Economics 510A


Part I: Robert Shiller

Fall, 2003, Mon & Wed 10:30–11:50, Room B8, 28 Hillhouse

Robert Shiller
30 Hillhouse Ave., Room 23a, 432-3708

Administrative Assistant:, 432-3726, 30 Hillhouse Ave., Room 11a

Economics 510a is the first semester of the macroeconomic theory sequence for economics Ph.D. students.

Textbook: Romer, David, Advanced Macroeconomics, 2nd Ed., McGraw Hill, New York, 2001.

Xeroxed packet: available from Audubon Copy, 48 Whitney Ave., 865-3115 (call in advance).

On reserve at SSL:
Blanchard, Olivier J., and Fischer, Stanley, Lectures on Macroeconomics, M. I. T. Press, Cambridge MA, 1989.
Robert Barro and and Xavier Sala-i-Martin, Economic Growth, McGraw Hill, 1995.

Outline of Part I (First Half of Semester)

I.  Macroeconomic Phenomena: Stylized Facts and Objectives, History of Thought Lecture 1, September 3
II.  Inflation and Unemployment Lecture 2, September 8
III.  Growth Models Lecture 3, and 4, September 10 and 12
IV.  Overlapping Generations Models Lectures 5 and 6, September 15 and 17
V.  Some Alternative Paradigms in Macroeconomics
A. Keynes - IS-LM Mundell-Fleming - Overshooting Lecture 7, September 19
B. Macroeconometric Models Lecture 8, September 29
C. Rational Expectations Lecture 9, October 1
D. Staggered Wage Setting, Sticky Prices and New Keynesian Economics Lecture 10, October 6
E. Efficiency Wage Theory Lecture 11, October 8
IV.  Midterm Exam October 13, Review Exam October 15

