Syllabus
Economics 727 
Appled Macroeconomics
Professor Henry Chappell
TTH 12:30 - 1:45 PM BA434

Contact Information

Professor Henry Chappell
Office 409 BA
Office Hours Spring 2010: TTh 2:00-3:15 PM and TTh 4:45 - 5:15 PM and by appointment
Class Meets TTH 12:30 - 1:45 PM BA434
Phone: 803-777-4940 
Fax: 803-777-6876
E-mail: chappell@moore.sc.edu
Web: http://professorchappell.com

Course Introduction and Goals

Introduction: This course will provide a masters level introductory survey of the field of macroeconomics. Macroeconomics studies the temporal evolution of aggregate economic variables (like national income or the level of prices) for an economy. The course begins by reviewing the traditional static Classical and Keynesian models. Following that, dynamic models are considered, beginning with the Solow growth model and then a simple treatment of a modern classical model. The role of “rational expectations” in dynamic models will be of particular interest; students will learn how to solve simple models in which price expectations are assumed to be rational. New classical and New Keynesian models that employ the rational expectations assumption in modeling business cycles will be studied. The remainder of the course will consider policy issues and special topics in macroeconomics.

If the preceding paragraph fails to fully convey the importance of macroeconomics, recent events are more compelling. In 2006 housing prices peaked and began to fall after rising rapidly for a decade. Default rates on mortgage loans began to rise. In December of 2007, the US economy entered a recession. By September of 2008, problems in mortgage and housing markets led to a panic in financial markets, which were followed by government rescues on a massive scale. As the recession worsened output and employment fell dramatically. As we begin this course, it appears that the economy is emerging from the recession, but unemployment remains high and may stay high for a prolonged period. Part of our task in this course is to consider whether and how existing theories can explain recent events, as well as events that occurred in the past. 

Policy issues are studied extensively in this course. Monetary policies are traditionally concerned with the level and rate of growth of the economy's money stock and with the targeting of specific interest rates; fiscal policies are related to taxing and spending decisions. Most macroeconomic theories imply that the conduct of monetary and fiscal policies will have important macroeconomic consequences, although theories differ in their predictions about exactly what those consequences will be. Students in this course will be presented with alternative views on policy issues. The recent recession has seen a proliferation of policy actions that are both conventional and not-so-conventional, and we will also consider the rationale for the actions taken and whether they have been justified.

Learning Goals: Key learning goals for this course are provided below:

1. Students should have a good understanding of intermediate macroeconomic theory as presented in a conventional IS-LM AD-AS framework, including open-economy variants.

2. The student should understand what factors explain economic growth trends across countries and time.

3. Students should understand the causes and consequences of inflation. 

4. Students should understand the concept of rational expectations and should be able to find solutions for simple macroeconomic models incorporating rational expectations.

5. Students should understand the basic principles that underlie modern classical and New Keynesian explanations for business cycles.

6. The student should understand what economic theories imply about the impacts of alternative macroeconomic policy choices and/or policy rules that might be adopted by governments.

7. Students should be able to provide an explanation for why the recent recession occurred, should have an understanding of arguments made for different policy approaches that have been advocated to respond to the recession

Course Materials

Textbooks: There will be two textbooks that you should buy. First, get a used copy of Macroeconomics, 5th edition, by Abel-Bernanke, or 6th edition, by Abel-Bernanke-Croushore. The 5th edition is cheaper and perfectly adequate. You should also get a copy of Advanced Macroeconomics, by Romer. Either the 2nd or 3rd editions are fine (there is not much difference in either price or content). ISBN numbers are below:

Abel-Bernanke (5th) ISBN Number: 0321162129
Abel-Bernanke-Croushore (6th) ISBN Number: 032141554x
Romer (2nd) ISBN Number: 0072318554
Romer (3rd) ISBN Number: 0072877308

Inexpensive used copies of these textbooks can be found at Amazon.com or Abebooks.com.

Wall Street Journal: You will need to have access to the Wall Street Journal Online edition. I will distribute a form for this purpose. The price for print and online subscriptions (combined) is $34 for 15 weeks. I will turn in subscriptions after the drop/add date; your subscriptions will last through the end of classes.

Web-based Resources: I will occasionally ask you to read other materials posted on the web.

Recorded Lectures: I have posted voiced-over PowerPoint presentations for selected Chapters in the Abel-Bernanke textbook. These can be reached from the handouts link from the course web page:

http://professorchappell.com/Econ727/index.htm

Facebook Groups: I will use Facebook Groups as a Discussion Board for this class.

Other: I also suggest that you bring pens or pencils in a variety of colors to class (some of the diagrams make this almost essential).

Course Policies

Attendance: Students are expected to attend classes regularly.

Academic Integrity: The University Honor Code applies. All work must be your own unless I explicitly permit collaboration. See the Honor Code at this link:

http://www.sc.edu/academicintegrity/honorcode.html

Class Rules: 

Please arrive on time and stay until class ends unless you have unavoidable conflicts.

