Macro Economics II

Spring 2019

Jindal School of Government and Public Policy

O.P. Jindal Global University

Course Synopsis
This is the second macro sequence for BA(H) Economics at the School of Government and Public Policy.
We continue the exposition on short run economic activity by formally introducing a baseline model and
gain further insights into the functioning of an economy. By doing so, we look at the first chronological wave
of explanations causing temporary fluctuations in economic activity as represented by GDP. WE gradually
work towards a more realistic depiction of the world by introducing unemployment and examining imperfect
price flexibility in a Keynesian model.
The second part of the course focuses on the role of economic policy in acting as a relief in the short run. We
embed the role of policy makers into our model to understand motivations behind policy and its expected
implications. We conclude our discussion by exploring long run issues with the Solow growth model and
understand forces which define progress through GDP numbers. While the modeling framework is similar,
we now focus on explanations such as population growth, technological advancement to understand capital
accumulation.

Class Timing
Friday 4:30 pm – 07:30 pm, Class Room 42

Instructors and Office Hours

Instructor Nikhil Damodaran
URL https://sites.google.com/site/nikhildamodaran/home
Prefered Contact ndamodaran@jgu.edu.in
Office Hours Wednesday 1:30 pm – 3:30 pm or by appointment
Cabin #6, T4, Academic Block, OP Jindal Global University

Instructor Manas Pathak

Prefered Contact mpathak@jgu.edu.in
Office Hours Thursday 3:30 pm – 4:30 pm or by appointment

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Readings
Lecture Notes A synthesis of our topic of interest, drawing from various sources. These would
be posted on the course web page.
Webpage https://sites.google.com/site/nikhildamodaran/teaching/
macroeconomics-ii

Required Textbook Macroeconomics

Andrew B. Abel , Ben Bernanke, Dean Croushore
Pearson; 8th ed. 2015 edition (11 March 2014)
ISBN-13: 978-0-13-299228-2

General Readings Livemint, Financial Express, The Economic Times, The Economist, Bloomberg
Businessweek, Vox (CEPR)

Assessment

Examinations Mid Semester Exam 30%

End Semester Examination 50%
Class Participation and Homework Assignments 20%

Missed excusable reasons
Require prior or immediate communication with the instructor,
cc-ed to the academic dean and the vice dean of the school. The
percentage grade would be proxied with the percentage grade
obtained in the remainder of the course, only to be assessed at
the end of the semester

Course Contents
1. Classical Business Cycle Models
 ABC, Chapter 10: The basic dynamic model, steady state analysis, implications for short run
economic activity and the distinctive theoretical and empirical features of the model.
 Plosser, C. I. (1989). Understanding real business cycles. Journal of Economic Perspectives, 3(3),
51-77.
 Hansen, L. P., & Heckman, J. J. (1996). The empirical foundations of calibration. Journal of
economic perspectives, 10(1), 87-104.
• King, R. G., & Rebelo, S. T. (1999). Resuscitating real business cycles. Handbook of macroeco-
nomics, 1, 927-1007.
• Campbell, J. Y. (1994). Inspecting the mechanism: An analytical approach to the stochastic
growth model. Journal of Monetary Economics, 33(3), 463-506.
• Long Jr, J. B., & Plosser, C. I. (1983). Real business cycles. Journal of political Economy, 91(1),
39-69.
• Lucas, R. E. (1995). Understanding business cycles. In Essential readings in economics (pp.
306-327). Palgrave, London.

2. Keynesian Business Cycle Models

 ABC, Chapter 11: Relaxing assumptions of the classical RBC model, wage rigidity in labor
markets, price rigidity and monopolistic competition.
 Mankiw, N. G. (1989). Real business cycles: A new Keynesian perspective. Journal of economic
perspectives, 3(3), 79-90.

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 • King, R. G. (1993). Will the new Keynesian macroeconomics resurrect the IS-LM model?. Journal
of Economic Perspectives, 7(1), 67-82.
• Romer, D. (1993). The new Keynesian synthesis. Journal of economic perspectives, 7(1), 5-22.
• Ball, L., & Mankiw, N. G. (1994, December). A sticky-price manifesto. In Carnegie-Rochester
Conference Series on Public Policy (Vol. 41, pp. 127-151). North-Holland.

