Spring 2009
DePaul University
Professor: Dr. Jaejoon Woo
Office: 6229, DePaul Center
Email:
jwoo1@depaul.edu
Phone:
312/362-5585 and Fax: 312/362-5452
Homepage:
http://fac.comtech.depaul.edu/jwoo1
Office
Hours: Tuesdays 4:00-5:00 or by appointment
Goal of this course: This course provides a survey of important modern
macroeconomic theories and empirics, while exploring key macroeconomic
relationships and policy issues on productivity, growth, inflation,
unemployment, the flow of international trade and capital and the globalization
process. We emphasize the use of theoretical frameworks to study how the
economy works and their application to actual economic events or policy debates
using, as much as possible, recent examples and empirical research results.
Prerequisites
(1) It is strongly recommended that you take the intermediate microeconomics
(ECO 305) prior to taking this course. (2) This course is highly analytical,
although I will try to keep the level of mathematics at the minimum (elementary
algebra and elementary calculus).
Many chapters in Mankiw textbook will serve as basic
readings, which will be supplemented with class handouts and articles. Since we
extensively cover the U.S. and international data, handouts will be given in
class on a regular basis.
Main Textbook: N. Gregory Mankiw, MACROECONOMICS,
6th edition, Worth Publishers: New York, 2006.
Reading Packet: Unless URLs (weblinks) for reading materials are provided in this
syllabus, articles will be made available in class. These reading materials
would reinforce your understanding of the topics we cover in class, and some of
them will be discussed in class. For the exams, however, only the materials covered in class is exam-relevant.
Course
Requirements
It is very important to
attend lectures, since the materials covered in lectures form the core of the
course.
There
will be 3 requirements:
(1) One mid-term exam and one final exam: The midterm exam will be given on April 27, respectively. The final exam will be on June 8. All of these
exams are in-class closed-book tests. The final exam will be a comprehensive
test. Please note that these dates are tentative.
All
the materials covered in the class can be tested, and you are also responsible
for reading the textbook. No make-up exam will be given unless prior
permission is granted. If you have to miss the exam with a valid excuse,
you must discuss with me in advance before the exam in order to schedule the
make-up exam. Anyone who misses an exam without permission automatically
receives zero on the exam.
(2) Problem sets: There will be 5 problem
sets. Each problem set will be graded on a scale of 0-3: zero (no submission),
check minus (1), check (2), and check plus (3). More detailed information will
be given in class.
Note: All the materials (including assigned readings)
covered in the class will be tested. Absolutely NO extra credit
assignments.
General
policy: You
should be aware of and abide by the Universitys policy on academic integrity.
Also, the instructor reserves the right to change the topics or schedules if
necessary. A graduate assistant is available for tutoring if you need some help
with course materials or with problem sets. Their schedule is posted in room
6201 at the economics department.
Grade: Final grade will be
determined by final exam (45%), mid-term exam (35%), Problem sets (15%), and
class participation (5%).
Grading Scale: A=94% and above; 88%£A-<94%; 82%£B+<88%; 77%£B<82%;
72%£B-<77%; 67%£C+<72%; 63%£C<67%; 59%£C-<63%; 56%£D+<59%; 53%£D<56%; 50%£D-<53%; and F<50%.
SCHEDULE*
______________________________________________________________________________
*The following course
schedule is only tentative and may have to be modified if necessary.
March 30: Overview of
World Economy, and Macroeconomic Indicators
April 6: National
Income Accounts and Balance of Payments
Problem set 1 will be given.
April 13: National
Income Accounts and Balance of Payments
Productivity
and Growth
Problem set 1 is due and Problem set
2 will be given.
April 20: Productivity and Growth (contd); Problem
set 2 is due.
April 27: Mid-term
exam will be given, and Lecture in class.
Money,
Inflation, Interest Rates, and Exchange Rates
May 4: Money,
Inflation, Interest Rates, and Exchange Rates (contd)
Problem set 3 will be assigned.
May 11: Business
Cycle: Aggregate Demand and Supply. Problem set 3 is due.
