynamic version of the YE model. 2.8 The Keynesian multiplier. 2.9 The YE model with production lags. Lecture The YE model with households, firms, and the public sector. 3.2 Budgetary policies. 3.3 Fiscal deficits. 3.4 Fiscal deficits and the business cycle. 3.5 Cyclical deficits and structural deficits. 3.6 Fiscal policy and public debt dynamics. 3.7 The case of balanced budget policy rules. 2

3 Lecture Theories of investment. 4.2 The investment function. 4.3 Microfoundations of the investment function. 4.4 Investment volatility. 4.5 The YE model with endogenous investment: The IS schedule. 4.6 Comparative statics and comparative dynamics of the IS schedule. 4.7 Money and financial assets. 4.8 Monetary base and money supply. 4.9 Central Bank instruments Stylized facts on money demand Microfoundations of the money demand function The money demand function The LM schedule Comparative statics and comparative dynamics of the LM schedule. Lecture The IS LM model. 5.2 The dynamic version of the IS LM model. 5.3 Fiscal policy. 5.4 Monetary policy. 5.5 Interactions between monetary and fiscal policies. 5.6 The zero lower bound problem. 5.7 Escaping liquidity traps: Fiscal stimulus vs. unconventional monetary policy. Lecture Open economies. 6.2 The balance of payments. 6.3 Nominal and real exchange rates: definition and stylized facts. 6.4 Exchange rate regimes. 6.5 The historical evolution of exchange rate systems. 6.6 Globalization and the bipolar view. 6.7 Uncovered interest rate parity and purchasing power parity theories. 6.8 The IS LM model with households, firms, the public sector, and the foreign sector: Mundell Fleming setups. 6.9 Implications for monetary, fiscal and exchange rate policies. Lecture The IS LM model with endogenous prices: The AD schedule. 7.2 The Keynes effect and the Pigou effect. 7.3 The AS schedule. Perfect vs. imperfect competition. 7.4 The AD AS model. 7.5 Microfoundations of labour demand and labour supply. 3

4 7.6 Involuntary unemployment. 7.7 The AD AS model in the long run. 7.8 Macroeconomic policies and full employment. 7.9 Income distribution. Lecture The AD AS model in logarithmic terms. 8.2 Inflation theories. 8.3 Inflation costs. 8.4 The Phillips curve. 8.5 Preferences of the policy maker for the unemployment inflation trade off. 8.6 The optimal inflation rate. 8.7 Policy implications. 8.8 The AD AS model with sticky wages. 8.9 Keynesians vs. Neoclassicals The pure Neoclassical model Money neutrality, productivity shocks, and real business cycles Stylized facts. Lecture Expectations. 9.2 Expectations and the Phillips curve: The Phelps Friedman critique. 9.3 The Adaptive Expectations Hypothesis. 9.4 The AD AS framework with adaptive expectations: The Monetarist model. 9.5 Implications of learning for inflation and business cycles. 9.6 The Rational Expectations Hypothesis. 9.7 The AD AS framework with rational expectations: The Lucas model. 9.8 The policy ineffectiveness proposition. 9.9 The Lucas critique. Lecture Expectations and Keynesian macroeconomics: The New Keynesian AS schedule Stabilization policies Time inconsistency Inflation bias Discretion vs. Commitment The disinflation issue Reputation, delegation, and independence of monetary policy The effects of unpredictable shocks: Discretion vs. Commitment revised. 4

5 MAIN REFERENCES Core Readings The central learning resource is given by the Lecture Notes, which are available on the Course website (see below for the link). Students are also provided with some academic articles and policy reports, which are available on the same website. Students are expected to study them as an essential part of the Course although they will find that some academic articles adopt more advanced techniques and display a greater level of conceptual difficulty than the Lecture Notes. That is the nature of academic articles. Students are however expected to understand and critically interpret their key points and arguments. Optional Readings Here below there is some useful reference for optional readings. These readings are not essential and not required for the final examination. Students might want to read some of them in order to strength their background or investigate a particular topic further. 1. Mathematical tools needed to undertake the Course can be found in A.C. Chiang, Fundamental Methods of Mathematical Economics, McGraw Hill, M. Rosser, Basic Mathematics for Economists, Routledge, For Intermediate Macroeconomics books using analytical frameworks that are comparable to those adopted in our Course, it is suggested: A. Abel, B. Bernanke and D. Croushore, Macroeconomics, Prentice Hall, O. Blanchard, Macroeconomics,, Prentice Hall, R. Dornbusch, S, Fischer and R. Startz, Macroeconomics, McGraw Hill, R. T. Froyen, Macroeconomics: Theories and Policies, Prentice Hall, R. J. Gordon, Macroeconomics, Prentice Hall, S. D. D. Williamson, Macroeconomics, Prentice Hall, For a wide treatment of empirical issues and stylized facts, it is suggested: D. Miles and A. Scott, Macroeconomics and the Global Business Environment, Wiley,

6 4. For an advanced study of macroeconomic theory, it is suggested: F.C. Bagliano and G. Bertola, Models for Dynamic Macroeconomics, Oxford University Press, O.J. Blanchard and S. Fischer, Lectures on Macroeconomics, MIT Press, B.S. Heijdra and F. van der Ploeg, The Foundations of Modern Macroeconomics, Oxford University Press, D. Romer, Advanced Macroeconomics, McGraw Hill, M. Wikens, Macroeconomic Theory: A Dynamic General Equilibrium Approach, Princeton University Press, Students are finally provided with further optional academic articles and other items they can choose to read. See the Course website. EXAM The exam is made up of two parts: a written and an oral exam which will be held on the same day. I Written exam) You are given 6 questions to answer. The examination must be completed in one hour and half. I give equal weight to each question; therefore, you are advised to distribute your time approximately equally over the six questions. I wish to see evidence of your ability to understand theoretical principles and of your ability to critically discuss their application. A specimen examination paper showing you the type of the written exam is available on the Course website. II Oral exam) You may be asked to discuss your written answers to the case questions and to focus on some specific theoretical issues. COURSE WEBSITE 6