Download ECON 4020A, F13, Course Outline, Lee

York University
Faculty of Liberal Arts & Professional Studies
Department of Economics
Fall 2013
AP/ECON4020 3.0 – Advanced Macroeconomics
Calendar Course Description / Prerequisite / Co-Requisite
This course surveys recent developments in macroeconomic research. Among the topics covered are
rational expectation models, consumption theory, new Keynesian models of staggering wages and
prices, menu costs, efficiency wages and imperfect competition, and new classical and new Keynesian
business cycle theories. Prerequisites: AP/ECON 2400 3.00 and AP/ECON 2450 3.00 or equivalents.
Recommended prior completion: AP/ECON 2300, AP/ECON 2350 3.00, and AP/ECON 3530 3.00.
Course credit exclusions: None. PRIOR TO FALL 2009: Course credit exclusions: AK/ECON 4020 3.00,
AS/ECON 4010 3.00, GL/ECON 4230 3.00.
Course Instructor/Contact
Instructor: David K. Lee, Ph. D.
Office: 738 Atkinson College
Email: [email protected]
Phone: 416-736-2100 Ext. 33486
Course Consultation Hours: Tuesdays 1:00 pm – 3:00 pm
Course Web Site: TBA
Lecture Time and Location:
Lecture: Tue/Thu 10:00am-11:30am, CB129
TA hours: TBA
Expanded Course Description
This course is intended to give a full coverage of modern macroeconomic theory and its application to
stabilization policy. How, if at all, can government fight unemployment and inflation? Should they even
try? The effectiveness of fiscal and monetary policies will be discussed from the points of view of
Keynesians and Monetarists, and of those macroeconomists who believe that rational expectations on
the part of economic agents render both types of stabilization policies ineffective.
Organization of the Course
This course involves formal lectures presented by the course instructor. The classroom technology will
be used extensively, such as PowerPoint, or MS word format presentation. There will be extensive
usages of the course web site. Reading assignments, practice problems, problem solving, etc., for each
lecture session, tutorial sessions or TA availability, etc., will be announced on the course web site.
Course Text / Readings
Textbook (Required):
Advanced Macroeconomics (4th edition) by David Romer. McGraw-Hill Publisher, 2012 (Third edition
may be optional).
There are supplementary materials that are not in the textbook. These supplementary materials will be
discussed in class and the class notes might be posted on the course website.
Evaluation *
The grade for this course is composed of the mark received for each of the following
components:
Type of Assessment
Problem Sets
Midterm Exam
Final Exam
TOTAL
Group/Individual
Individual
Individual
Individual
Percent/Weight
20
30
50
100%
Date
TBA
Oct 17
TBA
The final course grade (FG) will be determined based on the following formula:
FG = Max {0.2×Problem Sets + 0.3×Midterm + 0.5×Final, 0.2×Problem Sets+0.8×Final}
More detailed information is available on the course web site about each of the assessments. Students
will receive the results of their first exam/term work before the final deadline for dropping courses without
academic penalty.
The Midterm Exam will cover Session 1 to 5 materials. The Final Exam will cover the entire semester.
Two Problem Sets will be given (posted on the course web site) for this course. Students are required
to be aware and follow the submission instruction that is announced with the problem sets postings.
Please note that I strongly believe that the best learning experiences occur when there are healthy
attendance and discussions in the classroom. Therefore, I have a policy to give some bonus points
based on class attendance and participation (usually maximum of 5%) in order to encourage attendance and classroom discussion. Feel free to ask any questions or simply make comments on relevant
topics at any time.
The following conversions will be used in converting percentage grades to letter grades:
90-100 (A+), 80-89 (A), 75-79 (B+), 70-74 (B), 65-69 (C+), 60-64 (C), 55-59 (D+),
50-54 (D), 40-49 (E), 0-39 (F).
Practice problems will be posted in the course web site throughout the semester. Some of them may
be solved in class. These problems will not be graded, however, I encourage you to work through them.