Problem set 4 is assigned.
May 18: Business
Cycle: Aggregate Demand and Supply (contd);
Aggregate Demand: IS-LM model
Problem set 4 is due. Problem set 5 will be
assigned.
May 25: Aggregate Demand: IS-LM
model
(continued).
June 1: No Class
(April 27 class is the make-up class)
June 8: Final Exam in Class (closed-book test).
______________________________________________________________________________
Note
that * indicates a more important reading.
UNIT 1. Overview of the
World Economy, and Macroeconomic Indicators
Readings:
*Mankiw, chapter 2.
Saving the World Economy Should be Affordable
Financial Times, March 17, 2009.
How Government Created the Financial Crisis
John Taylor, Wall Street Journal, Feb 9, 2009
Challenges for the Worlds Divided Economy,
Martin Wolf, Financial Times, Jan 8, 2008.
Monetary Policy and Economic Outlook, in
Monetary Policy Report to The Congress by the Federal Reserve Board, Feb 24,
2009.
Big Freeze Part 1: How It Began Financial
Times, August 3, 2008
Big Freeze Part 2: Banking Financial
Times, August 4, 2008
On
Macroeconomic Indicators
Measuring Economies, The Economist, Feb 9,
2006.
UNIT 2. The Economy in the
Long Run
1. The National Income
Accounts and the Balance of Payments System
·
National Income
Readings: *Mankiw, chapter 3.
*Spendthrift Nation, FRBSF Economic Letter,
Nov. 10, 2005.
Anatomy of Thrift: Why People Save and Invest?,
The Economist, Sept 22, 2005.
·
Widening Wage
Inequality, Skill-Biased Technological Progress and International Trade
* Explanations
for Increasing Earnings Inequality, in Chapter 5 of Economic
Report of the President, Feb. 1997, pp. 170-175.
Economic Inequality in the United States,
Janet Yellen, FRBSF Economic Letter, Dec 1, 2006.
Income Gap Is Widening, Data Show, New
York Times, March 29, 2007.
Is the New Supply Side Better than the Old?,
Austan Goolsbee, January 20, 2008.
* Krugmans Conundrum, The Economist, April
17, 2008.
Note: The current and past issues of Economic Report of
the President are available on the website of the Council of Economic
Advisors: ttp://www.gpoaccess.gov/eop/download.html
·
Budget Deficits, Current
Account Deficits, and The US Dollar: Is the US Current Account Deficit
Sustainable? Back to Twin Deficits?
Readings: *Mankiw, chapter 5,
pp.115-133.
*The
US Capital Account Surplus, in Chapter 6 of Economic Report of the
President, Feb 2006, pp. 125-147.
In Defense of Deficits, The Economist, 12/16/1995.
* Chapter 2: Whatever Happened to the Twin Deficits?,
in Catherine Mann, Is the U.S.
Trade Deficit Sustainable?, Institute for International Economics,
September 1999.
*
The Great Thrift Shift, The Economist,
Sept 24, 2005
Forever free, The Economist, Sept 24,
2005.
*
Falling Dollar Saga Still Has a Long Way to Go,
Martin Wolf, The Financial Times, December 5, 2006.
·
Capital Inflows on
Saving, Investment and Growth (Time Permitting)
E. Prasad, R. Rajan, and A.
Subramanian (2006) Patterns of International Capital Flows and Their
Implications for Economic Development.
Ch. 3 Managing Large Capital Inflows, World Economic Outlook, IMF, October
2007.
2. Productivity and Growth
·
Solow Growth Model
Readings: *Mankiw, Chapters 7
and 8.
Slowdown in Productivity Growth in the 1970s through the
Mid-1990s
Readings:
A productivity primer, The Economist, Nov 4, 2004.
Chapter
2.Productivity Growth, in Economic Report of the President, 2007, pp.45-62.
Factors Generating Growth of Potential GDP,
in Economic Report of the President, 1995, pp. 98-109.
Information Technology Revolution, New Economy, and the Revival
of Productivity Growth
Since the Mid-1990s
Readings:
* Chapter
2.Productivity Growth, in Economic Report of the
President, 2007, pp.45-62.
