Spring 2009
Kellstadt Graduate School of Business
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: Macroeconomic environment
and policies heavily influence business conditions and decisions. So making
right decisions requires a thorough knowledge of workings of the macroeconomy.
This course explores 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.
Course Materials
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)
A mid-term and a final exam: The midterm exam will be given on April 28 and the
final on June 9. The mid-term is a take-home exam, but the final exam is given
in class (closed-book test). Please note that these dates are tentative.
(2)
Group project: A group of
students (up to four) will work on a group project (short paper) on a
macroeconomic issue of their choice. Once they form a group, each group must
talk to me and get approval regarding the topic. A grade on this project will
be based on quality of write-up. The members of each group will get the same
grade. More details in class.
Note: All the materials
(including assigned readings) covered in the class will be tested. Absolutely
NO extra credit assignments.
Prerequisites
There
are no prerequisites. This course is highly analytical, but the level of
mathematics employed will be kept at the minimum (elementary algebra).
Grading: Course grade will be
determined by the midterm (40%), the final (40%), and group project (20%).
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%.
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.
SCHEDULE*
______________________________________________________________________________
*The following course
schedule is only tentative and may have to be modified if necessary.
March 31: Overview of
World Economy, and Macroeconomic Indicators
April 7: National
Income Accounts and Balance of Payments
April 14: National
Income Accounts and Balance of Payments
Productivity and
Growth
April 28: Mid-term
exam (take-home) will be given, and Lecture in class.
Money,
Inflation, Interest Rates, Bond Markets, and Exchange Rates
May 5: Mid-term exam
is due in class.
Money,
Inflation, Interest Rates, Bond Markets, and Exchange Rates (contd)
May 12: Business
Cycle: Aggregate Demand and Supply
May 19: Business
Cycle: Aggregate Demand and Supply (contd)
May 26: Monetary and
Fiscal Policies, Budget Deficits, and Government Debt
June 2: No Class
(April 28 class is the make-up one)
June 9: Final Exam in Class (closed-book test).
Group
project paper is due on Jun 14 (by midnight via email).
______________________________________________________________________________
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.
·
Feldstein-Horioka
Puzzle: Saving and Investment in an Open Economy (Time Permitting)
* Too Little, Not Too Much, Martin
Feldstein, The Economist, 6/24/1995.
·
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
·
Sources of Economic
Growth: Growth Accounting Equation
Readings: *Mankiw, Appendix
to Chapter 8.
* A productivity primer, The Economist, Nov 4, 2004.
* Chapter
2.Productivity Growth, in Economic Report of the
President, 2007, pp.45-62.
Slowdown in Productivity Growth in the 1970s through the
Mid-1990s
Readings:
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.
·
Bond Pricing, and
Risk and Terms Structure of Interest Rates
Readings: * Handout
Ch.
6. Risk and Terms Structure of Interest
Rates, and Forecasting Interest Rates, in Frederic Mishkin, (2004), The
Economics of Money, Banking, and the Financial Markets, Addison-Wesley.
(optional)
*
Among the Missing, (on US Treasury
bonds), The Economist, Oct 6, 2005.
*
Wrong-Footed: Why Have Treasury Bond Yields Fallen?
The Economist, Jan 15, 2004.
Asian squirrels, The Economist, Sept 15, 2005.
The Long and the Short of It, The
Economist, Jan 6, 2006.
·
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.
·
Inflation
Targeting
On Target? (on inflation targeting)
The Economist, August 30, 2001.
* Steering by a faulty compass The
Economist, February 24, 2005.
·
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.
UNIT 3. The Economy in the
Short Run: the Business Cycle
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.