Download Macroeconomics 6

Macroeconomics-6, academic year 2010-2011
Macroeconomic Policy
Lecturer: Oleg A. Zamulin
The motivation of the course.
This is the sixth and final part of the required macroeconomic sequence at NES. The
goal of the sixth module is to utilize the methodology and knowledge obtained in the
previous five modules and consider questions relevant for policy makers. Specifically,
the course will cover fiscal and monetary policy in closed and open economies from
theoretical, empirical, and historical perspectives. The issues of policy are highly
controversial, and most of the material will be based on recent research, which is far
from being the last word in the field. Hence, a great deal of creativity and open
mindedness on the part of the course participants is expected.
Primary texts.
This course is more based on academic articles than particular text books. Some
suggested readings are below, and they include chapters from the book we used
throughout macroeconomics 3-5:
Romer, David, Advanced Macroeconomics. New York: McGrow-Hill, 1996, 2001,
2006, editions 1st, 2nd, 3rd. (further Romer)
Among books not available in multiple copies at the NES library, a useful text is
Agenor, Pierre-Richard, and Peter J. Montiel, Development Macroeconomics,
Princeton University Press, 2003, 1999 (further AM).
Grading system.
There will be two exams during the course: a midterm quiz, which will take the whole
section during the fourth week, and the final exam. The course grade will be
determined 30% from the midterm and 70% from the final. There will also be several
homework assignments during the course, which will not be graded.
There will be no make-up for the midterm exam. If a student needs to miss the midterm due to an emergency, this emergency needs to be documented (if possible, prior
to the exam), and 100% of the grade will then be determined from the final
examination.
Tentative schedule.
I.
Fiscal policy (3 lectures)
A. Basic set-up; Ricardian equivalence
Romer, 2nd and 3rd edition, Chapter 11.1-11.4,
Blanchard, Olivier, “Debt, Deficits, and Finite Horizons,” Journal of Political
Economy 93(2), April 1985, pp.223-247
Barsky, Robert, N.Gregory Mankiw and Stephen Zeldes, “Ricardian Consumers with
Keynesian Propensities,” American economic review 76(4), September 1986,
pp.676-91.
BF, Ch.3.3
B. Political determinants of budget deficits
Romer, 2nd and 3rd edition, Chapter 11.5-11.8
Velasco, Andres, “Fiscal policy and the reaction to shocks: some theory and the
experience of Chile,” presidential address at the LACEA conference, 2007
C. Seignorage and tight money paradox
Romer, Chapter 9.7
AM, Chapter 4.3.2 – 4.3.3.
Sargent, Thomas, and Neil Wallace “Some Unpleasant Monetarist Arithmetic,”
Federal Reserve Bank of Minneapolis Quarterly Review 5, Fall 1981, pp.1-17.
Liviatan, Nissan, “Tight Money and Inflation,” Journal of Monetary Economics 13,
January 1984, pp. 5-15
Liviatan, Nissan, “The Tight Money Paradox – An Alternative View,” Journal of
Macroeconomics 8, Winter 1986, pp. 105-12.
II.
Monetary policy (4-5 lectures)
A. Inflationary bias
Romer, Chapter 7
B. Modern theories of the Phillips curve
Roberts, John M., “New Keynesian Economics and the Phillips Curve,” Journal of
Money, Credit, and Banking 27(4), November 1995, Part 1, pp. 975-84.
Gali, Jordi, and Mark Gertler, “Inflation Dynamics: A Structural Econometric
Analysis,” Journal of Monetary Economics 44, 1999, pp. 195-222
Mankiw, N.Gregory and Ricardo Reis, “Sticky Information vs. Sticky Prices: A
Proposal to Replace the New Keynesian Phillips Curve,” Quarterly Journal of
Economics 117(4), 2002, pp. 1295-328.
C. Monetary policy without commitment
Clarida, Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” Journal of Economic Literature 37, December
1999, pp. 1661-707. Sections 1-3.
D. Monetary policy with commitment
Clarida, Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” Journal of Economic Literature 37, December
1999, pp. 1661-707. Section 4.
E. Inflation targeting and other simple rules of monetary policy
Clarida, Richard, Jordi Gali and Mark Gertler, “The Science of Monetary Policy: A
New Keynesian Perspective,” Journal of Economic Literature 37, December
1999, pp. 1661-707. Sections 5-7.
Svensson, Lars E.O., “What Is Wrong with Taylor Rules?” Journal of Economic
Literature 41(2), June 2003, pp.426-78.
III.
Exchange rate regimes (4-5 lectures)
A. Stabilization policy: exchange rate versus money based stabilization
Calvo, Guillermo A., and Carlos A.Végh, "Inflation Stabilization and BOP Crises in
Developing Countries," in John Taylor and Michael Woodford, Handbook of
Macroeconomics (Volume C; North Holland, 1999), pp. 1531-1614. Issued as
NBER Working Paper No. 6925 (February 1999).
B. Real exchange rate targeting
AM, Chapter 7.2.
Calvo, Guillermo A., Carmen M. Reinhart, and Carlos A.Végh, “Targeting the real
exchange rate: Theory and evidence,” Journal of Development Economics, 47,
1995, pp. 97-133.
C. Financial crises (time permitting)
AM, Ch. 16.
Calvo, Guillermo A., and Carlos A.Végh, "Inflation Stabilization and BOP Crises in
Developing Countries," in John Taylor and Michael Woodford, Handbook of
Macroeconomics (Volume C; North Holland, 1999), pp. 1531-1614. Issued as
NBER Working Paper No. 6925 (February 1999).
Krugman, Paul, “A Model of Balance of Payment Crises,” Journal of Money, Credit,
and Banking, 1979.
IV.
Macroeconomic policy and growth (2 lectures)
Aghion, Philippe and Peter Howitt, “Appropriate Growth Policy: A Unifying
Framework,” Journal of the European Economic Association 4 (April-May
2006): 269-314
Philippe Aghion, Philippe Bacchetta, Romain Ranciere, and Kenneth Rogoff,
“Exchange Rate Volatility and Productivity Growth: The Role of Financial
Development,” manuscript.