What Drives Productivity Growth, Kevin
J. Stiroh, Economic Policy Review, Federal Reserve Bank of New York, March
2001, pp. 37-59.
American Productivity: The New New Economy,
The Economist, Sept. 13, 2003.
Productivity Ben Bernanke, Remarks at
the University of Arkansas at Little Rock, Feb 24, 2005.
3. Money, Inflation,
Interest Rates, Exchange Rates, and Asset Prices
·
Money, Inflation,
and Interest Rates
Readings: *Mankiw, chapter 4.
A Short History of Inflation, The Economist, February 22, 1992.
* Globalization and Monetary Policy, Ben
Bernanke, Speech at Stanford, March 2, 2007.
A Foreign Affair, (on globalization
and inflation) The Economist, Oct 22, 2005.
*Why a 70s-style Whiff of Stagflation May Soon Be In
the Air, Financial Times, Dec 2, 2007.
*Global Inflation: That 60s Show, Economic
Research Note, JPMorgan Chase Bank, March 14, 2008.
The Fed can learn from historys blunders
Barry Eichengreen, August 18, 2008.
·
The Fed, Money
Supply, and Monetary Policy Tools
Readings: * Handout on Monetary
Policy Tools, Bond Markets, Taylor Rule.
Mankiw, chapter 18
(Optional).
The Mandarins of Money, The Economist,
August 9, 2007.
* The Fed Reaches Deeper Into Its Tool Box,
Economic Research Note, JPMorgan Chase Bank, March 14, 2008.
·
Exchange Rates:
Uncovered/Covered Interest Parity and PPP (purchasing power parity)
*Chapter
7. Currency Market and Exchange Rates, in Economic Report of
the President, Feb 2007, pp.149-166.
* Let dollar fall or risk global disorder
Martin Wolf,
The Financial Times. May 9 2006.
Fed sanguine if dollar descent stays orderly,
Krishna Guha, The Financial Times, October 2 2007.
Why Sterling Is the Next Dollar? The
Financial Times, Jan 10, 2008.
Soft Currency, The Economist, July 26,
2007.
·
On PPP:
A Much Devalued Theory, The Economist, Jan. 1996.
McCurrencies: Big Mac Index, The
Economist, July 14, 2008.
·
On Monetary Policy
Implications of Fixed Exchange Rates:
* The Fed is forced to fuel a global boom,
The Financial Times, March 30, 2004.
Currency Unions, The Financial Times, Dec 27, 2007.
* Currency Pegs under Pressure The Financial
Times, November 5, 2007.
1. AD-AS Model
·
Aggregate Demand
and Aggregate Supply
Readings: *Mankiw, chapter 9.
Expansions Past and Present, Chapter 2
of Economic Report of the President, Feb.
2005.
The US
Business Cycle Expansions and Contractions, NBER Business Cycle
Dating Committee.
The OECD Composite Leading Indicators,
OECD, Paris, March 2009.
Sticky Situations, (on price
stickiness) The Economist, Nov 7, 2006.
Fed Chief Shifts Path, Inventing Policy in Crisis
New York Times, March 16, 2008.
Big Freeze Part 4: A US Recovery Lawrence
Summers, Financial Times, August 6, 2008.
Is Government Spending Too Easy An Answer? Gregory Mankiw, New
York Times, Jan 10, 2009.
Why Permanent Tax Cuts Are the Best Stimulus? John Taylor, Wall
St. Journal, Nov 25, 2008.
Japans lessons for a world of balance-sheet deflation
Martin Wolf, February 17 2009
·
Consumption and Wealth
Effect
The Global Housing Boom, The
Economist, June 16, 2005.
Home Truths: The wealth effect may be stronger in
housing markets than in stockmarkets, The Economist, Nov. 8,
2001.
How a Bubble Stayed Under the Radar Robert
Shiller, New York Times, March 2, 2008.
