Reed College
Reed College

Economics 314

Macroeconomic Theory
Spring 2020
Jeffrey Parker, Reed College
Course Outline and Reading List

NOTE: There may be updates to the reading list during the semester. Keep looking at this page regularly as we proceed rather than printing out today's version and using it all semester.

The dates on the reading list are noisy forecasts. Actual progress through the course material will probably vary from this prediction; updates will be announces in class.

For the most part, only required readings are shown here; required readings are shown with a bold author (or, in the case of the coursebook, title). Many sections of the Burda and Wyplosz text are only for background. If you understand the Romer chapter adequately, you don't need to read them.

The Burda and Wyplosz text is on reserve in the Reed Library. Other readings are either linked electronically from this page or are on print reserve.

Table of Contents

1. Introduction to Macroeconomics
2. Economic Growth
3. Business Cycles
4. Theories of the Short-Run Economy
5. Unemployment
6. Microfoundations of Investment
7. Macroeconomic Policy (probably not covered)

1. Introduction to Macroeconomics 

The nature of macroeconomics. Macroeconomic models. Definitions of major macroeconomic variables. Issues in the measurement of national income and product, prices and inflation. The outlines of traditional models such as the quantity theory, IS/LM, and aggregate supply and demand as an interpretive device for understanding macroeconomic theory.

A. What Macroeconomics Is

 January 27

  • Coursebook, Chapter 1.
  • Mankiw, N. Gregory, "The Macroeconomist as Scientist and Engineer," Journal of Economic Perspectives 20(4), October 2006, 29-46.
  • Romer, David, Advanced Macroeconomics, 5th ed., (New York: McGraw-Hill, 2019), Introduction. (Hereafter, "Romer.")
  • Burda, Michael, and Charles Wyplosz, Macroeconomics: A European Text, 7th ed., (Oxford: Oxford University Press, 2009), Chapters 1 and 2. (Hereafter, "Burda and Wyplosz.")
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2. Economic Growth

The long-run behavior of macroeconomies. Growth in real output. Roles of capital accumulation and technological progress in sustaining economic growth.

A. Solow's Neoclassical Growth Model

January 29 - 31

  • Coursebook, Chapter 2.
  • Burda and Wyplosz, Chapter 3. (This reading is for background only; read it if you have trouble with the Romer chapter.)
  • Romer, Chapter 1.

B. Optimal Consumer Behavior and Growth Theory

February 3 - 13

  • Coursebook, Chapter 3.
  • Burda and Wyplosz, Chapter 7. (This gives a simple, intuitive background for the consumption models we discuss in this section.)
  • Romer, Chapter 2, Sections 8.1, and Sections 13.1-13.3.

C. Modern Growth Theory

February 14 - 19

  • Coursebook, Chapter 4.
  • Romer, Chapters 3 and 4.

D. Empirical Evidence on Economic Growth

Febuary 20

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Mid-Term Exam

The mid-term will have both an in-class component and some take-home questions. The in-class component might occur on Friday, February 21.

3. Business Cycles

Properties of business-cycle fluctuations. The real business cycle theory. Keynesian theories of the business cycles.

A. Real-Business-Cycle Theory

February 24 - 26

  • Chatterjee, Satyajit, "From Cycles to Shocks: Progress in Business-Cycle Theory," Federal Reserve Bank of Philadelphia Business Review March-April 2000, 27-37. (A discussion of how business-cycle theory has evolved.) 
  • (Recommended, not required) Stock, James H., and Mark W. Watson, "Business Cycle Fluctuations in U.S. Macroeconomic Time Series," in Handbook of Macroeconomics, Volume 1A, edited by J. B. Taylor and M. Woodford (Amsterdam: Elsevier Science, 1999), 3-65. (An excellent statistical description of U.S. business cycles. Paper is not as long as it looks because there are many pages of pictures.) 
  • Coursebook, Chapter 6.
  • Romer, Chapter 5.
  • Mankiw, N. Gregory, "Real Business Cycles: A New Keynesian Perspective," Journal of Economic Perspectives 3, Summer 1989, 79-99. Reprinted in Snowdon and Vane, A Macroeconomics Reader, pp. 425-36. (A prominent new Keynesian presents the argument against the "real" interpretation of business cycles.)
  • Keane, Michael, and Richard Rogerson, "Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom," Journal of Economic Literature 50(2), June 2012, 464-476. (Is aggregate labor supply really as inelastic as most economists think?)

