COURSE TITLE: MACROECONOMIC THEORY COURSE CODE: ECON 6001 LEVEL: POST-GRADUATE LEVEL NO OF CREDITS: 5 SEMESTER: YEAR LONG COURSE DESCRIPTION

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1 COURSE TITLE: MACROECONOMIC THEORY COURSE CODE: ECON 6001 LEVEL: POST-GRADUATE LEVEL NO OF CREDITS: 5 SEMESTER: YEAR LONG COURSE DESCRIPTION This course explores the critical Macro Economic concerns of the Small Open Economy. It is designed to equip students with a working knowledge of the key macro-issues which confront policy-makers in this type of economy. Students should have completed a full year course in macroeconomics at the intermediate level, and similar level courses in International Trade and Finance and Public Finance. In this course, an overlapping-generations approach is adopted to understand the dynamics of the macro economy. Semester 1 explores unemployment, inflation, interest rates, economic growth, business cycles and exchange rates. Semester 2 focuses on the Open Economy and the various macroeconomic linkages that occur therein. PURPOSE OF THE COURSE The purpose of this course is to enhance the macroeconomic knowledge of students and to improve their techniques of decision making. It is envisioned that a typical student of Advanced Macroeconomics may one day be making policy decisions in a central bank, a finance/economics ministry or an international financial institution, but first must have training with a high level of intellectual rigor. This is not an appropriate course for students who want a basic exposure to open-economy macroeconomics. It requires sustained immersion in relevant economic theory, and aside from a descriptive/historical perspective, students would be required to synthesize the various viewpoints for deeper analysis. One of the aims of this course is to ensure that students can distinguish amongst the various theories that have evolved within the discipline of economics and how closely these theories can explain modern-day observations. Students would then be able to appreciate the value of macroeconomic approaches, whether these should be used independently and/or when they should be combined for a more comprehensive analysis. INSTRUCTORS INFORMATION Lecturer: Dr. Moawia Alghalith address: moawia.alghalith@sta.uwi.edu; Office Hours: Room TBA (check outside office) Preferred method of Contact: Office hours and .

2 COURSE STRUCTURE SEMESTER 1 Semester 1 is structured in three main Sections Section A: A review of the basic issues and the current state of Macroeconomics. 1. The Basic Issues: a) Dornbusch and Fisher Chapter 1. b) Hall and Taylor Chapter The Current State of Macro-Economics a) Brink, Helge The Sad State of Macro-Economic Theory b) Simpson, David The Failure of Macro-Economic Theory Section B: A detailed examination of the following critical macroeconomic variables with special emphasis on the small open economy. Unemployment, Inflation, Interest Rates, Exchange Rates, Business Cycles, Economic Growth 3. The Nature of Unemployment: a) Brown, C. Minimum Wage Laws: Are they overrated? Journal of Economic Perspectives, Vol. 2, b) Clark, Kin & Labour Market Dynamics and Unemployment: Summers, Lawrence A Reconsideration. BPEA, Vol. 1, c) Hall, Robert Why is the Unemployment Rate So High at Full Employment. BPEA #3, d) Juhn, Murphy and Topel Why Has the Natural Rate of Unemployment Increased Over Time. Brookings papers on Economic Activity (BPEA) #2, *e) Mahabir, D. *f) Tobin, J. Unemployment Insurance in the Caribbean- Towards Optimal Programme Design. Stabilization Policy 10Years After. 4. Inflation in the Open Economy

