Spring 2008
Kellstadt Graduate School of Business
DePaul University
Professor: Dr. Jaejoon Woo
Office: 6229, DePaul Center
Email:
jwoo1@depaul.edu
Phone:
312/362-5585
Fax:
312/362-5452
Homepage:
http://fac.comtech.depaul.edu/jwoo1
Office
Hours: Wednesdays 3:30-4:30pm 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 30, and the final on June 11.
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. The paper is due on the day of the final exam. 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 University’s 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.
April
2: Overview of World Economy, and
Macroeconomic Indicators
April
9: National Income Accounts and Balance of
Payments
April
16: National Income Accounts and Balance of
Payments
April 30: Productivity and Growth (cont’d); Mid-term exam (take-home) will be given.
May
7: Mid-term exam is due in class.
Money, Inflation, Interest Rates, Bond Markets, and Exchange Rates
May
14: Money, Inflation, Interest Rates, Bond
Markets, and Exchange Rates (cont’d)
May
21: Business Cycle: Aggregate Demand and
Supply
May
28: Business Cycle: Aggregate Demand
and Supply (cont’d)
June
4: Monetary and Fiscal Policies, Budget
Deficits, and Government Debt
June 11: Final
Exam in Class (closed-book
test).
Group project paper is due.
______________________________________________________________________________
Note
that * indicates a more important reading.
UNIT 1. Overview of the World Economy, and
Macroeconomic Indicators
Readings:
*Mankiw, chapter 2.
*“Challenges
for the World’s Divided Economy,” Martin Wolf, Financial
Times, Jan 8, 2008.
*“America’s
Inflated Asset Prices Must Fall,” Stephen Roach, Financial
Times, Jan 7, 2008.
*“Why
a 70s-style Whiff of Stagflation May Soon Be In the
Air,” Financial Times, Dec 2, 2007.
“Monetary
Policy and Economic Outlook,” in Monetary Policy Report to The Congress by the Federal Reserve Board, Feb 28, 2008.
“Partying
Like It’s 1929,” Paul Krugman, New York Times, March 21, 2008.
“Belief
Persists in Real Economy,” Chris Giles and Gillian Tett, Financial Times, Aug 16, 2007.
“An
Economy Undermined? Experts Assess the Real Cost of a Financial Crisis”
Financial Times, March 18, 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.
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
Price of Profligacy,” The Economist, Sep. 18, 2003.
* “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,” 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.
“Heading
for a Fall, by Fiat?” The
Economist, February 26, 2004.
*“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.
“A
Fulid Concept,” (on liquidity
and money supply), The Economist, Feb. 10, 2007.
·
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.
“A
Much Devalued Theory,” The
Economist, Jan. 1996.
“McCurrencies: Big Mac Index,” The
Economist, August 22, 2007.
· 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
·
Aggregate Demand and Aggregate Supply
“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.
“Sticky
Situations,” (on price stickiness) The Economist, Nov 7, 2006.
* “Stagflation,
the Remix” The Economist, May 5, 2005.
“US
economy: Tough call for Fed,” Krishna Guha,
Financial Times, January 23, 2008.
“Fed
Chief Shifts Path, Inventing Policy in Crisis” New
York Times, March 16, 2008.
“Why
America Must Have a Fiscal Stimulus?” Lawrence Summers,
Financial Times, January 6, 2008.
“Make
the Tax Cuts Work” Len Burman, New
York Times, January 23, 2008.
·
Consumption and Wealth Effect
“The
Global Housing Boom,” The Economist, June 16, 2005.
“How a Bubble Stayed Under the Radar” Robert Shiller, New York Times, March 2, 2008.
·
IS-LM Model in a closed economy (Time Permitting)
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.
“A
Hiker’s Guide to Japan,” The Economist, Feb. 22, 2007.
* “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.
“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
* “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.
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).
* “Curve
Ball,” The Economist, September 28, 2006.
“Up
To the NAIRU Without A Paddle,” The Economist, March 8, 1997.
“Chronic
Unemployment in the Euro Area: Causes and Cures,” in World Economic Outlook,
IMF, May 1999.
Readings: *Mankiw, chapter 14.
“The End of Cheap Money,” The Economist, April 22, 2004.
“Why
America Must Have a Fiscal Stimulus?” Lawrence Summers,
Financial Times, Jan 6, 2008.
“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.
“,” The
Economist, July 31, 2003.
* “America’s
Deficits: Flood of Red Ink,” The
Economist, November 6, 2003.