It will help you understanding the course material and consequently, increase the probability that you will
do well in the course. Practice may not always make perfect, but it’s a good start.
Missed Tests:
There will be no deferred midterm exam.
Students with a documented reason for missing a course test, such as illness, compassionate grounds,
etc., which is confirmed by supporting documentation (e.g., doctor’s letter) may request accommodation
from the Course Instructor. (State accommodation arrangement: e.g., allowed to write a make-up final
examt on xx date.) Further extensions or accommodation will require students to submit a formal petition
to the Faculty.
TOPICS – TENTATIVE SEQUENCE AND SCHEDULE
Week
Topic
01
Sep 10, 12
A. Introduction and Traditional Keynesian Theories:
*George Akerlof, "The Missing Motivation in Macroeconomics,"
American Economic Review, March 2007, pp. 5-36.
*David Romer, Third Edition, Chapter 5, "Traditional Keynesian
Theories of Fluctuations," Sections 5.1 and 5.3-5.6, pp. 222-231,
and 242-270.
02
Sep 17, 19
Equilibrium Concepts:
*David Romer, Fourth Edition, Chapter 6 Part B, "Microeconomic
Foundations of Incomplete Nominal Adjustment.
*Stanley Fischer, "Long-Term Contracts, Rational Expectations and
the Optimal Money Supply Rate," Journal of Political Economy,
February 1977, pp. 191-205.
*Thomas Sargent and Neil Wallace,“ Rational Expectations and the
Theory of Economic Policy,” Journal of Monetary Economics, Issue
2, 1976, pp. 169-183.
Thomas Sargent, "Rational Expectations, the Real Rate of Interest, and
the Natural Rate of Unemployment," Brookings Papers on
Economic Activity 1973:2, pp. 429-472.
John Taylor, "Staggered Wage Setting in a Macro Model," American
Economic Review Papers and Proceedings, May 1979, pp. 108-113.
Laurence Ball, "Credible Disinflation with Staggered Price Setting,"
American Economic Review, March, 1994, pp. 282-289.
Dennis Carlton, "The Rigidity of Prices," American Economic Review,
September 1986, pp. 637-658.
Mark Bils and Peter Klenow, —Some Evidence on the Importance of
Sticky Prices,“ Journal of Political Economy, October 2004, pp.
947-985.
Steven Cecchetti, "Staggered Contracts and the Frequency of Price
Adjustment," Quarterly Journal of Economics, Supplement, 1985,
pp. 935-959.
Daniel Kahneman, Jack Knetsch and Richard Thaler, "Fairness as a
Constraint on Profit Seeking: Entitlements in the Market," American
Economic Review, September 1986, pp. 728-741.
Eldar Shafir, Peter Diamond, and Amos Tversky, "On Money
Illusion," Quarterly Journal of Economics, May 1997, pp. 341-374.
Franco Modigliani and Richard Cohen, “Inflation, Rational Valuation
and the Market,” Financial Analysts Journal, March 1979, pp. 2444.
John Campbell and Tuomo Vuolteenaho, “Inflation Illusion and Stock
Prices,” American Economic Review, May 2004, pp. 19-23.
Jay Ritter and Richard Warr, “The Decline of Inflation and the Bull
Market of 1982¬1999,” Financial Analysts Journal, March 2002,
pp. 29-61.
03
Sep 24, 26
Consumption:
*David Romer, Fourth Edition, Chapter 8, "Consumption,"
*Chang-Tai Hsieh, "Do Consumers React to Anticipated Income
Changes? Evidence from the Alaska Permanent Fund," American
Economic Review, March 2003, pp. 397-405.
Milton Friedman, A Theory of The Consumption Function, Chapters I,
II, and III, pp. 3-37.
Robert Hall, "Stochastic Implications of the Life Cycle-Permanent
Income Hypothesis: Theory and Evidence," Journal of Political
Economy, December 1978, pp. 971-987.
Gary Becker and Kevin Murphy, "A Theory of Rational Addiction,"
Journal of Political Economy, August, 1988, pp. 675-700.