*Required readings, in xeroxed packet or in the required textbook

I.  Introduction, History of Thought, Macroeconomic Phenomena
*Romer, Introduction
*Colander, David, "Conversations with James Tobin and Robert Shiller on the 'Yale Tradition' in Macroeconomics," Macroeconomic Dynamics, 3(1):116–143, March 1999
*Kydland, Finn E., and Edward C. Prescott, "Business Cycles: Real Facts and a Monetary Myth," Federal Reserve Bank of Minneapolis Quarterly Review, 14: 3–17, Spring 1990
Blanchard and Fischer, Chapter 1
Barro and Sala-i-Martin, Chapter 10
Campbell, John Y., and N. Gregory Mankiw, "Permanent and Transitory Components of Macroeconomic Fluctuations," American Economic Review, May 1987, 111–117.
Nordhaus, William D., "Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not," in Timothy F. Breshahan and Robert J., Gordon, editors, The Economics of New Goods, Volume 58, 1997, Cowles Foundation Paper #957, 1998
Delong, J. Bradford, and Lawrence H. Summers, "The Changing Cyclical Variability of Economic Activity in the United States," in R. Gordon, Ed., The American Business Cycle: Continuity and Change, NBER, Chicago, 1986
Lilien, David M., "Sectoral Shifts and Cyclical Employment," Journal of Political Economy, 90(3):  777–793, Aug. 1982.
Pigou, Arthur C., Industrial Fluctuations, 2nd Ed., 1929, Chapter I, "The General Characteristics of Industrial Fluctuations in pp. 7–17 and Chapter XXII, "The Comparative Importance of Various Factors in Determining the Amplitude of Industrial Fluctuations," pp. 207–26
Shiller, Robert J., "Ultimate Sources of Aggregate Variability," American Economic Review, May 1987.
Sims, Christopher, "Macroeconomics and Reality," Econometrica, 48(1), January, 1980.
Solow, Robert, Growth Theory: An Exposition, Oxford University Press, 1970, Chapter 1, "Characteristics of Steady States"
Tobin, James, "Macroeconomics," Essays in Economics I, vii–xiv
II.  Inflation and Unemployment
*Akerlof, George A., and Robert J. Shiller, "Introduction and Survey," from George A. Akerlof and Robert J. Shiller, Behavioral Macroeconomics, 2004.
*Fisher, Irving, The Money Illusion, Adelphi Company, New York, 1928, pp. 3–18
*Bewley, Truman, "A Depressed Labor Market as Explained by Participants," American Economic Review, 85: 250–254, 1995.
*Fuhrer, Jeffrey C., "The Phillips Curve is Alive and Well," New England Economic Review, March/April, 1995, 41–56
*Shiller, Robert J., "Why Do People Dislike Inflation?" in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy, National Bureau of Economic Research and University of Chicago Press, 1997, pp. 13–69. (Also, at Shiller Home Page
*Shafir, Eldar, Peter Diamond, and Amos Tversky, "Money Illusion," Quarterly Journal of Economics, 112(2): 341–374, May 1997.
Phillips, A.W., "The Relation between Unemployment and the Rate of Change of Money Wages in the United Kingdom," Economica, 25: 283–299, 1958.
Moscarini, Giuseppe, "Excess Worker Reallocation," Review of Economic Studies, 2002,
Mankiw, N. Gregory, and Ricardo Reis, "Sticky Information vs. Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," National Bureau of Economics Research Working Paper No. W8290, 2001.
III. Growth Models: Solow and Ramsey-Cass-Koopmans Models
*Romer, Chapter 1
*Basu, Susanto, John G. Fernald and Matthew D. Shapiro, "Productivity Growth in the 1990s: Technology, Utilization or Adjustment?" National Bureau of Economic Research Working Paper No. 8359, July 2001.
*Bernanke, Benjamin, and Refet S. Gürkaynak, "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Paper No. 8365, July 2001.
Blanchard and Fischer, Chapter 2
IV.  Overlapping Generations Models
*Samuelson, Paul A., "An Exact Consumption Loan Model With or Without the Social Contrivance of Money," Journal of Political Economy, 66(6): 467–482, December 1958.
*Romer, Chapter 2
*Geanakoplos, John, Michael Magill and Martine Quinzii, "Demography and the Long-Run Predictability of the Stock Market," unpublished paper, Cowles Foundation, Yale University, 2002.
Blanchard and Fischer, Chapter 3
Barro, Robert, "Are Government Bonds Net Wealth?", Journal of Political Economy, December 1974.
Bernheim, B. Douglas, Andrei Shleifer and Lawrence H. Summers, "The Strategic Bequest Motive," Journal of Political Economy, 93: 1045–1076, December 1985.
Diamond, Peter, "National Debt in a Neoclassical Growth Model," American Economic Review, 55(5), Part I, 1126–1150, December 1965.
Fischer, Stanley, "Welfare Aspects of Government Issue of Indexed Bonds," in R. Dornbusch and M.H. Simonsen, eds., Inflation, Debt and Indexation, MIT Press, Cambridge MA, 1983
Kotlikoff, Lawrence and Lawrence Summers, "The Role of Intergenerational Transfers in Aggregate Capital Formation," Journal of Political Economy, 89(4): 706–32, 1981.
V. Some Basic Paradigms
A. IS-LM, Mundell-Fleming, Overshooting, and the Phillips Curve
*Romer, Chapter 5 sections 5.1 and 5.2, pp. 217–234
*Krugman, Paul, "There's Something about Macro,"
Blanchard and Fischer, Chapter 10, Section 4 and 5, pp. 529-55
Keynes, John M., The General Theory of Employment, Interest and Money, 1936
Hicks, J. R., "Mr. Keynes and the Classics: A Suggested Interpretation," Econometrica, 1937.
Mundell, Robert A., International Economics, New York, Macmillan, 1968
Fleming, J. Marcus, "Domestic Financial Policies Under Fixed and Under Floating Exchange Rates," IMF Staff Papers, 9: 369–79, 1962
Dornbusch, Rudiger, "Expectations and Exchange Rate Dynamics," Journal of Political Economy, 84: 1161–1176, 1976
Fisher, I. (1930) The Theory of Interest, New York: MacMillan
B. Macroeconometric Models in the IS-LM Tradition
*Fair Model:
*Fair, Ray C., and Robert J. Shiller, "Comparing Information in Forecasts from Econometric Models," American Economic Review, 80(3): 375–389, June 1990
*Cooley, Thomas F., and Stephen F. LeRoy, "Identification and Estimation of Money Demand," American Economic Review, 71: 825–844, December 1981.
*Gavin, William T. and Rachel J. Mandal," "Economic News and Monetary Policy," Federal Reserve Bank of St. Louis, July 2001
Fair, Ray C., Specification, Estimation, and Analysis of Macroeconometric Models, Harvard University Press, 1984
Sims, Christopher A., Book Review (Fair book), Journal of Money, Credit and Banking, 18: 121–126, February 1986
Tobin, James, Asset Accumulation and Economic Activity, Basil Blackwell, Oxford and University of Chicago Press, Chicago, 1980, Chapter 2
Leamer, Edward, "Let's Take the Con Out of Econometrics," American Economic Review, 73: 31–43, March 1983.
C. Rational Expectations Critiques of Macroeconometric Models
*Lucas, Robert E., "Econometric Policy Evaluation: A Critique," in Brunner & Meltzer, eds., The Phillips Curve and Labor Markets. Journal of Monetary Economics supplement, Jan. 1975, pp. 19–46. Reprinted in Lucas, Studies in Business Cycle Theory, MIT, 1981, pp. 109–30
*Shiller, Robert J., "Rational Expectations and the Dynamic Structure of Macroeconomic Models: A Critical Review," Journal of Monetary Economics, 4(1): 1–44, Jan. 1978
D. Staggered Wage Setting, Sticky Prices and New Keynesian Economics
*Romer, Chapter 6
Sargent, Thomas J., "Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics," Journal of Political Economy, 84(3), 1976.
Sargent, Thomas J. and Neil Wallace, "Rational Expectations and the Theory of Economic Policy," Journal of Monetary Economics, 2(2): 169–183, April 1976
Mankiw, N. Gregory, "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," Quarterly Journal of Economics, 100: 529–539, 1991.
Taylor, John B., "Staggered Wage Setting in a Macro Model," American Economic Review, 69: 108–113, May 1979,
E. Efficiency Wage Theory
*Akerlof, George A., and Janet L. Yellen, "A Near-Rational Model of the Business Cycle with Wage and Price Inertia," Quarterly Journal of Economics, 100: 823–38, 1985.
Blanchard and Fischer Chapter 9, Section 4
Bulow, Jeremy I. and Lawrence H. Summers, "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination, and Keynesian Unemployment," Journal of Labor Economics July 1986.
Shapiro, C. and J. Stiglitz, "Involuntary Unemployment as a Worker Discipline Device," American Economic Review, June 1984.
Weisskopf, Thomas, Bowles, Samuel and David Gordon, "Hearts and Minds: A Social Model of Aggregate Productivity Growth in the United States, 1948–79," Brookings Papers on Economic Activity, 2: 381–441, 1983
Yellen, Janet L., "Efficiency Wage Models of Unemployment," American Economic Review Papers and Proceedings, 74: 200–205, May 1984.
Krueger, Alan B., and Lawrence H. Summers, "Efficiency Wages and the Interindustry Wage Structure, Econometrica, 56: 259–293, March 1988.