Advanced Macroeconomics

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features of reality and study their consequences in isolation. They thereby allow us to see clearly how different elements of the economy interact and what their implications are. As a result, they provide a rigorous way of investigating whether a proposed theory can answer a particular question and whether it generates additional predictions. The book contains literally dozens of models. The main reason for this multiplicity is that we are interested in many issues. Features of the economy that are crucial to one issue may be unimportant to others. Money, for example, is almost surely central to inflation but not to long-run growth. Incorporating money into models of growth would only obscure the analysis. Thus instead of trying to build a single model to analyze all the issues we are interested in, the book develops a series of models. An additional reason for the multiplicity of models is that there is considerable disagreement about the answers to many of the questions we will be examining. When there is disagreement, the book presents the leading views and discusses their strengths and weaknesses. Because different theories emphasize different features of the economy, again it is more enlightening to investigate distinct models than to build one model incorporating all the features emphasized by the different views. The second consequence of the book’s advanced level is that it presumes some background in mathematics and economics. Mathematics provides compact ways of expressing ideas and powerful tools for analyzing them. The models are therefore mainly presented and analyzed mathematically. The key mathematical requirements are a thorough understanding of singlevariable calculus and an introductory knowledge of multivariable calculus. Tools such as functions, logarithms, derivatives and partial derivatives, maximization subject to constraint, and Taylor-series approximations are used relatively freely. Knowledge of the basic ideas of probability—random variables, means, variances, covariances, and independence—is also assumed. No mathematical background beyond this level is needed. More advanced tools (such as simple differential equations, the calculus of variations, and dynamic programming) are used sparingly, and they are explained as they are used. Indeed, since mathematical techniques are essential to further study and research in macroeconomics, models are sometimes analyzed in greater detail than is otherwise needed in order to illustrate the use of a particular method. In terms of economics, the book assumes an understanding of microeconomics through the intermediate level. Familiarity with such ideas as profit maximization and utility maximization, supply and demand, equilibrium, efficiency, and the welfare properties of competitive equilibria is presumed. Little background in macroeconomics itself is absolutely necessary. Readers with no prior exposure to macroeconomics, however, are likely to find some of the concepts and terminology difficult, and to find that the pace is rapid. These readers may wish to review an intermediate macroeconomics Each chapter is accompanied by a number of guided exercises to support and then stretch students' analytical skills I use it for my second-year macroeconomics undergraduate courses. We have two streams in our economics degree, and I teach on the more technical one, the BSc in economics. The book is more technical, not only from a mathematical point of view, but also from a logical point of view. The intuitions are elaborated in detail and very precise and the book requires you to think at a level of abstraction that is far higher than what Mankiw requires. Framework and Assumptions The Model without Capital The General Case The Nature of Knowledge and the Determinants of the Allocation of Resources to R&D The Romer Model Empirical Application: Time-Series Tests of Endogenous Growth Models Empirical Application: Population Growth and Technological Change since 1 Million B.C. Models of Knowledge Accumulation and the Central Questions of Growth Theory Problems

