Академический Документы
Профессиональный Документы
Культура Документы
Macroeconomics 2
Introduction & Lecture 1
Cristiano Cantore
February 5, 2013
Course Organization
Contact time:
Lectures:
Tuesday, 15:00-17:00 LTD
Class:
Thursday, 10:00-11:00 (Group 1),
11:00-12:00 (Group 2), 13:00-14:00 (Group 3)
Assessment
Coursework:
mid-term on Tuesday 12th of March, Week 6
Exam:
2 hours, during the summer term
Final mark:
30% coursework mark
70% exam mark
Reading
Textbook:
Srensen, Peter Birch and Hans Jrgen Whitta-Jacobsen
(2005): Introducing Advanced Macroeconomics: Growth
and Business Cycles, McGraw-Hill. (SWJ)
Supplementary readings:
Romer, David (2006): Advanced Macroeconomics, 3rd
Edition, McGraw-Hill.
Journal articles as indicated.
Module Prerequisites
This is an Advanced Module and requires hard and
weekly work.
If you dont feel comfortable with algebra, logs, derivatives
and the chain rule I suggest you to revise them soon.
Lectures and tutorial attendance is strongly recommended.
I will provide weekly exercises for you to practice on
lectures material plus a set of exercises to be solved every
two weeks in the tutorials. You are expected to work on
those before solution will be posted!
I encourage you to work in groups on the exercises!
Agenda I
Agenda II
Consumption
Investment
Historical perspective
*Blanchard (2000), QJE
*Blanchard (2008), NBER
Stylized facts
Motivation
United States: Real GDP per Working-Age Person
12.499
800
index (1900=100)
11.499
400
10.499
200
100
9.499
50
8.499
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
year
2000
Motivation
Historical Perspective
Development of Modern Macroeconomics
Possible to identify three broad periods for
macroeconomics:
1
1. Pre-1940
The word Macroeconomics appeared for the first time in 1941!
Two largely unconnected strands of thought:
1
100
Germany
France
90
United States
80
70
Canada
60
50
1928
1930
1932
1934
1936
1938
2. 1940-1980 I
L (Y, i)
C (Y T ) + I (r) + G
Conceptual issues:
Classical dichotomy
Walras Law
Loanable funds vs. liquidity preference
2. 1940-1980 II
3
Dynamics:
central to the further development of the consumption
function - saving decision is intertemporal
paved the way to help model the business cycle (as opposed
to describe it)
2. 1940-1980 III
More Generally...
Move away from static ad-hoc/descriptive models to
dynamic optimizing models with shocks and rational
agents
Shift away from qualitative to quantitative analysis
Example: explain by how much the interest rate changes
and not just whether the interest rate falls when the money
supply rises
Unresolved Issues
Basic Problem: Keynesian models postulated that the
nominal wage was rigid; there was no reason to assume
this, i.e., no justification other than casual observation.
More generally, the careful analysis of savings and
investment didnt match with the ad-hoc approach to the
labor market.
With the introduction of rational expectations, there was a
split:
New Classicals wanted to know how much they could
achieve without market imperfections.
Keynesians thought rigidities were the right way to go.
Why 1940-1980?
3. Post-1980
Two major issues were dealt with:
Why does money affect output, and what role do nominal
rigidities play?
What are the major shocks that affect output, and what is
the propagation mechanism?
Figure
20.7: The
volatility of real GDP in the United States,
The
Great
Moderation
195898
Source: Bureau of Economic Analysis. The time series for real GDP has been detrended by HP filtering.
Slide 1/9
Table 1
Changes in Volatility of Four-Quarter Growth of Real GDP per Capita
in the G7, 1960 1983 and 1984 2002.
Standard
deviation,
1960 1983
2.3
1.8
2.5
3.0
3.7
2.4
2.7
Standard
deviation,
1984 2002
2.2
1.4
1.5
1.3
2.2
1.7
1.7
variance 84-02
variance 60-83
.96
.71
.60
.43
.59
.71
.63
.91
.51
.36
.19
.35
.50
.40
Notes: Entries in the first two columns are the standard deviations of the four-quarter growth in GDP over
the indicated time periods. The third column contains the ratio of standard deviation in the second column
Figure:
Changes
in column
the presents
volatility
ofof 4Q
growth
(real
inof G7
to that in
the first; the final
the square
this ratio,
which is the
ratio of GDP)
the variances
four-quarter
GDP growthStock
in the twoand
periods.Watson
Data sources (2003).
are given in the Data Appendix
countries.
Source:
The estimates in
in Table
1 use the
1984 date of
volatility
shift innow
the US,than
but this in
Fluctuations
output
appear
tothebe
smaller
date
or
the
single-break
model
might
not
be
appropriate
for
other
countries.
In
addition,
the past.
the standard deviations in Table 1 might confound changes in the trend growth rate of
The
variance
ofwith
four-quarter
GDP
growth in
G7Germany,
countries
output in
these countries
changes in business
cycle fluctuations.