2. Aggregate Demand:
·
IS-LM Model in a
closed economy (Time Permitting)
·
The Great
Depression in the 1930s, Todays Japan Problem, and the U.S. Economy in the
Post-Bubble Era
Readings: * Mankiw, chapter
10 and 11; and Handout on Stock Valuation and Bubble.
Japan Is Shackled by Deflation, Blocking Its Hope for
Recovery, New York Times, March 12, 2001.
* Of Debt, Deflation and Denial, The
Economist, Oct. 10, 2002.
* Betting the House, The Economist,
March 6, 2003.
Taking
the Measure,
The Economist, Nov. 22, 2001.
Preventing Deflation: Lessons from Japans Experience
in the 1990s, The Federal Reserve Board, Discussion Paper, No.
729, June 2002.
What Changes If Intangible Investment Is Properly
Measured? The Economist, Mar 6, 2006.
3. The Open Economy in the
Short Run (Time permitting)
·
IS-LM model in a
small open economy
Applications: Mexican Peso
Crisis in 1995, East Asian Currency Crises in 1997, Argentine Crisis in 2002
Readings: * Robert Gordon
(2002), Ch. 6. International Trade, Exchange Rates, and Macroeconomic Policy,
in Macroeconomics, Addison-Wesley. (optional)
* Exchange Rates: Fix or Float, Sink or Swim?,
The Economist, June 1997.
Euro Brief: The Merits of One Money,
The Economist, Oct. 1998.
* The Fed is forced to fuel a global boom,
Martin Wolf, The Financial Times, March 30, 2004.
·
Globalization and
Financial Crisis
* Global Finance, The Economist, May 1, 2003.
Global Economic Integration: The Overview,
Martin Feldstein, Presented at a symposium sponsored by Kansas Fed, Jackson
Hole, Wyoming, August 2000.
4. Monetary and Fiscal Policies, Budget
Deficits, and Government Debt
·
Tradeoff between
Inflation and Unemployment: NAIRU
Readings: * Handout on NAIRU (non-accelerating
inflation rate of unemployment).
*Mankiw, chapter 13.
* Curve Ball, The Economist, September
28, 2006.
Up To the NAIRU Without A Paddle, The
Economist, March 8, 1997.
The NAIRU in Theory and Practice, Laurence
Ball and N. Gregory Mankiw, Working paper, Harvard University, April 2002.
Chronic Unemployment in the Euro Area: Causes and
Cures, in World Economic Outlook, IMF, May 1999.
·
Monetary Policy
Readings: *Mankiw, chapter
14.
* Rethinking Stabilization Policy: Symposium Summary,
Gordon H. Sellon, Presented at a symposium sponsored by Kansas Fed, Jackson
Hole, Wyoming August, 2002.
U.S. Monetary Policy During the 1990s,
Gregory Mankiw, in American Economic Policy in the 1990s, MIT Press, 2002.
The End of Cheap Money, The Economist,
April 22, 2004.
·
Fiscal Policy
Why America Must Have a Fiscal Stimulus?
Lawrence Summers, Financial Times, Jan 6, 2008.
Comment: Is There a Role for Discretionary Fiscal
Policy?, Martin Feldstein, Presented at a symposium sponsored
by Kansas Fed, Jackson Hole, Wyoming, August 2002.
Remember Fiscal Policy?: How to Use Fiscal Policy in a
Recession, The Economist, Jan 17, 2002.
·
Budget Deficit
and Government Debt
Readings: *Mankiw, chapter
15.
Budget Policy, Remarks by Alan
Greenspan at the Federal Reserve Bank of Philadelphia Policy Forum, December 2,
2005.
* Americas Deficits: Flood of Red Ink, The Economist, November 6, 2003.
Government Debt, Douglas Elmendorf and
Gregory Mankiw, in Handbook of Macroeconomics, North-Holland: Amsterdam, 1999.
The
CBO Budget and Economic Outlook Fiscal Years 2009-2019, Congressional
Budget Office (CBO), January 2009.
CBO Data Show Middle Income Tax Burden at the Lowest
Levels in Decades, Joint Economic Committee, US Congress, February
21, 2008.