David Laibson, Andrea Repetto and Jeremy Tobacman, "Self-Control
and Saving for Retirement," Brookings Papers on Economic
Activity, 1998:1, 91-196.
Richard Thaler and Shlomo Benartzi, "Save More Tomorrow: Using
Behavioral Economics to Increase Employee Saving." Journal of
Political Economy, 112:1 Pt.2, Feb. 2004, pp. S164-S187.
George-Marios Angeletos, David Laibson, Andrea Repetto, Jeremy
Tobacman, and Steven Weinberg, "The Hyperbolic Consumption
Model: Calibration, Simulation, and Empirical Evaluation," Journal
of Economic Perspectives, Summer 2001, pp. 47-68.
David Gross and Nicholas Souleles, "Do Liquidity Constraints and
Interest Rates Matter for Consumer Behavior? Evidence from Credit
Card Data," Quarterly Journal of Economics, February 2002, pp.
149-185.
04
Oct 1, 3
Investment and Financial Markets:
*David Romer, Fourth Edition, Chapter 9, "Investment."
*Franco Modigliani and Merton H. Miller, "The Cost of Capital,
Corporation Finance and the Theory of Investment," American
Economic Review, June 1958, pp. 261-297.
*Ben Bernanke and Mark Gertler, "Financial Fragility and Economic
Performance," Quarterly Journal of Economics, February 1990, pp.
87-114.
Michael C. Jensen and William H. Meckling, "Theory of the Firm:
Managerial Behavior, Agency Costs and Ownership Structure,"
Journal of Financial Economics, 3:4 (October 1976), pp.305-360.
Franklin Allen and Douglas Gale, “Bubbles and Crises,” Economic
Journal, January 2000, pp. 1-20.
Jason Cummins, Kevin Hassett, and Glenn Hubbard, "A
Reconsideration of Investment Behavior Using Tax Reforms as
Natural Experiments," Brookings Papers on Economic Activity,
1994:2, pp. 75-138.
Maurice Obstfeld and Kenneth Rogoff, Foundations of International
Macroeconomics (Cambridge: MIT Press, 1996), pp. 105-113.
Andrei Shleifer and Robert Vishny, “The Limits of Arbitrage,”
Journal of Finance, March 1997, pp, 35-55.
Jean Tirole, The Theory of Corporate Finance (Princeton, NJ:
Princeton University Press, 2006).
James Tobin, “A General Equilibrium Approach to Monetary Theory,”
Journal of Money, Credit and Banking, February 1969, pp.15-29.
05
Oct 8, 10
The Stock Market:
*David Romer, Fourth Edition, Chapter 8, Sections 8.5, "Consumption
and Risky Assets”.
*Lawrence H. Summers, "Does the Stock Market Rationally Reflect
Fundamental Values?" Journal of Finance, July 1986, pp. 591-601.
Robert E. Lucas, Jr., "Asset Prices in an Exchange Economy,"
Econometrica, November 1978, pp. 1429-1445.
Robert J. Shiller, "Do Stock Prices Move Too Much to be Justified by
Subsequent Changes in Dividends?" American Economic Review,
June 1981, pp. 421-436.
John Campbell and Robert Shiller, "Cointegration and Tests of Present
Value Models," Journal of Political Economy, October 1987, pp.
1062-1088.
J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and
Robert J. Waldmann, "Noise Trader Risk in Financial Markets,"
Journal of Political Economy, August 1990, pp. 703-738.
06
Oct 15, 17
07
Oct 22, 24
Review (Oct 15) and Midterm Exam (Oct 17)
Nature of Unemployment and Theories of Unemployment:
*David Romer, Fourth Edition, Chapter 6, Section 6.8, "Coordination
Failure Models and Real Walrasian Theories," and Chapter 10.
Christopher Pissarides, Equilibrium Unemployment Theory,
Cambridge, U.K.: Blackwell, 1990).
