» MIT OpenCourseWare » Economics » Macroeconomic Theory II, Spring 2005

Readings

Readings are listed by session.

Required Readings

There are no textbooks for the course. However, I shall use material from the following sources. Note: abbreviations for required readings follow the citation and are used in the latter section of the readings list.

Blanchard, O., and S. Fischer. Lectures on Macroeconomics. Cambridge, MA: MIT Press, 1989. ISBN: 0262022834. (BF in what follows) [covers most bases, but is aging]

Obstfeld, M., and K. Rogoff. Foundations of International Macroeconomics. Cambridge, MA: MIT Press 1996. ISBN: 0262150476. (OR) [focuses more on open economy issues]

Ljungqvist, L., and T. Sargent. Recursive Macroeconomic Theory. Cambridge, MA: MIT Press 2000. ISBN: 0262194511. (LS) [focuses more on techniques]

Woodford, M. Interest and Prices. Princeton: Princeton University Press, 2003. ISBN: 0691010498. (MW) [focuses more on nominal rigidities, and the role of monetary policy]

Walsh, C. Monetary Theory and Policy. 2nd ed. Cambridge, MA: MIT Press, 2003. ISBN 0262232316. (CW) [focuses on monetary issues, slightly easier than the previous references]

Macroeconomics is a rapidly changing field. To get a sense of the geography, you might find it useful to read two recent surveys:

Blanchard, O. "What Do We Know About Macroeconomics that Fisher and Wicksell Did Not?" QJE 115, no. 4 (November 2000): 1375-1410.

Woodford, M. "Revolution and Evolution in Twentieth-Century Macroeconomics." Frontiers of the Mind in the Twenty-First Century. Edited by P. Gifford. Cambridge, MA: Harvard University Press, 2000. (Forthcoming)

The course is organized around ten topics/sections. For each topic, I have included basic readings, as well as a few papers showing further applications or extensions.

