MACROECONOMICS I, 5p

Reading list and course plan spring 1997

References with stars (*) should be read by everybody. Other articles should be read by the students who plan to specialize in macro.

Some comments on the books.

The main book for this course is Romer (1995), which also will be used in Macro II. This book is a good introduction and overview of modern macroeconomics. For students that plan to specialize in macro it is good but not sufficient. In particular,it is not rigorous enough on dynamic optimization, which is imperative in modern macroeconomic theory. We therefore suggest that those who plan to work in the macro field buy some additional literature.

In this course we make extensive use of Blanchard & Fisher and Barro & Sala-i-Martin. Barro and Sala-i-Martin is a good book that covers a lot of new ground in modern growth theory. Blanchard and Fisher is a general book in macro which used to be the main text in Stockholm and at very many American universities. It does, however, not cover much of new growth and real business cycle theory. Both these books are well written and accessible while also sufficiently formal when required

Two other books that we recommend for macro students are Cooley & Hansen and Sargent. They are rigorous and methodological with a clear "fresh-water" flavor. These two books are specially important for those interested in business cycles and/or modern general equilibrium macro theory.

0. Background

In addition to the formal requirements, we assume familiarity with intermediate macroeconomics, at least at the level of:

Barro, R., 1984, Macroeconomics (John Wiley & Sons).

Mankiw G., 1992, Macroeconomics (Worth).

I. Growth

A. Some growth facts

Maddison, A., 1991, Ch. 3 in Dynamic Forces in Capitalist Development, (Oxford University Press.

Romer, P., 1989, "Capital Accumulation in the Theory of Long-Run Growth", Ch. 2 in Barro, R. (ed) Modern Business Cycle Theory, (Harvard University Press).

B. Neoclassical growth theory

1. The Solow Model

Barro, R. and X. Sala-i-Martin, 1995, Ch. 1 (Sects. A-B) in Economic Growth, (McGraw-Hill).

*Romer, D., 1995, Ch. 1 in Advanced Macroeconomics, (McGraw-Hill).

Solow, R., 1956, "A Contribution to the Theory of Economic Growth", Quarterly Journal of Economics, February, 65-94.

2. The Ramsey model

Barro, R. and X. Sala-i-Martin, 1995, Ch. 2 in Economic Growth, (McGraw-Hill).

*Romer, D., 1995, Ch. 2 (Sects. 1-6) in Advanced Macroeconomics, (McGraw-Hill).

3. The Samuelsson-Diamond-Blanchard OLG model

*Romer, D., 1995, Ch. 2 (Sects. 1-6) in Advanced Macroeconomics, (McGraw-Hill).

Diamond, P. (1965), "National Debt in a Neoclassical Growth Model", American Economic Review, 55.5, 1126:1150.

C. Endogenous Growth

1. Prerequisites for Endogenous Growth

Barro, R. and X. Sala-i-Martin, 1995, Ch. 1 (Sect 3) and Ch. 4 (Sects 1-3) in Economic Growth, (McGraw-Hill).

Rebelo, S., 1991, "Long-Run Policy Analysis and Economic Growth", Journal of Political Economy, 500-21.

*Romer D., 1995, Ch. 3 (Sects. 1-5) in Advanced Macroeconomics, (McGraw-Hill).

Romer, P., 1986, "Increasing Returns and Long-Run Growth", Journal of Political Economy, 1002-37.

2. Variations

*Helpman, E., 1992, "Endogenous Macroeconomic Growth Theory", European Economic Review, May, 237-68.

*Romer D., 1995, Ch. 3 (Sects. 6-11) in Advanced Macroeconomics, (McGraw-Hill).

Barro R. and X. Sala-i-Martin, 1995, Ch. 5-7 in Economic Growth, (McGraw-Hill).

Lucas, R., 1988, "On the Mechanics of Economic Development", Journal of Monetary Economics, 3-42.

D. Fiscal Policy

1. Government expenditure, growth and Ricardian Equivalence

Barro, R., 1989, "The Neoclassical Approach to Fiscal Policy," Ch. 5 in Barro, (ed.), Modern Business Cycle Theory, (Harvard University Press).

*Barro, R. and X. Sala-i-Martin, 1995, Ch. 4 (Sect. 4) in Economic Growth, (McGraw-Hill).

*Romer, D., 1995, Ch. 2 (Sects 7-9) in Advanced Macroeconomics, (McGraw-Hill).

2. Public Debt

*Blanchard, O. and S. Fischer, 1989, Ch. 3 in Lectures on Macroeconomics, (MIT Press).

Diamond, P., 1965, "National Debt in a Neo-Classical Growth Model", American Economic Review, December, 1126-1150.

Persson,T., 1985, "Deficits and Intergenerational Welfare in Open Economies," Journal of International Economics, 67-84.

*Romer D., 1995, Ch. 2 (Sects. 14) in Advanced Macroeconomics, (McGraw-Hill).