Steven Davis and John Haltiwanger, "Gross Job Creation and
Destruction: Microeconomic Evidence and Macroeconomic
Implications," NBER Macroeconomics Annual, 1990, pp. 123-168.
Olivier Blanchard and Justin Wolfers, "The Role of Shocks and
Institutions in the Rise of European Unemployment: The Aggregate
Evidence," Economic Journal, March, 2000, pp. C1-33.
Lars Ljungqvist and Thomas Sargent, "The European Unemployment
Dilemma," Journal of Political Economy, June 1998, pp. 514-550.
Charles Bean, "European Unemployment: A Survey," Journal of
Economic Literature, June 1994, pp. 573-619.
Olivier Blanchard and Lawrence Katz, "What We Know and Do Not
Know about the Natural Rate of Unemployment," Journal of
Economic Perspectives, Winter 1997, pp. 51-72.
Peter Diamond, "Aggregate Demand Management in Search
Equilibrium," Journal of Political Economy, October 1982, pp. 881894.
08 and 09
Oct 29
Nov5, 7
Monetary Policy, Inflation, and the Central Bank:
*Merton Miller and Daniel Orr, "A Model of the Demand for Money
by Firms," Quarterly Journal of Economics, August 1966, pp. 413435.
*George A. Akerlof, "Irving Fisher on His Head," Quarterly Journal
of Economics, May 1979, pp. 169-187.
*David Romer, Advanced Macroeconomics, Chapter 10, "Inflation and
Monetary Policy."
*Michael Woodford, "Monetary Policy in a World Without Money,"
International Finance, July 2000, pp. 229-260.
*Thomas J. Sargent and Neil Wallace, "Some Unpleasant Monetarist
Arithmetic,“ Federal Reserve Bank of Minneapolis Quarterly
Review, Fall 1981, pp. 1-17. Available at:
http://www.minneapolisfed.org/research/common/pub_detail.cfm?p
b_autonum_id=151
*Richard Clarida, Jordi Galí, and Mark Gertler, "Monetary Policy
Rules and Macroeconomic Stability: Evidence and Some Theory,"
Quarterly Journal of Economics, February 2000, pp. 147-180.
*Robert Barro and David Gordon, "A Positive Theory of Monetary
Policy in a Natural Rate Model," Journal of Political Economy,
August 1983, pp. 589-610.
*Douglas Diamond and Philip Dybvig, "Bank Runs, Deposit
Insurance, and Liquidity," Journal of Political Economy, June 1983,
pp. 401-419.
Andrew Caplin and Daniel Spulber, "Menu Costs and the Neutrality of
Money," Quarterly Journal of Economics, November 1987, pp. 703725.
Andrew Caplin and John Leahy, "State-Dependent Pricing and the
Dynamics of Money and Output," Quarterly Journal of Economics,
August 1991, pp. 683-708.
Ricardo Caballero, Eduardo Engel, and John Haltiwanger, "PlantLevel Adjustment and Aggregate Investment Dynamics," Brookings
Papers on Economic Activity, 1995:2, pp. 1-39.
Stephen Goldfeld, "The Demand for Money Revisited," Brookings
Papers on Economic Activity, 1973:3, pp. 577-639.
John Maynard Keynes, A Tract on Monetary Reform. London:
Macmillan, 1923.
Alberto Alesina and Lawrence Summers, "Central Bank Independence
and Macroeconomic Performance: Some Comparative Evidence,"
Journal of Money, Credit and Banking, May 1993, pp. 151-162.
Guillermo A. Calvo, —Staggered Prices in a Utility-Maximizing
Framework,“ Journal of Monetary Economics, September 1983, pp.
383-398.
John Taylor, "Discretion versus Policy Rules in Practice," Carnegie
Rochester Series on Public Policy, December 1993, pp. 195-214.
Kenneth Rogoff, "Globalization and Global Disinflation," in Monetary
Policy and Uncertainty: Adapting to a Changing Economy (Kansas
City, MO: Federal reserve bank of Kansas City, 2003), pp. 77-112.