3 a) American Economic Review Papers and proceedings May b) Chadha, Masson & Meredith Models of Inflation and Costs of Disinflation. IMF Staff Papers, June *c) Fisher, Stanley *d) Friedman, M. *e) Solow, Robert Devaluation and Inflation The Role of Monetary Policy Inflation 5. Interest Rates: a) Keynes, J.M The General Theory Chapters 13 and 14. *b) Shapiro, R. Chapter Exchange Rates: a) Caves, Jons & Frankel Chapter 24. b) Dornbusch Overvaluation and the Trade Balance c) Helmers, Leslie The Real Exchange Rate 7. The Theory of the Business Cycle: a) Attonji, Joseph Intertemporal Substitution in Labour Supply. Journal of Political Economy, June b) Barro, Robert Unanticipated Money, Output and the Price Level in the United States. Journal of Political Economy, August c) Blanchard, Oliver What is Left of the Multiplier Accelerator? AER, May d) Long, J. and Plosser, C. Real Business Cycles. Journal of Political Economy, February e) Lucas, Robert Some International Evidence on Output Inflation Trade-offs. AER, June f) Mankiw, Gregory Real Business Cycles: A New Keynesian Perspective. Journal of Economic Perspectives, Summer g) Mankiw, Gregory Small Menu Costs and Large Business Cycles: A Macro-economic Model of Monopoly. QJE, May 1985

4 8. Economic Growth: a) *Baron, A. New Growth Theories. BNE No. 7. b) Romer, P. Increasing Returns and Long Run Growth. JPE, 1986 c) Solow, Robert A Contribution to the Theory of Economic Growth. QJE, Section C: An examination of recent developments in the key behavioural foundation Investment, Consumption/Savings, Money Demand. 9. Investment Spending a) Able, Andrew Dynamic Effects of Permanent and Temporary Tax Polices in a q Model of Investment. Journal of Monetary Economics 9, (1982), b) Bernanke, Ben Irreversibility, Uncertainty and Cyclical Investment. Quarterly journal of Economics 98, (1986), c) De Long, Bradford & Equipment Investment and Economic Growth: Summers, Lawrence How Strong is the Nexus? Brookings Papers On Economic Activity (2), (1992), d) Fazzari, Stephen, Hubbard, G. & Financing Constraints and Corporative Investment. Peterson, Bruce BPEA, (1988), e) Hall, Robert & Jorgenson Dale Tax Policy and Investment Behaviour. AER 57. (June 1967) f) Blanchard, Olivier What is Left of the Multiplier Accelerator? American Economic Review, (May 1981). g) Pindyck, Robert Irreversible Investments, Capacity and Choice and the Value of the Firm. American Economic Review, (December 1988). h) Summer, Lawrence Taxation and Corporate Investment: A q theory Approach. BPEA 1, (1981).

5 10. Consumption Behaviour a) Baskin, Michael Taxation Saving and the Rate of Interest. Journal of Political Economy, (April 1978). b) Case, anne et. al. Symposium on Consumption Smoothing in Developing Countries. Journal of Economic Perspective (Summer 1995). c) Flavin, Marjorie The Adjustment of Consumption to Changing Expectations about Future Income. Journal of Political Economy, (October 1981). d) Hall, Robert Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence. Journal of Political Economy. (December 1978). e) Zeldes, Stephen Consumption and Liquidity Constraint: An Empirical Investigation. Journal of Political Economy (April 1989). 11. Demand for Money a) Baba, Yoshihisa et. al. The Demand for M1 in the USA, Review of Economic Studies (January 1992). b) Hetzel, Robert & Mehra, Yash The Behaviour of Money Demand in the 1980s. Journal of Money Credit and Banking. c) Mehra, Yash The Stability of the M2 Demand Function: Evidence from an Error Correction Model. Journal of Money, Credit and Banking, (August 1993).

6 COURSE STRUCTURE SEMESTER 2 Semester 2 concentrates on the salient Macro-Economic Issues which confront the Small Open Economy. At the end of this component of the course, students should be able to place most macro-economic policy problems within the appropriate theoretical structures and be able to formulate solutions to such problems. 1. Macro Economics and the Small Open Economy: a. Corden, Max The Relevance for Developing Countries of Recent Developments in Maco-economic Theory. b. Seers, Dudley The Limitations of the Special Case. c. Singer, Hans Relevance of Keynes for Developing Countries. 2. Open Economy Macro-Economics: a. The Balance of Payments Caves, Jones and Frenkel Chapter 16. b. International Linkages Dornbusch and Fisher Chapter Basic Theories of the Balance of Payments: The Elasticities Approach, The Absorption Approach, The Monetary Approach a. Caves, Jones and Frenkel Chapter 19. b. Girton, L. Roper, D. A Monetary Model of Exchange Market Pressure. AER, September 977. c. Marc, Miles The Effect of Devaluation on the Trade Balance. Journal of Political Economy, June 1979 d. Marquez & Mc Neilly Income and Elasticities for Exports and Developing Countries. Review of Economics and Statistics, May e. Mohsen Bahmani-Oskooee Devaluation and the J Curve Some Evidence From the LDC s. Review of Economics and Statistics,Agust1985.