GEANAKOPLOS, J.D. (1987) “Overlapping Generations” in the The New Palgrave Dictionary of Economics—General Equilibrium. Edited by J. Eatwell, M. Milgate, and P. Newman. London, Macmillan. A tour de force. Presenting modern macro theory rigorously but simply, and showing why it helps understand complex macroeconomic events and macroeconomic policies.” — Olivier Blanchard (Peterson Institute, Professor Emeritus at MIT, and former Chief Economist and Director of Research at the IMF)Keeping a book on macroeconomics up to date is a challenging and neverending task. The field is continually evolving, as new events and research lead to doubts about old views and the emergence of new ideas, models, and tests. The result is that each edition of this book is very different from the one before. This is truer of this revision than any previous one. The largest changes are to the material on economic growth and on shortrun fluctuations with incomplete price flexibility. I have split the old chapter on new growth theory in two. The first chapter (Chapter 3) covers models of endogenous growth, and has been updated to include Paul Romer’s nowclassic model of endogenous technological progress. The second chapter (Chapter 4) focuses on the enormous income differences across countries. This material includes a much more extensive consideration of the challenges confronting empirical work on cross-country income differences and of recent work on the underlying determinants of those differences. Chapters 6 and 7 on short-run fluctuations when prices are not fully flexible have been completely recast. This material is now grounded in microeconomic foundations from the outset. It proceeds from simple models with exogenously fixed prices to the microeconomic foundations of price stickiness in static and dynamic settings, to the canonical three-equation new Keynesian model (the new Keynesian IS curve, the new Keynesian Phillips curve, and an interest-rate rule), to the ingredients of modern dynamic stochastic general-equilibrium models of fluctuations. These revisions carry over to the analysis of monetary policy in Chapter 11. This chapter has been entirely reorganized and is now much more closely tied to the earlier analyses of short-run fluctuations, and it includes a careful treatment of optimal policy in forward-looking models. The two other chapters where I have made major changes are Chapter 5 on real-business-cycle models of fluctuations and Chapter 10 on the labor market and unemployment. In Chapter 5, the empirical applications and the analysis of the relation between real-business-cycle theory and other models of fluctuations have been overhauled. In Chapter 10, the presentation of search-and-matching models of the labor market has been revamped and greatly expanded, and the material on contracting models has been substantially compressed. xix Real-world policy and empirical data is brought into focus alongside model predictions, allowing students to scrutinize the models they use and the connected policy issues Neoclassical growth model. The aim of the lecture is to review the neoclassical growth model and its empirical implications such as conditional and unconditional convergence. course hours: 2, hours of student’s self study: 4.

is able to analyse the links between education and demand for qualifications and labor market using human capital theory

Abstract

Monetary Growth Theory II: Money in the Utility Function. The aim of the lecture is to present the Sidrauski's model of money in the utility function. Course hours: 2; hours of student’s self-study: 4.

There are also enormous differences in standards of living across parts of the world. Average real incomes in such countries as the United States, Germany, and Japan appear to exceed those in such countries as Bangladesh and Kenya by a factor of about 20.2 As with worldwide growth, cross-country income differences are not immutable. Growth in individual countries often differs considerably from average worldwide growth; that is, there are often large changes in countries’ relative incomes. The most striking examples of large changes in relative incomes are growth miracles and growth disasters. Growth miracles are episodes where growth in a country far exceeds the world average over an extended period, with the result that the country moves rapidly up the world income distribution. Some prominent growth miracles are Japan from the end of World War II to around 1990, the newly industrializing countries (NICs) of East Asia (South Korea, Taiwan, Singapore, and Hong Kong) starting around 1960, and China starting around 1980. Average incomes in the NICs, for example, have grown at an average annual rate of over 5 percent since 1960. As a result, their average incomes relative to that of the United States have more than tripled. Growth disasters are episodes where a country’s growth falls far short of the world average. Two very different examples of growth disasters are Argentina and many of the countries of sub-Saharan Africa. In 1900, Argentina’s average income was only slightly behind those of the world’s leaders, and it appeared poised to become a major industrialized country. But its growth performance since then has been dismal, and it is now near the middle of the world income distribution. Sub-Saharan African countries such as Chad, Ghana, and Mozambique have been extremely poor throughout their histories and have been unable to obtain any sustained growth in average incomes. As a result, their average incomes have remained close to subsistence levels while average world income has been rising steadily. Other countries exhibit more complicated growth patterns. Cˆ ote d’Ivoire was held up as the growth model for Africa through the 1970s. From 1960 to 1978, real income per person grew at an average annual rate of 3.2 percent. But in the three decades since then, its average income has not increased at all, and it is now lower relative to that of the United States than it was in 1960. To take another example, average growth in Mexico was very high in the 1950s, 1960s, and 1970s, negative in most of the 1980s, and moderate— with a brief but severe interruption in the mid-1990s—since then. Over the whole of the modern era, cross-country income differences have widened on average. The fact that average incomes in the richest countries at the beginning of the Industrial Revolution were not far above subsistence 2 Comparisons of real incomes across countries are far from straightforward, but are much easier than comparisons over extended periods of time. The basic source for crosscountry data on real income is the Penn World Tables. Documentation of these data and the most recent figures are available at http://pwt.econ.upenn.edu/. Taylor, L. (2004). Reconstructing Macroeconomics: Structuralist Proposals and Critiques of the Mainstream. Cambridge, Massachusetts and London: Harvard University Press. Hayashi F., 1982, Tobin's marginal q and average q: A neoclassical interpretation, Econometrica 50, 213-224. text before beginning the book, or to study such a book in conjunction with this one. The book was designed for first-year graduate courses in macroeconomics. But it can be used (either on its own or in conjunction with an intermediate text) for students with strong backgrounds in mathematics and economics in professional schools and advanced undergraduate programs. It can also provide a tour of the field for economists and others working in areas outside macroeconomics.Consumption under Certainty: The PermanentIncome Hypothesis Consumption under Uncertainty: The RandomWalk Hypothesis Empirical Application: Two Tests of the RandomWalk Hypothesis The Interest Rate and Saving Consumption and Risky Assets Beyond the Permanent-Income Hypothesis Problems Consumption. The aim of this lecture is to present the intertemporal approach to consumption decisions using two- and multi-period models. course hours: 2, hours of student’s self study: 4. Extensions of the AS-AD model of business cycles to allow a broader discussion of unconventional monetary policies such as quantitative easing and forward guidance

