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Economics 6080 Applied Macroeconomic Theory Spring 1991 TR 11:00-12:15 Professor JoAnne Feeney Office Hours: T 4:00-5:30 R 9:30 -10:45 Office 14A Course Information Textbooks Required: Robert Barro, Macroeconomics, 3rd Edition, Wiley, 1990. Readings from Barro will form the backbone of the course. The remainder of the reading comes from journal articles and working papers. Recommended: Mark Rush, Study Guide to Macroeconomics, 3rd Edition. Robert Lucas, Studies in Business Cycle Theory, MIT, 1981 Avinash Dixit, Optimization in Economic Theory, Oxford University Press, 2nd Edition, 1990. Course Requirements Readings Required readings are marked with an asterisk. Homework Problem sets will be assigned on occassion. I encourage you to work together on these assignments, however, each person must submit his or her own set of answers. Exams There will be a midterm exqm and · a final exam. Make-up exams will be given only under extremely extenuating circumstances. Notification and arrangements must be made before the exam. The final exam is scheduled for Thursday, May 9, 7:JOam-10:JOam. Grading Homeworks: 20% Midterm Exam: 30% Final Exa m: 50% (yes , the final is cumulative) Abbreviations: AER American Economic Review CJE Canadian Journal of Economics EMA Econometrica JEP Journal of Economic Perspectives JET Journal of Economic Theory JME Journal of Monetary Economics JPE Journal of Political Economy QJE Quarterly Journal of Economics Course Outline and Reading List I. Introduction *Barro, Ch. 1 II. Microeconomic Foundations and the Basic Market-Clearing Model *Barro , Chs. 2-6 *Denslow and Rus h, "Supply Shocks and the Int erest Rate ," Economic Inquiry, 1989, pp. 50 1- 510. III. Money and Inflation *Barro, Chs.7,8 *Barro and Fischer , "Recent Developments in Monetary Theory," JME, April 1976. Sections 3, 4 *Fri edman, "The Optimum Quantity of Money," i n The Optimum Quantity of Mone y and Other Essays. Cagan, "The Monetary Dynamics of a Hyperinfl a ti on," in M. Friedman, Studies in the Quantity Theory of Money. Sargent, "The Ends of Four Big Inflations ," in R. Hall, Inflation: Causes and Effects. *Bailey, "The Welfare Cost of Inflati onary F i nance ," JPE, Apr il 1956 . Calvo, "Optima l Seigniorage from Money Creation ," JME, August 1978. Barro, "Inf l ationary Finance under Discretion and Rules ," CJE , Janua ry 1983. Kydl and and Prescott, "Rules Rather than Discretion: The Inconsi stency of Optimal Plans ," JPE 85, 1977 . IV. Investment, Growth, and Public Poli cy A. Inve s tment, Cap ita l Accumul ation, and Growth *Barro , Chs. 9, 10 Arrow and Kur z , Ch. 2, "Methods of Optimization over Time " *Solow, "A Contribution to the Theory of Economic Growth," QJE, Feb. 1956 Solow, "Techni ca l Change and the Aggregate Production Function," RES 39, 1957 . 8. Government Expenditures, Taxes, and Deb t *Barro, Chs. 12-14 *Barro, "Public Debt and Taxes ," *Barro, "Output Effec ts of Government Purchases," JPE, December 1981. *Benjamin and Kochin, "War, Pri ces, and Interest Rates: A Marti a l Solution to Gibson's Paradox," in Bardo and Schwartz, A Retrospective on the Classical Gold Standard, University of Chicago Press, 1984. Barro, "Are Government Bonds Net Wealth? " JPE, Novembe r 1974. Barro, "On the Dete rmination of the Publi c Debt," JPE, Octo ber 1979. Plosse r, "Gove rnment Financing Decisions and Asset Re turns, " JME May 1982 C. Rationa l Expectations and Policy Evaluation *Lucas, "Econometri c Policy Evaluation: A Critique," in The Phillips Curve and Labor Markets, eds. K. Brunner and A. Me lt zer , Carnegie-Rochester Conference Series on Public Po li cy, vol . 1, No rth- Holland, 1976, pg. 19-46 . Reprinted in Robe rt Lucas, Studies in Business Cycle 'Theo ry, MIT Press, 1981. · *Luca s, "Rules, Discre ti on, and the Role of the Econom ic Advisor," i n Rational Expectations and Economic Po li cy, ed. Stanl ey Fischer, University of Chicago Press, 1980. Reprinted in Lucas (1981). V. Monetary Economies *Ki ng and Plosser, "Money as the Mechanism of Exchange," JME, 17, 1986. *Stockman, "The Cash-in-Advance Constraint in International Economies," in Finance Constraints and the Theory of Mone y, Academi c Press, 1989. Johnson, "Money in a Neo-Classica l, One-Sector Growth Mode l," in Essays i n Monetary Economics, Ch. 4. Sidrauski, "Rational Choice and Patte rns of Growth in a Monetary Economy," AER, May 1967. VI. Equilibrium Models of Business Cycl es *Lucas , "Understanding Business Cyc l es," Carneg i e-Rochester Se r ies on Pub l ic Policy, 1977 . *Ne lson and Plosser, "Trends and Random Walks in Macroeconomi c Time Series, " JME 10, 1982. r A. Real Business Cycle Models - An Introduction *Plosser, "Understanding Real Business Cycles," JEP, Summer 1989. Long and Plosser, "Real Business Cycles," JPE 91, 1983. *Kydland and Prescott, "Time to Build and Aggregate Fluctuations," EMA 50, 1982. B. Equilibrium Models with Incomplete Information *Barro, Ch. 19 Barro, "The Equilibrium Approach to Business Cycles," Lucas, "Expectations and the Neutrality of Money," JET, April 1972. Barro, "Rational Expectations and the Role of Monetary Policy," JME, January 1976. C. Evidence *Barro, Ch. 18 *Lucas, "Some International Evidence on Output-Inflation Tradeoffs," AER, June 1973. Barro, "Unanti cipated Money, Output, and the Price Level in the United States, " JPE 86, 1978. *Kormendi and Meguire, "Cross-Regime Evidence on Macroeconomic Rationality," JPE, October 1984. Christiano and Lj4ngqvist, "Money Does Granger-Cause Output in the Bivariate Money-Output Relation," JME 22, 1988 . *Eichenbaum and Singleton, "Postwar Money, Output, a nd Interest Rate Correlations: Is there a Compelling Case Against Real Business Cycle Theories?" working paper, 1986. *Eichenbaum and Singleton, "Do Equilibrium Real Business Cycle Theories Explain Pos twar U.S. Business Cycles?"