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Economics 7020 Macroeconomic Theory I Fall 1993 TR: 11:00-12:15 JoAnne Feeney Office: Econ 148 Office Hours: T: 2:00-3: 15 R: 9:30-10:45 Course Information Textbooks Required : Olivier Blanchard and Stanley Fischer, Lectures on Macroeconomics , MIT Press, 1989. (BF) Recommended: Robert Barro, Macroeconomics, 3rd Edition, Wiley Press . (This book can be used as backround reading throughout the course . Relevant chapters are given below in parentheses . ) Robert Barro, Modern Business Cycle Theory, Harvard University Press, 1989. (MBCT) Avinash Dixit, Optimization in Economic Theory, Oxford University Press, 2nd Edition, 1990 . Robert Lucas, Studies in Business Cycle Theory, MIT, 1981 . Thomas Sargeant, Dynamic Macroeconomic Theory, Harvard University Press, Nancy Stokey and Robert Lucas, Recursive Methods in Economic Dynamics, Harvard University Press, 1989. (SL) Course Requirements Readings Required readings are marked with an asterisk. One copy of each article on this list is on file in the filing cabinet in the graduate student lounge on the third floor . Exams There will be a midterm exam 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 Your TA for this class has yet to be determined. The TA will run review sessions to go over problem sets and to answer questions before exams . Abbreviations: AER American Economic Review JPE Canadian Journal of Economics QJE CJE EMA Econometrica RES JEP Journal of Economic Perspectives JET Journal of Economic Theory JME Journal of Monetary Economics Journal of Political Economy Quarterly Journal of Economics Review of Economic Studies Course Outline and Reading List I. Introduction *BF, Ch. 1 *Barro MBCT, Introduction II . Review of the Basic Market-Clearing Model A. The Role of Individual Choice in Production and Consumption Patterns (Barro, Chs. 1-3) *Supplemental Notes *Denslow and Rush, "Supply Shocks and the Interest Rate," Economic Inquiry, 1989, pp. 501-510 . Dixit, Chs. 1,2,4 B. Honey and Inflation (Barro, Chs. 4,5,7,8) *Cagan, "The Monetary Dynamics of a Hyperinflation," in M. Friedman, Studies in the Quantity Theory of Money. *BF, Ch. 4.7 Barro and Fischer, "Recent Developments in Monetary Theory," JME, April 1976. Sections 3,4 Friedman, "The Optimum Quantity of Money," in The Optimum Quantity of Money and Other Essays. Sargent , "The Ends of Four Big Inflations," in R. Hall, Inflation: Causes and Effects. Bailey, "The Welfare Cost of Inflationary Finance," JPE, April 1956. Barro, "Inflationary Finance under Discretion and Rules," CJE, January 1983. III. Investment and Growth A. Non-Monetary Models (Barro, Chs. 9, 10) *Supplemental Notes *BF, Ch. 2. 1-2.2 (p.37-52) *Solow, "A Contribution to the Theory of Economic Growth," QJE, Feb. 1956. *Lucas, "On the Mechanics of Economic Development," JME, 1988, 3-42. SL, Ch. 2 (A more detailed analysis is contained in Chs. 4-6) Romer, "Increasing Returns and Long-Run Growth," JPE, 1986, 1002-1037. Arrow and Kurz, "Methods of Optimization over Time , " Ch. 2 in Public Investment, the Rate of Return, and Optimal Fiscal Policy, 1970. Dixit, Chs . 10, 11 Romer, "Capital Accumulation and the Theory of Long-Run Growth," Ch. 2 in Barro MBCT. B. Monetary Models *Stockman, "Anticipated Inflation and the Capital Stock in a Cash-in-Advance Economy," JME, 1981, 387-393. *Sidrauski, "Rational Choice and Patterns of Growth in a Monetary Economy," AER, May 1967. Johnson, "Money in a Neo-Classical, One-Sector Growth Model , " in Essays in Monetary Economics, Ch. 4. Brock, "A Simple Perfect Foresight Monetary Model," JME, 1975, 133-150. C. Uncertainty and Asset Pricing *Lucas, "Interest Rates and Currency Prices in a Two-Country World," JME, 1982, 335-359. (Sections 1 and 2 only) BF, Ch. 6. 1-6.3 (p. 275-301) and Ch. 10 . 1 (p . 505-512) Sandmo, "The Effect of Uncertainty on Saving Decisions , " RES, July 1970. Levhari and Srinivasan, "Optimal Savings under Uncertainty," RES, 1969. Dixit, Ch. 9. IV. Public Policy A. Government Expenditures, Taxes, and Debt (Barro, Chs. 12-14) *BF, Ch. 2 . 3 *Barro, "Output Effects of Government Purchases," JPE, December 1981. *Barro, "Public Debt and Taxes," Ch. 10 in Barro, Money, Expectations, and Business Cycles, Academic Press, 1981. *King and Rebelo, "Public Policy and Economic Growth: Developing Neoclassical Implications," JPE, 1990, S126-S150 . Barro , "The Neoclassical Approach to Fiscal Policy," Ch. 5 in Barro MBCT . Barro, "Government Spending in a Simple Model of Endogenous Growth," JPE, 1990, S103-S125. Barro, "Are Government Bonds Net Wealth?" JPE, November 1974. Barro , "On the Determination of the Public Debt," JPE , October 1979. Plosser , "Government Financing Decisions and Asset Returns," JME May 1982 B. Rational Expectations and Policy Evaluation *Lucas , "Econometric Policy Evaluation: A Critique," in The Phillips Curve and Labor Markets, eds. K. Brunner and A. Meltzer, Carnegie-Rochester Conference Series on Public Policy, vol . 1, North- Holland, 1976, pg. 19-46. Reprinted in Robert Lucas, Studies in Business Cycle Theory, MIT Press, 1981. Lucas, "Rules, Discretion, and the Role of the Economic Advisor," in Rational Expectations and Economic Policy, ed. Stanley Fischer, University of Chicago Press , 1980 . Reprinted in Lucas (1981). Chari, Kehoe , and Prescott, "Time Consistency and Policy," Ch. 7 in MBCT. V. An Introduction to Equilibrium Models of Business Cycles *King, Plosser, and Rebelo, "Production, Growth, and Business Cycles: I. The Basic Neoclassical Model , " JME, 1988, 195-232. Kydland and Prescott, "Time to Build and Aggregate Fluctuations," EMA 50, ' .. 1982. Prescott, "Theory Ahead of Business Cycle Measurement," Quarterly Review (Federal Reserve Bank of Minneapolis), Fall 1986, 9-22. Lucas, "Understanding Business Cycles," Carnegie-Rochester Series on Public Policy, 1977. Nelson and Plosser, "Trends and Random Walks in Macroeconomic Time Series," JME 10, 1982. Long and Plosser, "Real Business Cycles," JPE 91, 1983. Barro and King, "Time-Separable Preferences and Intertemporal Substitution Models of Business Cycles," QJE, 1984, 817-823. Cooley and Hansen, "The Inflation Tax in a Real Business Cycle Model," AER, 1989, 733-748. Hansen, "Indivisible Labor and the Business Cycle," JME, 1985, 309-28. McCallum, "Real Business Cycle Models," Ch. 2 in Barro MBCT. Plosser, "Understanding Real Business Cycles," JEP, Summer 1989. Solow, "Technical Change and the Aggregate Production Function," RES 39, 1957.