B. Money, Inflation, Growth, and Business Cycles

February 27 - 28

  • Coursebook, Chapter 7.
  • Burda and Wyplosz, Chapter 6.
  • Walsh, Carl E., Monetary Theory and Policy, 2nd ed., MIT Press, 2003, Chapters 2 and 3. (An optional reading for those wanting more analytical depth on monetary growth models.)

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4. Theories of the Short-Run Economy

Microfoundations of aggregate supply. Why should real output and employment respond to purely nominal changes in aggregate demand? Theories of short-run imperfections. Imperfect information as a mechanism for supply effects. Rigidity of prices. Coordination failures. Empirical evidence.

A. Traditional Keynesian Macro Models

March 2 - 4

B. New Keynesian IS/LM Model

March 5 - 9

  • Romer, Chapter 6, Sections 6.1 - 6.4.
  • Coursebook, Chapter 9.

C. Imperfect-Information Models with Market-Clearing

March 11 - 12

  • Lucas, Robert E., Jr., and Thomas J. Sargent, "After Keynesian Macroeconomics," in After the Phillips Curve: Persistence of High Inflation and High Unemployment, Boston: Federal Reserve Bank of Boston, 1979.
  • Coursebook, Chapter 11.
  • Romer, Chapter 6, Section 6.9. 

D. New Keynesian Aggregate Supply: Imperfect Competition, Rigidities and Coordination Failures

March 13 - 20

  • Romer, Chapter 6, Sections 6.5 - 6.8.
  • Coursebook, Chapter 10.
  • Cooper, Russell, and Andrew John, "Coordinating Coordination Failures in Keynesian Models," Quarterly Journal of Economics 103:3, August 1988, 441-463. Reprinted in N. Gregory Mankiw and David Romer (eds.), New Keynesian Economics (Cambridge, MA: MIT Press, 1991), Volume 2, pp. 3-24. (This paper is the basis of Romer's Section 6.7. Read the first couple of sections.)
  • Ball, Laurence, and David Romer, "Real Rigidities and the Non-Neutrality of Money," Review of Economic Studies 57:2, April 1990, 183-203. Reprinted in N. Gregory Mankiw and David Romer (eds.), New Keynesian Economics (Cambridge, MA: MIT Press, 1991), Volume 1, pp. 59-86. (Optional reading: This paper is the basis of Romer's Section 6.6.)
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E. Dynamic New Keynesian Models

March 30 - April 8

F. Empirical Evidence on Business Cycles

As we have time ...

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5.  Unemployment

Examination of theories about the "natural" or equilibrium rate of unemployment. Evidence about changes in the natural rate and differences across countries. Economic policies that affect natural unemployment.

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6.  Microfoundations of Investment Behavior & Financial Crises

Dynamic production problem of the firm. Theory of the demand for capital. Costly adjustment and the optimal flow of investment. Tobin's q and the relationship between investment spending and asset prices. Financing of investment and the effects of capital-market imperfections. Models of banking and financial crises.

  • Coursebook, Chapter 15.
  • Burda and Wyplosz, Section 8.3. (Background only.)
  • Romer, Chapters 9 and 10.
  • Dixit, Avinash K., and Robert S. Pindyck, Investment under Uncertainty, (Princeton, N.J.: Princeton University Press, 1994), Chapters 1 and 2.
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7. Macroeconomic Policy (unlikely that we'll have time to get to this)

Inflation and monetary policy. Seigniorage and the fiscal impact of inflation. Theories about why countries pursue inflationary policies. Stabilization policy: pros and cons. Government budget constraints, deficits, and debt. Ricardian equivalence. Theories of government budget behavior.

A. Monetary Policy and Inflation

  • Coursebook, Chapter 17.
  • Burda and Wyplosz, Chapters 9 and 16. (Background only.)
  • Romer, Chapter 12.
  • Bernanke, Ben S., and Mark Gertler, "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives 9:4, Fall 1995, 27-48. 
  • Romer, Christina D., and David H. Romer, "What Ends Recessions?" NBER Macroeconomics Annual 9, 1994, 13-79. (A controversial analysis that suggests that countercyclical monetary policy has been the primary cause of economic stabilization in the postwar United States. Be sure to read Cochrane's comments for some important criticisms of this approach.)

B. Fiscal Policy

  • Coursebook, Chapter 18.
  • Burda and Wyplosz, Chapter 17. (Background only.)
  • Romer, Chapter 13.
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