Available at:
http://www.kc.frb.org/PUBLICAT/SYMPOS/2003/pdf/Rogoff2003.
pdf
Laurence Ball, "Efficient Rules for Monetary Policy," International
Finance, April 1999, pp. 63-83.
Paul R. Krugman, "It‘s Baaack: Japan‘s Slump and the Return of the
Liquidity Trap," Brookings Papers on Economic Activity, 1998, no.
2., pp. 137-187, 204-205.
Walter Bagehot, Lombard Street: A Description of the Money Market
(London: Kegan, Paul & Co., 1873).
Xavier Freixas and Jean-Charles Rochet, "The Macroeconomic
Consequences of Financial Imperfections," chapter 6 in
Microeconomics of Banking (Cambridge, MA: MIT Press, 1997).
10
Nov 12, 14
International Economics
*David Romer, Third Edition, Chapter 5, Section 5.2, "The Open
Economy," pp. 231-241.
J. Marcus Fleming, "Domestic Financial Policies under Fixed and
under Floating Exchange Rates," International Monetary Fund Staff
Papers, November, 1962, pp. 369-379.
*Rudiger Dornbusch, "Expectations and Exchange Rate Dynamics,"
Journal of Political Economy, December, 1976, pp. 1161-1176.
*Paul Krugman, "Has the Adjustment Process Worked?“ in
International Adjustment and Financing: The Lessons of 1985-1991,
edited by C. Fred Bergsten (Washington, DC: Institute for
International Economics, 1991), pp, 277- 322.
Maurice Obstfeld and Kenneth Rogoff, “The Unsustainable U.S.
Current Account Position Revisited,” in G7 Current Account
Imbalances, edited by Richard Clarida (Chicago: University of
Chicago Press, 2007), pp. 339-366.
11
Nov 19, 21
Unemployment (New Keynesian Theories):
*David Romer, Fourth Edition, Chapter10.1-10.4, 10.9
"Unemployment,"
*David Romer, Third Edition, Chapter 6, Sections 6.4-6.6, "New
Keynesian Economics,"
*Janet Yellen, "Efficiency Wage Models of Unemployment,"
American Economic Review, May 1984, pp. 200-205.
*Carl Shapiro and Joseph E. Stiglitz, "Equilibrium Unemployment as a
Worker Discipline Device," American Economic Review, June 1984,
pp. 433-444.
George Akerlof and Janet Yellen, "The Fair-Wage Effort Hypothesis
and Unemployment," Quarterly Journal of Economics, May 1990,
pp. 255-283.
David Romer, Third Edition, Chapter 6, "Empirical Applications," and
"Mankiw-Reis Model," Sections 6.12-6.13, pp. 328-339.
Ernst Fehr and Jean-Robert Tyran, "Does Money Illusion Matter?"
American Economic Review, December 2001, pp. 1239-62.
N. Gregory Mankiw and Ricardo Reis, "Sticky Information versus
Sticky Prices: A Proposal to Replace the New Keynesian Phillips
Curve," Quarterly Journal of Economics, November 2002, pp.
1295-1328.
George Akerlof and Janet Yellen, "Can Small Deviations from
Rationality Make Significant Differences to Economic Equilibria?"
American Economic Review, September 1985, pp. 708-720.
Olivier Blanchard and Nobuhiro Kiyotaki, "Monopolistic Competition
and the Effects of Aggregate Demand," American Economic
Review, September 1987, pp. 647-666.
Laurence Ball and David Romer, "Are Prices too Sticky?" Quarterly
Journal of Economics, August 1989, pp. 507-524.
Alan Blinder, "Why are Prices Sticky? Preliminary Results from an
Interview Study," American Economic Review, May 1991, pp. 89100.
12
Nov 26, 28
Economic Growth and Business Cycle
*David Romer, Fourth Edition, Chapter 1.
Paul M. Romer, “Increasing returns and long-run growth,” Journal of
Political Economy, Volume 94, No. 5, pp. 1002-37.