3. Unemployment and Inflation

 ABC Chapter 12: unemployment and inflation trade off, the phillips cure, natural rate of unem-
ployment,
 Blanchard, O. (2009). Macroeconomics 5th Edition Pearson Education Inc., Chapter 7 and 8
(selected portions)
• Tobin, J. (1972). Inflation and Unemployment. American Economic Review, 62(1), 1-18.
 Friedman, M. (1977). Nobel lecture: inflation and unemployment. Journal of political economy,
85(3), 451-472.
• Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over
time. Economica, 254-281.
• Blanchard, O., & Katz, L. F. (1997). What we know and do not know about the natural rate of
unemployment. Journal of Economic Perspectives, 11(1), 51-72.
4. Monetary Policy and RBI

 ABC, Chapter 14: Implications of interest rate rules in business cycle models, mechanisms of
monetary policy transmission, RBI and its operations, RBI’s balance sheet and monetary policy.
 Blanchard, O. (2009). Macroeconomics 5th Edition Pearson Education Inc., Chapter 23 (selected
portions)
 Bernanke, B. S., & Gertler, M. (1995). Inside the black box: the credit channel of monetary
policy transmission. Journal of Economic perspectives, 9(4), 27-48.
 Gali, J., & Gertler, M. (2007). Macroeconomic modeling for monetary policy evaluation. Journal
of economic perspectives, 21(4), 25-46.
 Friedman, M. (1995). The role of monetary policy. In Essential Readings in Economics (pp.
215-231). Palgrave, London.
• Clarida, R., Gali, J., & Gertler, M. (2000). Monetary policy rules and macroeconomic stability:
evidence and some theory. The Quarterly journal of economics, 115(1), 147-180.
• Barro, R. J., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary
policy. Journal of monetary economics, 12(1), 101-121.
5. Fiscal Policy

 ABC, Chapter 15: Government in RBC models, Government debts, and tax policies in the short
run.
 Blanchard, O. (2009). Macroeconomics 5th Edition Pearson Education Inc., Chapter 22 (selected
portions)
 Baxter, M., & King, R. G. (1993). Fiscal policy in general equilibrium. The American Economic
Review, 315-334.
• Barro, R. J. (1990). Government spending in a simple model of endogeneous growth. Journal of
political economy, 98(5, Part 2), S103-S125.
 Blanchard, O., & Perotti, R. (2002). An empirical characterization of the dynamic effects of
changes in government spending and taxes on output. the Quarterly Journal of economics, 117(4),
1329-1368.

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 • Barro, R. J. (1974). Are government bonds net wealth?. Journal of political economy, 82(6),
1095-1117.
• Blanchard, O. J. (1985). Debt, deficits, and finite horizons. Journal of political economy, 93(2),
223-247.
6. Introduction to Economic Growth: Solow Model
 ABC Chapter 6: Comparing short run and long run stylized facts, compare RBC and long run
concerns, model, empirical application and growth accounting.
 Solow, R. M. (1957). Technical change and the aggregate production function. The review of
Economics and Statistics, 39(3), 312-320.
• Jones, C. I. (1997). On the evolution of the world income distribution. journal of Economic
Perspectives, 11(3), 19-36.
 Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of
economics, 70(1), 65-94.
 Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic
growth. The quarterly journal of economics, 107(2), 407-437.
• Romer, P. M. (1994). The origins of endogenous growth. Journal of Economic perspectives, 8(1),
3-22.
• Hall, R. E., & Jones, C. I. (1999). Why do some countries produce so much more output per
worker than others?. The quarterly journal of economics, 114(1), 83-116.
• Zhu, X. (2012). Understanding China’s growth: Past, present, and future. Journal of Economic
Perspectives, 26(4), 103-24.
• Solow, R. M. (1994). Perspectives on growth theory. Journal of economic perspectives, 8(1),
45-54.

Additional Topics (if time permits)

7. Infinite Horizon and Overlapping Generations Model

 Romer, D. (2011). Advanced Macroeconomics, volume 1. McGraw-Hill Education, 4th edition.
Chapter 2
• Diamond, P. A. (1965). National debt in a neoclassical growth model. The American Economic
Review, 55(5), 1126-1150.
• Blanchard, O. J. and Fischer, S. (1989). Lectures on Macroeconomics. MIT press. chapter 3
• Galor, O. (1996). Convergence? Inferences from theoretical models. The Economic Journal,
1056-1069.
8. Labor Market: A Search Perspective
• Rogerson, R., Shimer, R., & Wright, R. (2005). Search-theoretic models of the labor market: A
survey. Journal of economic literature, 43(4), 959-988.
• McCall, J. J. (1970). Economics of information and job search. The Quarterly Journal of Eco-
nomics, 113-126.
• Mortensen, D. T. (1970). Job search, the duration of unemployment, and the Phillips curve. The
American Economic Review, 60(5), 847-862.
• Daly, M. C., Hobijn, B., ahin, A., & Valletta, R. G. (2012). A search and matching approach to
labor markets: Did the natural rate of unemployment rise?. Journal of Economic Perspectives,
26(3), 3-26.

Updated: 2019/02/08at 10:39:47