Please power off mobile phones and similar devices in class. Texting and web browsing in class are prohibited.

Testing:

Students must take tests at the scheduled time. If you believe that an emergency requires you to miss a test, contact me prior to taking the test. I will attempt to arrange a make-up when a documented emergency arises, but make-ups must be arranged and completed promptly. If your emergency does not permit a prompt make-up, it is possible that added weight will be placed on your final exam in lieu of taking a make-up. An oral examination may also be utilized if deemed appropriate by the instructor. The last two options apply only in the case of a documented and prolonged emergency. 

I will attempt to keep up with the posted schedule in class. If I fail to cover the indicated material by a schedule test date, the test WILL take place as scheduled, but the coverage of the test will be adjusted. 

Please bring a pencil with an eraser for each test. Calculators that perform basic arithmetic operations are permitted. Programmable devices or devices with any information storage capabilities are NOT permitted. You may not access cell phones during a test and may not use a cell phone as a calculator.

If you believe that an error has been made in grading your test, you may return the test to me with a written request describing the grading issue you are concerned with. When tests are regraded, the entire test will be reviewed, with lower as well as higher grades possible on all portions. Requests to have a grade reviewed must be made within one week of the date tests are returned in class.

Accommodating Disabilities:

Reasonable accommodations are available for students with a documented disability. If you have a disability and need accommodations to fully participate in this class, contact the Office of Student Disability Services: 777-6142, TDD 777-6744, email sasds@mailbox.sc.edu, or visit LeConte College Room 112A. All accommodations must be approved through the Office of Student Disability Services.

Expectations for the Instructor: I will do my best to facilitate learning, to answer questions appropriately, to be fair and objective in grading, to provide timely and useful feedback on assignments, and to maintain adequate office hours. It is my intention to provide you with the best possible learning experience.
 

Grading

Grades are determined according to the weighting and grading scheme described below:
 

Grading Scale:
 

Range	Grade
90-100	A
85-90	B+
80-85	B
75-80	C+
70-75	C
65-70	D+
60-65	D
0-60	F

Notes on Grading: I reserve the right to make adjustments in the grading scale in a way that might raise some grades (e.g., upward rounding). However, I will not alter the scale in a way that would lower grades. I also will not alter the scale in response to any student request. At the end of the semester, there are always a few students whose average leaves them close to the cutoff for a higher grade, no matter where that cutoff is. This inevitably leads to some disappointment, but this is inherent in the process of grading.

Course Outline and Schedule (Schedule and readings subject to change; test dates will not be changed after the first day of class)

Test dates will not change (after the course has begun); however, topics covered on each test are subject to change depending upon progress made in class. I may also add or subtract reading assignments during the semester. Appendices and “Applications” in the ABC (Abel-Bernanke-Croushore) text are not required reading unless I specifically indicate that you should read them, but some of you may find them useful.

ABC refers to the Abel-Bernanke-Croushore (or Abel-Bernanke) textbook.
Romer refers to the Romer textbook.