Robert E. Lucas, “On the mechanics of economic development,”
Journal of Monetary Economics, 22, 1988, pp. 3-42.
*David Romer, Third Edition, Chapter 4
Finn E. Kydland, and Edward C. Prescott, “Time to build and
aggregate fluctuations,” Econometrica, Volume 50, No 6, 1982, pp.
1345-70
Jeremy Greenwood, Zvi Hercowitz, and Gregory W. Huffman,
“Investment, capacity utilization and the real business cycle,”
American Economic Review, June 1988, Volume 78, No. 3, pp.40217.
*George Akerlof and Janet Yellen, "A Near Rational Model of the
Business Cycle, with Wage and Price Inertia," Quarterly Journal of
Economics, September 1985, pp. 823-838.
*N. Gregory Mankiw, "Small Menu Costs and Large Business Cycles:
A Macroeconomic Model of Monopoly," Quarterly Journal of
Economics, May 1985, pp. 529-537.
Final Exam (TBA, Covered the entire materials)
New Information and Changes:
The schedule is subject to change –sometimes there are unexpected absences or we bog down on an
issue. Check your class notes, or contact me for up-dated work schedules.
It may be very possible to make some adjustments of lectures and/or exams schedules. Students may
also have handouts for the topics discussed in the class. It is students’ responsibility to be aware of any
policy (or schedule change), or to collect handouts from classes. If you miss classes, contact the
instructor before or immediate after, and check if there is any policy change or handout distributed.
There is no excuse for not knowing course policies or schedule changes, or for not having
handouts.
Additional Information / Notes
Important Course Information for Students
All students are expected to familiarize themselves with the following information, available on the Senate Committee on
Curriculum & Academic Standards webpage (see Reports, Initiatives, Documents)
- http://www.yorku.ca/secretariat/senate_cte_main_pages/ccas.htm
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York’s Academic Honesty Policy and Procedures/Academic Integrity Website
Ethics Review Process for research involving human participants
Course requirement accommodation for students with disabilities, including physical, medical, systemic,
learning and psychiatric disabilities
Student Conduct Standards
Religious Observance Accommodation
IMPORTANT COURSE INFORMATION
The Senate Academic Standards, Curriculum and Pedagogy (ASCP) provides a Student Information Sheet that includes:
 York's Academic Honesty Policy and Procedures / Academic Integrity Web site
 Access/Disability
 Ethics Review Process for Research Involving Human Participants
 Religious Observance Accommodation
 Student Code of Conduct
Additional information:
 Academic Accommodation for Students with Disabilities
 Alternate Exam and Test Scheduling
 Grading Scheme and Feedback Policy
The Senate Grading Scheme and Feedback Policy stipulates that (a) the grading scheme (i.e. kinds and weights of
assignments, essays, exams, etc.) be announced, and be available in writing, within the first two weeks of class, and
that, (b) under normal circumstances, graded feedback worth at least 15% of the final grade for Fall, Winter or
Summer Term, and 30% for ‘full year’ courses offered in the Fall/Winter Term be received by students in all courses
prior to the final withdrawal date from a course without receiving a grade.
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Important University Sessional Dates ( you will find classes and exams start/end dates, reading/co-curricular week,
add/drop deadlines, holidays, University closings and more.
http://www.registrar.yorku.ca/importantdates/index.htm
"20% Rule"
No examinations or tests collectively worth more than 20% of the final grade in a course will be given during the final
14 calendar days of classes in a term. The exceptions to the rule are classes which regularly meet Friday evenings or
on Saturday and/or Sunday at any time, and courses offered in the compressed summer terms.
Final course grades may be adjusted to conform to Program or Faculty grades distribution profiles.
Services for Mature and Part-time Students
The Atkinson Centre for Mature and Part-time Students (ACMAPS) maintains and strengthens York University’s
ongoing commitment to welcome and to serve the needs of mature and part-time students. For further information and
assistance visit: http://www.yorku.ca/acmaps