Advanced Macroeconomics: An Easy Guide is bound to become a great resource for graduate and advanced undergraduate students, and practitioners alike. an ability to analyse the assumptions, methodological underpinnings and implications of macroeconomic models; Supplementary material for this textbook, including slides and DSGE and VAR estimation tutorials, can be found here So, it’s really narrow, but it’s still a fundamental book. I say narrow, but of course, monetary policy is one of the biggest sub-fields in macro. And, especially if you are interested in macroeconomic policy, then monetary policy is one of the two key things you need to have. It’s a classic in central banking and monetary policy.Macroeconomics is the study of the economy as a whole. It is therefore concerned with some of the most important questions in economics. Why are some countries rich and others poor? Why do countries grow? What are the sources of recessions and booms? Why is there unemployment, and what determines its extent? What are the sources of inflation? How do government policies affect output, unemployment, inflation, and growth? These and related questions are the subject of macroeconomics. This book is an introduction to the study of macroeconomics at an advanced level. It presents the major theories concerning the central questions of macroeconomics. Its goal is to provide both an overview of the field for students who will not continue in macroeconomics and a starting point for students who will go on to more advanced courses and research in macroeconomics and monetary economics. The book takes a broad view of the subject matter of macroeconomics. A substantial portion of the book is devoted to economic growth, and separate chapters are devoted to the natural rate of unemployment, inflation, and budget deficits. Within each part, the major issues and competing theories are presented and discussed. Throughout, the presentation is motivated by substantive questions about the world. Models and techniques are used extensively, but they are treated as tools for gaining insight into important issues, not as ends in themselves. The first four chapters are concerned with growth. The analysis focuses on two fundamental questions: Why are some economies so much richer than others, and what accounts for the huge increases in real incomes over time? Chapter 1 is devoted to the Solow growth model, which is the basic reference point for almost all analyses of growth. The Solow model takes technological progress as given and investigates the effects of the division of output between consumption and investment on capital accumulation and growth. The chapter presents and analyzes the model and assesses its ability to answer the central questions concerning growth. Chapter 2 relaxes the Solow model’s assumption that the saving rate is exogenous and fixed. It covers both a model where the set of households in Classical and Keynesian Macroeconomic Theory. The aim of the lecture is to present the classical and keynesian macroeconomic models in a formal way and to prepare grounds to discuss the new models in keynesian and classical tradition. Course hours: 2; hours of student's self-study: 4.