Readings by Session

List of Readings
LEC #	TOPICS	READINGS
1	Fluctuations. Facts	Required Readings BF. Chapter 1. Stock, J., and M. Watson. "Business Cycle Fluctuations in U.S. Macroeconomic Time Series." Chapter 1 in Handbook of Macroeconomics. Vol 1A. Edited by J. Taylor and M. Woodford. Amsterdam; New York: North Holland, 1999. ISBN: 0444501568. (PDF - 2.2 MB) Stock, J., and M. Watson. "Vector Autoregressions." JEP 15, no. 4 (Fall 2001): 101-115. Recommended Readings CW. Chapter 1. Stock, J., and M. Watson. "Variable Trends in Economic Time Series." JEP 2, no. 3 (Summer 1988): 147-174. Abraham, K., and J. Haltiwanger. "Real Wages and the Business Cycle." JEL 33, no. 3 (September 1995): 1215-1264. Christiano, L., M. Eichenbaum, and C. Evans. "Monetary Policy Shocks: What have We Learned and to what End?" Handbook of Macroeconomics. Edited by J. Taylor and M. Woodford. vol. 1A. Amsterdam, Netherlands, New York, NY, North Holland, Netherlands: Elsevier, 1999, pp. 65-148. ISBN: 0444501568. (PDF - 1.9 MB)
2	The Basic Model. The Consumption/Saving Choice	Required Readings BF. Chapter 2 and Section 6-2. LS. Chapters 2 and 3. Recommended Readings OR. Chapters 1 and 2. Campbell, J. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model." JME 33 (June 1994): 463-506. Uhlig, H. "A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily." mimeo Tilburg, 1997 (PDF) Philippon, T., and R. Segura-Cayuela. "Everything You Always Wanted to Know about RBCs but were Afraid to Ask." mimeo MIT, April 2003. (PDF)
3	Allowing for a Labor/Leisure Choice (The RBC model)	Required Readings BF. Chapter 7. King, R., and S. Rebelo. "Resuscitating Real Business Cycles." Chapter 14 in Handbook of Macroeconomics. Vol. 1B. Edited by J. Taylor and M. Woodford. Amsterdam, Netherlands, New York, NY, North Holland, Netherlands: Elsevier, 1999, pp. 927-1007. ISBN: 0444501576. (PDF - 10.3 MB) Recommended Readings Prescott, E. C. "Theory Ahead of Business Cycle Measurement." Quarterly Review 10, no. 4 (Fall 1986): 9-22. (Federal Reserve Bank of Minneapolis.) (PDF - 1.3 MB) "Finn Kydland and Edward Prescott’s Contribution to Dynamic Macroeconomics." Advance Information on the Bank of Sweden Prize in Economic Sciences, 2004. (PDF) Gali, J., and P. Rabanal. "Technology shocks and aggregate fluctuations: How well does the RBC Model Fit Postwar U.S. Data?" NBER Macroeconomics Annual (2004). (PDF - 1.1 MB) Basu, S., and J. Fernald. "Why is Productivity Procyclical? Why Do We Care?" NBER W7940 (October 2000). (PDF) Jorgenson, D., and K. Stiroh. "Raising the Speed Limit: U.S. Economic Growth in the Information Age." BPEA (2000-1): 125-235. Aghion, P., and P. Howitt. "Growth and Cycles." Chapter 8 in Endogenous Growth Theory. Cambridge, MA: MIT Press, 1997. ISBN 0262011662. Shleifer, A. "Implementation Cycles." JPE 94, no. 6 (December 1986): 1163-1190. Gabaix, X. "The Granular Origins of Aggregate Fluctuations." mimeo MIT, 2005. (PDF)
4	Allowing for Non-trivial Investment Decisions	Required Readings BF. Sections 2-4, 5-1, 5-2, and 6-3. Recommended Readings Shiller, R. Irrational Exuberance. Princeton, NJ: Princeton University Press, 2000. ISBN: 0691050627. Blanchard, O., C. Rhee, and L. Summers. "The Stock Market, Profit, and Investment." QJE 108, no. 1 (February 1993): 115-136.
5	Allowing for Two Goods	Required Readings Obstfeld, M., and K. Rogoff. "The Intertemporal Approach to the Current Account.'' Chapter 34 in Handbook of International Economics. Vol. 3. Edited by G. Grossman and K. Rogoff. pp. 1731-1799. ISBN: 0444815473. Recommended Readings OR, Chapter 4. Obstfeld, M. and K. Rogoff. "The Unsustainable U.S. Currrent Account Position Revisited." NBER WP 10869 (October 2004). Blanchard, O., F. Giavazzi, and F. Sa. "The U.S. Current Account and the Dollar." BPEA (2005). (Forthcoming) (PDF)
6	Introducing Money	Required Readings BF. Sections 4.3-4.7, and 10.2. Recommended Readings CW. Chapters 2-4. Woodford, M. "Price Level Determination under Interest Rate Rules." Chapter 2-1. Dornbusch, R., Sturzenegger, F., and H. Wolf. "Extreme Inflation: Dynamics and Stabilization." Brookings Papers on Economic Activity 2 (1990): 1-84.
7	Introducing Price Setting	Required Readings Blanchard, O. "Why Does Money Affect Output? A Survey." In Handbook of Monetary Economics. Edited by B. Friedman and F. Hahn. Amsterdam, Netherlands, New York, NY, North Holland, Netherlands: Elsevier, 1990, pp. 779-835. ISBN: 0444880275. (Set) BF. Sections 8-1, 11-4. Woodford, M. "Optimizing Models with Nominal Rigidities. A Basic Sticky-Price Model." Chapter 3-1.
8	The "New Keynesian" Model	Required Readings BF. Chapter 8-2, 8-3. CW. Chapters 5-3, 5-4. Recommended Readings Woodford, M. "Optimizing Models with Nominal Rigidities. Inflation Dynamics with Staggered Price Setting." Chapter 3-2. King, R. "The New IS-LM model: Language, Logic, and Limits." Economic Quarterly 86, no. 3 (Summer 2000): 45-103. (Federal Reserve Bank of Richmond.) Mankiw G., and R. Reis. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve." QJE 117, no. 4 (November 2002): 1295-1328. Blanchard, O., and J. Gali. "A Suggested Modification to the New Keynesian Model." mimeo, March 2005. (PDF) Tobin, J. "Keynesian Models of Recession and Depression." AER 65, no. 2 (May 1975): 195-202.
9	Monetary Policy	Required Readings Clarida, R., J. Gali, and M. Gertler. "The Science of Monetary Policy: A New Keynesian Perspective." JEL (December 1999): 1661-1707. (PDF) Recommended Readings Woodford, M. "A Neo-Wicksellian Framework for the Analysis of Monetary Policy." Chapter 4-1 and 4-2. Gali, J. "New Perspectives on Monetary Policy, Inflation, and the Business Cycle." NBER WP 8767 (February 2002) (PDF) King, M. "What has Inflation Targeting Achieved." In The Inflation Targeting Debate. B. Bernanke and M. Woodford, "Inflation Targeting." Chicago, IL: NBER and U. of Chicago Press, 2005. ISBN: 0226044718. Bernanke, B., V. Reinhart, and B. Sack. "Monetary Policy Alternatives at the Zero Bound. An Empirical Assessment." BPEA 1 (2004). (PDF - 1.5 MB) Svensson, L. "Escaping from a Liquidity Trap and Deflation; The Foolproof Way and Others." NBER WP 10195 (December 2003).
10	Fiscal Policy	Required Readings Gali, J., J. Lopez-Salido, and J. Valles. "Understanding the Effects of Government Spending on Consumption." mimeo, September 2003. (PDF) Recommended Readings Chari, V. V., and P. Kehoe. "Optimal Fiscal and Monetary Policy." Fed of Minneapolis, Staff Report 251, July 1998. (PDF) Baxter, M., and R. King. "Fiscal Policy in General Equilibrium." AER (June 1993): 315-334 Blanchard, O., and R. Perotti. "An Empirical Characterization of the Dynamic Effects of Government Spending and Taxes on Output. QJE 117, no. 4 (2002): 1329-1368. (PDF) Giavazzi, F., and M. Pagano. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience." NBER W5332 (October 1996). (PDF)

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