Samuelson, P.A., 1958, "An Exact Consumption-Loans Model with or without the Social Contrievance of Money," Journal of Political Economy, December, 467-482.

E. Some Evidence

*Barro, R., 1991, "Economic Growth in a Cross-Section of Countries, Quarterly Journal of Economics, April, 407-44.

Barro, R. and X. Sala-i-Martin, 1992, Chs. 10-12 in Economic Growth, (McGraw-Hill).

Levine, R., and D. Renelt, 1992, "A Sensitivity Analysis of Cross-Country Growth Regressions", American Economic Review, September, 942-63.

Mankiw, G., D. Romer and D. Weil, 1992, "A Contribution to the Empirics of Economic Growth", Quarterly Journal of Economics, April, 407-38.

Rebelo, S., 1992, "Growth in Open Economies", Carnegie-Rochester Conference Series on Public Policy 36, 5-46.

II. Fluctuations

A. Consumption and Investment under Uncertainty

1. Permanent Income, Precautionary Savings and liquidity constraints

* Romer D., 1995, Ch 7. (Sects. 1-4,6) in Advanced Macroeconomics, (McGraw-Hill).

* Hall, R., 1978, "Stochastic Implications of the Life Cycle Permanent Income Hypothesis," Journal of Political Economy, December, 971-87.

Blanchard, O. and G. Mankiw, 1988, "Consumption: Beyond Certainty Equivalence" American Economic Review, May, 173-177.

Kimball, Miles, 1990, "Precautionary Saving in the Small and in the Large", Econometrica, 58.

2. The Lucas Critique Some Empirical Consumption Puzzles

* Lucas, R., 1976, "Econometric Policy Evaluation: A Critique", Carnegie Rochester Conference Series on Public Policy 1, 19-46.

* Carrol, C., and L. Summers, 1989, "Consumption growth parallels Income Growth; Some New Evidence," NBER Working Paper No. 3090.

* Campbell, J., and A. Deaton, 1989, "Why is Consumption so Smooth?", Review of Economic Studies, 56, 357-374.

* Caballero, R., 1993, "Durable Goods: An Explanation for Their Slow Adjustment," Journal of Political Economy, Vol. 101, No. 2, 351-383.

Campbell, J., and A. Deaton, "The Response of Consumption to Income: a Cross-Country Investigation," European Economic Review, 35, 721-.

Mankiw, G., 1982, "Hall’s Consumption Hypothesis and Durable Goods," Journal of Monetary Economics, 10, 417-25.

B. Asset Pricing

1. Asset Pricing and the Lucas Tree Model and CAPM

Sargent, T., 1987, Ch. 3 in Dynamic Macroeconomic Theory, Harvard University Press.

* Lucas, R., 1978, "Asset Pricing in an Exchange Economy", Econometrica, November, 1429-45.

* Romer, D., 1995, Chapter 7 (Sect. 5) in Advanced Macroeconomics, (McGraw-Hill).

Blanchard, O. and S. Fisher,1989, Ch 10 (Sect. 1) in Lectures in Macroeconomics, MIT Press.

2. Empirics

* Mehra, R. and E. Prescott, 1985, "The Equity Premium: A Puzzle", Journal of Monetary Economics, 145-62.

* Mankiw, G. and M. Shapiro, 1986, "Risk and Return, Consumption Beta versus Market Beta", Review of Economics and Statistics, 68-3, 452-59.

C. Real Business Cycles

1. Stylized facts

* Romer D., 1995, Ch. 4 (Section 1) in Advanced Macroeconomics, (McGraw-Hill).

* Cooley T., and E. Prescott, Ch. 1 (Section 1) in "Economic Growth and Business Cycles", Cooley, T. (ed.). Frontiers of Business Cycle Research, Princeton University Press.

2. RBC models

* Cooley T., and E. Prescott, Ch. 1 (Sections 2-8) in "Economic Growth and Business Cycles", Cooley, T. (ed.). Frontiers of Business Cycle Research, Princeton University Press.

* Romer D., 1995, Ch. 4 (Sections 2-10) in Advanced Macroeconomics, (McGraw-Hill).

Lucas, R., "Understanding Business Cycles," Carnegie-Rochester Series on Public Policy 5, 7-29.

McCallum, B., "Real Business Cycle Models," in Barro, R. (ed.), Modern Business Cycle Theory, Harvard University Press.

Blanchard, O and S. Fisher, 1989, Ch. 7 in Lectures in Macroeconomics, MIT Press.

3. Extensions: Unemployment and money.

* Hansen, G., 1985, "Indivisible Labor and the Business Cycle," Journal of Monetary Economics 16, 309-327.

* Cooley T., and G. Hansen, "Money and the Business Cycle", Ch. 7 in Cooley, T. (ed.). Frontiers of Business Cycle Research, Princeton University Press.