7 4. Recent Exchange Rate Theories The Asset Approach Sterilization Overshooting Currency Substitution News (a) Connolly, M. & Taylor,D. Exchange Rate Changes. Economica, August (b)dornbusch,r. Expectations and Exchange Rate Dynamics J.P.E., December (c )Fried, H. Currency substitution, Canadian Journal of Economics,November (d) Hoffman, D. & Schlagenhauf The Impact Of News Journal of Money, Credit and Banking, August (e)mc Kinnon, R. Currency Substitution AER,June (f) Melvin,Micheal Currency Substitution Economica, February (g)obstfeld, H. Can We Sterilize? AER, May (h)rodriguez, Carlos The Role of Trade Flows. Journal of Political Economy, December The Theory of Fiscal Federalism: (a) Breton, Albert (b) Broadway,R. A Theory of Government Grants. C.J.E., Public Sector Economics, Chapter 14&15. (c ) Tiebout,C. A Pure Theory of Local Expenditures. JPE, Monetary Integration: (a) Farell, T.& Worrell, D. (eds.) (b) Magel, S. & Rao, Ramesh Caribbean Monetary Integration. Vehicle and Non Vehicle Currencies in International Trade AER, May 1980.

8 (c) Mundell,R.A. A Theory of Optimum Currency Areas, AER, September Deficits, Debts, Budgeting and Public Choice: (a) Brown & Johnson Economic Rationale of the Modern State. Chapter 2. (b) Broadway, Robin Chapter 2. (c ) Fisher & Easterly The Economics of the Government Budget Constraint. (d) Premchand, A. Government and Public Enterprise: The Budget Link. 8. Country Risk Analysis: (a) Corden, Max W. (b) Frankel, Jeffrey An International Debt Facility. U.S. Borrowing from Japan (c ) Kenen, Peter Organizing Debt Relief: The need for a New Intermediation. (d) Lessard, Donald (e) Lessard, Donald Country Risk and the Structure of International Financial Intermediation. Beyond the Debt Crisis: Alternative Forms Of Financing Growth. GENERAL OBJECTIVES 1. Refresh the postgraduate students memory on the link between macroeconomics and microeconomic theories. 2. Improve students economics knowledge bank, to enable them to draw from exposure to rigorous macroeconomics, in their analysis and writing 3. To deliver the course in a manner that is understandable by students 4. To prepare students for critical analysis of economic systems in preparation of their research papers, academic publications, workplace or doctoral and post-doc dissertations.

9 WEEKLY PLANNER SEMESTER 1 WEEK The Basic Issues 1 The Current State of Macro-Economics 2 The Nature of Unemployment 3 Inflation in the Open Economy 4,5 Interest Rates 6 Exchange Rates 7,8 The Theory of the Business Cycle 9 Economic Growth 10 Investment Spending 11 Consumption Behaviour 11 Demand for Money 11 SEMESTER 2 WEEK Macro Economics and the Small Open Economy 1 Open Economy Macro-Economics 2 Basic Theories of the Balance of Payments 3,4 Recent Exchange Rate Theories 5,6 The Theory of Fiscal Federalism 7,8 Monetary Integration 9 Deficits, Debts, Budgeting and Public Choice 10 Country Risk Analysis 11 COURSE ASSESSMENT This course is year-long and is to be delivered from September to April of the following year. There is one mid-semester examination in December that accounts for 25% of the final exam grade. The final exam is held at the end of Semester 2 (April/May) and accounts for 75% of the total final course grade. University regulations allow for the Course Lecturer to debar from the Final Examination students who do not attend at least 75% of tutorial classes. The Course Lecturer will be monitoring and subsequently enforcing this regulation. The midterm and final exam are all paper-based exams which require full essay-type responses that are typical of post-graduate level analysis and recall along with appropriate use of diagrams to aid a comprehensive response. LEARNING AND EXAMINATION STRATEGIES The course will mainly be delivered through lecture-style teaching. However, students will be required to interact with the lecturer and their peers as required. Learning strategies may vary based on your typical learning style however you would need to ensure you have ALL reading