Day	Date	Topic	Assignment	Other
1	T, 1/12	Introduction Business Cycle Facts	ABC Chapter 8 Read only through section 8.3
2	Th, 1/14	Productivity, Output, and Employment	ABC Chapter 3
----	F 1/15	Last day to drop/add	------------	------------
3	T, 1/19	Consumption, Saving, and Investment	ABC Chapter 4
4	Th, 1/21
5	T, 1/26	The Asset Market, Money, and Prices	ABC Chapter 7
6	Th, 1/28	IS-LM AS -AD Model	ABC Chapter 9
7	T, 2/2		Recession! (TBA)	Who is Greedy? Would You Pay $103,000 for This Arizona Fixer-Upper?  WSJ, 1/3/09 American Dream 2: Default, Then Rent WSJ, 12/10/09 Until Medical Bills Do Us Part (Kristoff) NYT, 8/29/09
8	Th, 2/4
9	T, 2/9
10	Th, 2/11	TEST 1	Coverage TBA
11	T, 2/16
12	Th, 2/18
----	M 2/22	Last day to withdraw without a WF	------------	------------
13	T, 2/23	International Economics	ABC Chapters 5 and 13	Recession! Recession! (Paper by Prof. Chappell) Questions and Answers about the Financial Crisis (Gorton) Prepared Congressional Testimony Firms Race To Regain Control Over Inventories WSJ, 2/9/2009 Growth Hits 6-Year High WSJ, 1/30/10 Phelps and Prescott on the Stimulus and the Recession The Week, 2/20/2009 Charlie Evans on Modeling Financial Shocks in Macroeconomics Speech, 9/19/2008 For Fed, Big Test Will Be When to Turn Off the Money Pump WSJ, 4/20/2009 The Coming Deficit Disaster WSJ, 11/21/2009 The Stimulus Bill WSJ, 2/17/2009 All Clunkered Out WSJ, 8/23/09 Federal Intervention Pits 'Gets' vs. 'Get-Nots' WSJ, 6/15/09 Stimulating thoughts, 3rd quarter edition Krugman, NYT, 10/30/2009 An Alternative Stimulus Plan - Boskin WSJ, 11/18/2009 Why No One Expects a Strong Recovery WSJ, 11/20/2009 The Stimulus Evidence One Year On (Barro) WSJ, 2/23/10 Krugman on Stimulus:  Part I   Part II   Part III
14	Th, 2/25
----	M 3/1	Semester midpoint	------------	------------
15	T, 3/2
16	Th, 3/4	Steady Inflation and Time Inconsistency	Romer, Chapter 10, pp. 496-501 (Introduction and Section 10.1 on Inflation) Romer, Chapter 10 pp. 506-511(Section 10.3 on Time Inconsistency) Romer, Chapter 10, pp. 517-518 (Sub-section on Central Bank Independence) Romer, Chapter 10, pp. 547-552 (Section 10.9 on the Costs of Inflation) Chappell et. al.  “Did Time Inconsistency Contribute to the Great Inflation? Evidence from the FOMC Transcripts,” Journal of Economics and Politics, November 2004, pp. 233-251.	Vice Chairman of Fed to Retire, Letting Obama Reshape Board NYT, 3/2/10 Paul Krugman for Fed Vice Chairman? WSJ, 3/2/10
17	T, 3/9	SPRING BREAK
18	Th, 3/11	SPRING BREAK
19	T, 3/16	Rational Expectations	McCallum, Monetary Economics, Chapter 8	Bernanke Is the Best Stimulus Right Now - Robert Lucas WSJ, 12/23/08 The Weekend That Wall Street Died WSJ, 12/29/08 Fed's Gamble: Buying Long Bonds WSJ, 3/19/2009 Political Interference Seen in Bank Bailout Decisions  WSJ, 1/22/2009
20	Th, 3/18	Modern Classical Theory: The Misperceptions Model	Signal Extraction Problem Handout Robert Lucas, “Some International Evidence on Output-Inflation Tradeoffs,” American Economic Review, 63 (June 1973) pp. 326-334.
21	T, 3/23		Romer, Chapter 10
22	Th, 3/25	Modern Classical Theory: The Real Business Cycle Model	Charles Plosser, “Understanding Real Business Cycles,” Journal of Economic Perspectives, Summer 1989, p. 51-78.   Mankiw, N Gregory, "Real Business Cycles: A New Keynesian Perspective," Journal of Economic Perspectives, Summer 1989, pp. 79-90.	How Did Economists Get It So Wrong? Krugman, NYT, 9/2/2009
23	T, 3/30	New Keynesian Economics	Romer, Chapter 6, pp. 271-276, 285-302, 319-323.   Romer, Chapter 9, pp. 437-448.	Quiz Due! Go to Blackboard.
24	Th, 4/1	Monetary Policy Decision-Making	Blinder, Alan. “Monetary Policy by Committee: Why and How?” DNB Working Paper, No. 92/February 2006.   Chappell, Henry, Todd Vermilyea, and Rob Roy McGregor, “An Econometric Model of Monetary Policy Decision-Making with Applications to the United Kingdom and Sweden.” Working paper, July, 2009.	Fed Presidents, Lawmakers Step Up Clash on Appointment Process Bloomberg, 11/19/2009 Congress Grows Fed Up Despite Central Bank's Push WSJ, 11/23/2009 Fed Curbs Advanced by Panel WSJ, 11/18/2009 Q&A: Former Fed Official Poole on Bernanke and Politics WSJ, 12/3/09
25	T, 4/6	Fiscal Policy	ABC Chapter 15
26	Th, 4/8	TEST 2
27	T, 4/13			Kotlikof, Lawrence, “A 10-Point Plan for Universal Healthcare Coverage,” The Jewish Daily Forward, Aug 08, 2007
28	Th, 4/15	Financial Panic and Recession	Congleton, Roger D. “On the political economy of the financial crisis and bailout of 2008–2009,” Public Choice (2009) 140: 287–317.   Simon van Norden, “When You’ve Seen One Financial Crisis …” Working paper.
29	T, 4/20		Blanchard, Olivier. “The Crisis: Basic Mechanisms and Appropriate Policies,” Working paper, December 2008.   Bullard, James; Christopher J. Neely, and David C. Wheelock, “Systemic Risk and the Financial Crisis: A Primer, Federal Reserve Bank of St. Louis Review, September/October 2009, 91(5, Part 1), pp. 403-17.   Bernanke, Ben S., and Mark Gertler, "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," The Journal of Economic Perspectives (Autumn 1995), pp. 27-48. Keister, Todd, and James McAndrews, "Why Are Banks Holding So Many Excess Reserves?" Federal Reserve Bank of New York Staff  Reports.
30	Th, 4/22
31	T, 4/27	Reading Day
32	W, 4/28	Final Exam 2:00 p.m