In fact,
France,
Italy, andby
Japan
grew to
much80%.
more rapidly in the 1960s, when postwar
has
fallen
50%
Question: Is the Great Moderation the result of good
The literature on the great moderation has grown rapidly. Blanchard and Simon (2001) and Stock and
Watson (2002) or
survey
studies using
US data. Studies using international data include Dalsgaard, Elmeskov
policies
good
luck?
2
and Park (2002), Del Negro and Otrok (2003), Doyle and Faust (2002a), van Dijk, Osborn, and Sensier
Taking Stock
Things to Remember
The 1930s: depression (and deflation)
The 1970s: inflation (and recession)
Post 1990s: moderation
Now, More Formal Approach
Business cycles
Time-series approach
Stylized facts
Business Cycles
Business Cycles
If we are interested in the business cycle, then we are
interested in time-series.
Most important example - behaviour of GDP:
trend growth
fluctuations around this trend
Yt = Ytg Ytc
yt = gt + ct
Business Cycles
Real GDP - quarterly data
8
7.8
7.6
7.4
7.2
6.8
6.6
20
40
60
80
100
120
140
Figure: HP filter.
160
180
200
Business Cycles
Real GDP and trend - lam=1600
8
trend
data
7.8
7.6
7.4
7.2
6.8
6.6
20
40
60
80
100
120
140
Figure: HP filter.
160
180
200
Business Cycles
Deviations of real GDP from trend - quarterly data, lam=1600
0.04
0.03
0.02
0.01
-0.01
-0.02
-0.03
-0.04
-0.05
20
40
60
80
100
120
140
Figure: HP filter.
160
180
200
Terminology
When GDP at its highest point above trend, in a given
period, it is at its peak.
When GDP is at its lowest point below trend, in a given
period, it is at its trough.
The length of time between two subsequent peaks is the
business cycle.
peak to trough phase: recession (contraction)
trough to peak phase: boom (expansion)
Terminology
Deviations of real GDP from trend - quarterly data, lam=1600
0.04
0.03
0.02
0.01
-0.01
-0.02
-0.03
-0.04
-0.05
20
40
60
80
100
120
140
160
180
200
Terminology
Other Variables - Correlation
If corr (x, y) > 0, then x and y move in the same direction.
If y is GDP, then we say x is procyclical.
If corr (x, y) < 0, then x and and y move in opposite
directions, and x is countercyclical.
If corr (x, y) ' 0, then x and y are independent, and x is
acyclical.
Finally, corr (x, y) (1, 1). The larger the absolute
value, the more synchronized the variables are.
AR(1) Process I
Suppose we want to build a model of the economy based on
the behaviour of GDP.
Two questions:
1
2
AR(1) Process II
Equation (1) is referred to as an autoregressive process of
order one.
Order one reflects there being one lagged term.
This is our first real model. Why? For some given level of
GDP, y1 , we can figure out y0 , y1 , y2 etc.
We know this model isnt the best, but if we graph
equation (1), we get something that looks like what we see
in the data.
That makes figuring out Dt and very important.
1.04
1.03
1.02
1.01
0.99
0.98
0.97
20
40
60
80
100
120
rho = 0.95
1.005
1.004
1.003
1.002
1.001
20
40
60
80
100
120
Structural Interpretation
The Dt s and the s
There is a follow-up problem; say we believe that our
model is a good one.
Where do the Dt s come from? Example: A contraction
in the money supply (i.e., contractionary monetary policy)
could make Dt < 0.
Where does come from? Example: can be high if
labor market institutions are rigid.
yt
t
=
11 12
21 22
yt1
t1
+
Dt
St
,
(2)
GAL^
I ~ C H I W L O G YLMPLOYMElVT,
,
AND THE BU5f1VE,SS C YC%L
NonteehnologyShock
Technology Shoek
- - - - - - --
261
-
F I C ~ ~2.J R ESTIMATED
E
I M P ~ J RESPONSES
LS~
FROM A BIVAKIA~L;
MODEL.:
U.S. DATA,FIKSI.-~)II:P~R~N(:ED
HOIJKS
(POINT
EIIKOK
CONFII)~NCE
INTERVALS)
ES'r1~A'rb.sA N D 2 2 S'I'ANDAKI)
Figure: Source:
Gali (1999).
bivariate model: a positive technology shock
Table 2 displays the corresponding estimates of the productivity-labor input correlations conditional on each type of shock. As
before, I report results using both An, and ii,
in the estimated VAR. The estimates largely
confirm the results from the bivariate model:
technology shocks induce a high, statistically
significant negative correlation between productivity and hours (or employment), whereas
the (composite) nontechnology component of
the same variables shows a positive correlation
(also significant in three out of the four
specifications).
Figure 4 displays the responses of a number
of variables to a technology ,\hock. The pattern
of responses of productivity, output, and employment is very similar to that obtained in the
Figure:Sources:
Business
cycle statistics.
Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Bank of St. Louis.
Slide 1/17
Business
Statistics correlations, leads and
TableCycle
14.3a: Macroeconomic
lags in the United Kingdom and the United States
Note: Based on quarterly data from 1947Q1 to 2003Q4. 24 end-point observations excluded.
Slide 1/23
Outlook