10 material. You could also try making notes, discussing concepts with peers, studying in groups and use other innovative approaches. In preparation for both exams, you must know the relevant course material extensively. However to be able to do well in your exam, you may need to employ a combination of techniques. You may want to compile a test-bank of recent past examinations to be able to discern typical question styles and begin practicing the questions within the given time constraints. You would need to practice your speed and writing skill to be able to complete all the questions on both exams and management of your time is critical. Use the marking allocations as a guide to the content within your essay submissions and compare approaches with your peers. The midterm and final exam lasts for 3 hours each. RESOURCES The reading list for this course is extensive and wide ranging. Many of the required readings have been taken from Journal articles and can be accessed through the University s various online databases including JSTOR. Some of the Course readings have been placed on your myelearning site for ease of reference, however this is not an exhaustive list and you would be required to make use of the Library s facilities to obtain ALL readings. In addition, some readings come from useful background texts which include: 1. Caves, Jones and Frankel World Trade and Payments 2. Dornbusch, R. Open Economy Macro-Economics 3. Dornbusch and Fisher Macro-Economics, 8 th Edition 4. Dornbusch and Helmers The Open Economy 5. Taylor, Lance Structuralist Macro-Economics ADDITIONAL INFORMATION Please also take note in your guidelines regulations for Graduate Diplomas and Degrees (available online) of the following regulation: Section 2 - General Examination Regulation 42. Any candidate who has been absent from the University for a prolonged period during the teaching of a particular course for any reason other than illness or whose attendance at prescribed lectures, classes, practical classes, tutorials, or clinical instructions has been unsatisfactory or who has failed to submit essays or other exercises set by his/her teachers, may be debarred by the Board for Graduate Studies and Research, on the recommendation of the relevant Head of Department, from taking any University examinations.

11 It is our policy as your lecturers to ask you to turn your mobile phones to vibrate or silent modes during classes. It is unacceptable to use your phone in any manner during lectures or tutorials. This includes s, text messages, blackberry messages, or any other sort of phone use. Please note that your presence in the classroom indicates your readiness to listen and learn. There should be no talking about non-class related matters while in the classroom, no passing of notes, or any other distracting activity. Remember that the point of attending a lecture and tutorial is to learn and you should be courteous to the students around you and not engage in any activity that will hinder their learning. 85. Cheating is any attempt to benefit oneself or another by deceit or fraud. Plagiarism is a form of cheating. Plagiarism is the unauthorized and unacknowledged use of another person s intellectual efforts, ideas and creations under one s own name howsoever recorded, including whether formally published or in manuscript or in typescript or other printed or electronically presented form. Plagiarism includes taking passages, ideas or structures from another work or author without attribution of such source(s), using the conventions for attributions or citing used in this University. Since any piece of work submitted by a student must be that student s own work, all forms of cheating, including plagiarism, are forbidden. 86. (a) If any candidate is suspected of plagiarism in a thesis, research paper, project report or course-work assignment, the circumstances shall be reported in writing to the Campus Registrar. The Campus Registrar shall refer the matter to the Board for Graduate Studies and Research. If the Chair so decides, the Board shall invite the candidate for an interview and shall conduct an investigation. If the candidate fails to attend the interview, and does not offer a satisfactory excuse, the Board may hear the case in the candidate s absence. If the candidate is found guilty of plagiarism, the Board for Graduate Studies and Research shall fail the candidate and may, subject to the candidate s right of appeal to Senate, exclude him or her from all further examinations of the University.