Course title: Macroeconomics I
Number of credits: 4
Type of course: Core
Course scheduling: Monsoon Semester
Number of lecture hours: 40 (approximately)
Evaluation: Mid semester: 50%; End semester: 50%
Course Instructors: Gurbachan Singh

The main textbook is

Romer, David, (2006) Advanced Macroeconomics, third edition, McGraw-Hill Irwin.

Besides this book, the readings include some papers in journals, and some sections from other books. These are specified alongside the topic for which these are needed.

IS-LM Model, Keynes vis-à-vis Classics, Mundell-Fleming Model, Phillips Curve

Chapter 5 in *.

Concepts: comparative statics, stabilization policy, static exchange rate expectations, overshooting, interest rate parity, perfect and imperfect capital mobility, sterilization, wage-price rigidity, involuntary unemployment, expectations-augmented Phillips curve, core inflation, cyclical behaviour of the real wage.

Keynes and Keynesians, and revival of classical school

Clower, R.W. (1965), (a) Keynes and the Classics: A Dynamical Perspective , (b) The Keynesian Counterrevolution: A theoretical appraisal, (c) A Reconsideration of the Microfoundations of Monetary Theory, in Money and Markets – Essays by Robert W. Clower, edited by Donald A. Walker, Cambridge University Press.

Friedman, Milton (1968), The role of monetary policy, American Economic Review, 58, March, 1-17.

Patinkin, Money, Interest and Prices, chapters 9 and 10 (parts on dichotomy and neutrality, and market rate of interest vis-à-vis natural rate of interest).

Malinvaud, Edmond, 1977, The Theory of Unemployment Reconsidered, Basil Blackwell (reprinted in 1978) – the Keynesian unemployment case.

Blanchard, O.J., and S. Fischer, Lectures on Macroeconomics, Eastern Economy Edition, Prentice Hall, 2000, section 4.2, p. 1164-166.

Leijonhufvud, Keynes and Keynesians: A Suggested Interpretation.  

Concepts and issues: notional and constrained functions, equilibrium and disequilibrium, market clearing and non-market clearing, deviation amplifying process, dual decision hypothesis, (absence of) Walrasian auctioneer, budget constraint and cash in advance constraint, Pre-cautionary demand for money and cash in advance constraint, natural rate of unemployment, fine tuning, adaptive expectations and rational expectations, short-side rule, natural rate of interest, dichotomy and neutrality, adjustment through prices and quantities, rationing, stability of demand for money, stability of supply of money, Keynes theory as special case or as general case.

New Classical Economics

Part A of chapter 6 in *.

Concepts: Imperfect information, certainty equivalence behaviour, bivariate normal distribution, rational expectations, Lucas supply curve, random walk with drift, white noise, Lucas Critique, anticipated and unanticipated money.

New Keynesian Economics

Fischer, Stanley (1977) Long-term contracts, rational expectations, and the optimal money supply rule, Journal of Political Economy, 85, 191-206,
and section 6.7 in *.

Concepts: long term and short term wage contracts, rational expectations, optimal money supply rule, coordination failures, reaction function, sunspots, unique equilibrium and multiple equilibria, fragile equilibrium.

Consumption

Sections 7.1, 7.2, 7.4, 7.5 and 7.6 in *

Concepts and issues:  Life cycle, permanent-Income, random walk and consumption, interest rate and saving, home bias, consumption CAPM, consumption beta, equity premium, precautionary saving, third derivative of utility function, and liquidity constraints.

Investment

Sections 8.1 and 8.9 in *, and Blanchard, O.J. and Fischer, Stanley (1989) Lectures on Macroeconomics, Cambridge: MIT Press (section 5.1, p. 213-224, and section 9.6, p. 478-487)

Concepts: Asymmetric information, financial market imperfections, costly state verification, credit rationing, arbitrage, law of iterated expectations, fundamental solution, bubble.

Unemployment

Chapter 9 in *

Concepts: efficiency wage, implicit contracts, insiders and outsiders, and hysteresis.

Inflation and Monetary Policy

Sections 10.1, 10.2, 10.3, 10.4, 10.5, 10.8, 10.9 in *

Concepts: Fisher effect, liquidity effect, term structure of interest rates, expectations theory of the term structure, term premium, dynamic inconsistency, sub-game perfect, reputation, delegation, central bank independence, inflation targeting, seignorage, inflation-tax Laffer curve, hyperinflation, costs and benefits of inflation, steady inflation and variable inflation, deflation.

Budget deficits and fiscal policy

Chapter 11 in *, except sections 11.6 and 11.8.

Concepts and issues: The government inter-temporal budget constraint, primary deficit, some measurement issues, Ricardian Equivalence, tax smoothing, deficit bias in fiscal policy, delayed stabilization, effects of sustainable and non-sustainable deficits,  and debt crises.

Macroeconomics in practice

A case study of the Great Depression in 1930s, and the East Asian Crises (1997-98)

Romer, C., The Great Depression, Journal of Economic Perspectives.

Mishkin, Frederic S., (1999) Global Financial Instability: Framework, Events, Issues, Journal of Economic Perspectives, vol. 13, No. 4, p. 3-20

Bordo, M.D., and A.J. Schwartz (1999) Monetary Policy Regimes and Economic Performance: The Historical Record, in Handbook of Macroeconomics (ed.), John B. Taylor and Michael Woodford, vol. 1A, Elsevier. (supplementary reading)