Course Materials

David Romer, Advanced Macroeconomics. (Required text). 

The official text is David Romer's Advanced Macroeconomics, 3rd edition, ISBN 0072877308 . This book has NOT yet been released. It is now scheduled to become available in late August. We will not need the book for several weeks, so waiting should not be a problem. However, if you prefer to buy the 2nd edition now, that should be fine -- I doubt that much will differ in the new edition and I will make sure to document any differences that matter for us.

Bennett McCallum, Monetary Economics. (Optional supplementary text).

This book is out of print, but used copies are available from Amazon at prices around $20.00. You will be assigned several chapters from this book.

Other readings are from various journals and books.

Course Introduction and Goals

This course will provide a graduate 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 a traditional static Keynesian model. Following that, dynamic models are considered, beginning with an analysis of steady inflation. The role of “rational expectations” in dynamic models will be of special interest; students will learn how to solve simple dynamic 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. We will then consider long-run issues as developed in the neoclassical growth model, followed by an introduction to real business cycle theory. The remainder of the course will consider policy issues from both positive and normative perspectives.

Course Requirements and Grading

Grades are based on exams and problems, with weights as provided below:

Letter grade assignments are made on the following basis:

Course Outline and Readings

Page numbers for the Romer book currently  (8/11/05) refer to the 2nd edition.

Static Keynesian and Classical Models

McCallum, Monetary Economics (Hereafter, McCallum) Chapter 5.

Steady Inflation

Romer, Advanced Macroeconomics (Hereafter, Romer) Chapter 10, pp. 468-474.

McCallum, Chapter 6.

Inflationary Dynamics and Rational Expectations

McCallum, Chapters 7 and 8.

New Classical and New Keynesian Models

Romer, Chapter 6, pp. 271-302, 316-323, 328-333 (Assigned pages revised 10/4/05).

Robert Lucas, “Some International Evidence on Output-Inflation Tradeoffs,” American Economic Review, 63 (June 1973) pp. 326-334.

N. Gregory Mankiw, “Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly,” Quarterly Journal of Economics, May 1985, pp. 529-539. Reprinted in N. Gregory Mankiw and David Romer, eds., New Keynesian Economics, Volume 1, MIT Press, 1991. The appendix is not required reading.

Neoclassical Growth Theory

Romer, Chapter 1 pp. 5-35.

Romer, Chapter 2 (pp. 48-76). (Pages Revised)

Robert Solow, “Technical Change and the Aggregate Production Function,” Review of Economic Studies (August 1957), pp. 312-320.

Real Business Cycle Theory

Robert Lucas, “Understanding Business Cycles,” in Robert Lucas Studies in Business Cycle Theory.

Kydland, Finn E. and Edward C. Prescott, “Business Cycles: Real Facts and a Monetary Myth,” Federal Reserve Bank of Minneapolis Quarterly Review (Spring 1990), pp. 3-17.

Charles I. Plosser, “Understanding Real Business Cycles,” The Journal of Economic Perspectives, (Summer 1989), pp. 51-78.

Romer, Chapter 4.

Hall, Robert E., “The Relation between Price and Marginal Cost in U.S. Industry,” Journal of Political Economy; 96(5), October 1988, pages 921-47.

Policy Analysis

Ray C. Fair, Specification, Estimation, and Analysis of Macroeconometric Models, Chapter 2, pp. 10-28.

Lucas, Robert, "Econometric Policy Evaluation: A Critique," in Robert E. Lucas, Studies in Business Cycle Theory, pp. 104-130.

The Time Consistency Problem and Rules versus Discretion

Romer, Chapter 10, pp. 474-524.

Lucas, Robert, “Rules, Discretion, and the Role of the Economic Advisor,” in Stanley Fischer, ed., Rational Expectations and Economic Policy  pp. 199-210.

Chappell, Henry, Rob Roy McGregor, and Todd Vermilyea, Chapter 10, “Time Inconsistency and the Great Inflation: Evidence from the Memoranda and the Transcripts” in Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee, (MIT Press: Cambridge MA ) 2005.

Monetary Policy Issues

Meulendyke, Ann Marie, U.S. Monetary Policy and Financial Markets (New York, NY: Federal Reserve Bank of New York), Page selections TBA. Download Book Here.

Meyer, Laurence H. "Inflation Target and Inflation Targeting," Review of the Federal Reserve Bank of St. Louis, November/December 2001.

Carlstrom, Charles T.,  and Timothy S. Fuerst, "The Taylor Rule: A Guidepost for Monetary Policy? Economic Commentary, Federal Reserve Bank of Cleveland, July 2003.

Taylor, John B. Discretion versus Policy Rules in Practice, Carnegie-Rochester Conference Series on Public Policy, 39 (1993) 195-214.

Chappell, Henry, Rob Roy McGregor, and Todd Vermilyea, Chapter 6, “Estimating Reaction Functions for Individual FOMC Members,” in Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee, (MIT Press: Cambridge MA ) 2005.

Politics and Policy

Nordhaus, William, “The Political Business Cycle,” Review of Economic Studies, 42 (1975) pp. 169-190.

Alesina, Alberto, and Jeffrey Sachs, “Political Parties and the Business Cycle in the United States 1948-1984,” Journal of Money, Credit, and Banking (20) pp. 63-82.

Blinder, Alan, Chapter 3 “Central Bank Independence ” in Central Banking in Theory and Practice (MIT Press: Cambridge MA ) 1998.

Alesina, Alberto, and Lawrence Summers, “Central Bank Independence and Macroeconomic Performance,” Journal of Money, Credit, and Banking, May, 1993.

Blinder, Alan, Chapter 2, "Ex Uno Plures: Central Banking by Committee," in The Quiet Revolution: Central Banking Goes Modern (New Haven: Yale University Press) 2004.

Chappell, Henry, Rob Roy McGregor, and Todd Vermilyea, Chapter 7, “Majority Rule, Consensus Building, and the Power of the Chairman: Arthur Burns and the FOMC,” in Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee, (MIT Press: Cambridge MA ) 2005.