Modern Macroeconomic Theory and Policy
Summer School of Economics 2001
European University at St Petersburg
Barry Harrison
Senior Lecturer in Economics, Nottingham Trent University
Course Goals:
1.
2.
3.
To make participants familiar with modern macroeconomic theories and their
practical use in policy decisions.
To present the model course in advanced macroeconomics.
To give participants new insights in the logic of syllabus development for a modern
course in macroeconomic theory and policy.
Outcomes:
After completion of the course the participants are expected:
1
To be familiar with modern macroeconomic theories, to realise clearly their merits
and demerits.
2
To be able to identify and emphasise the European perspective in macroeconomic
courses.
3
To be able to develop curricula, oriented on latest achievements of macroeconomic
theory, given the limits and constraints imposed by the existing programs.
Transferable skills:
After completion of the course the participants expected to be able to:
1.
Work critically with modern literature on the subject.
2.
Use diverse teaching techniques in relation to seminars: group and individual
assignments and presentations, discussions, written tasks, etc.
3.
Be aware of potential pitfalls in using different teaching methods and ways of coping
with them.
Teaching methodology and time schedule:
1.
2.
3.
4.
5.
Traditional lectures (with the use of computers and OHP)
Curriculum development seminars
Problem solving seminars
Other interactive sessions (question and answers,
teaching methods, etc.)
Examination (final test)
Total teaching time
14 hours
8 hours
6 hours
6 hours
2 hours
36 hours
The time schedule above includes only officially time tabled activities.
All traditional lectures will place a special emphasis on the way of presenting the material to
the audience.
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Assessment strategies:
1.
2.
Participants will prepare a coursework assignment which will be assessed within two
days of submission and written feedback will be given. It will be related to the
curriculum development (identification of important topics, assessment of the degree
of difficulty and so on).
Final two-hours test, similar to a typical graduate final examination.
Participants will be assessed not only for their technical knowledge of the subject, but also for
their ability to develop a typical course curriculum, problem identification and transferable
skills.
Topics, timetable and main readings
Day 1 (July, 16):
Morning lecture 1 What is macroeconomics?
(1) Discussion of main problems in macroeconomics: mass unemployment, inflation and
exchange rate instability, business cycles;
Readings:
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994, Chapter 1.
Burda, M and Wyplosz, C, Macroeconomics: a European text, Oxford University Press,
1997, Chapter 1.
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986, Chapters 1 and 2
Parkin, M and Bade, R, Modern macroeconomics, Philip Allan, 1991, Chapters 1 and 2.
Morning lectures 2-4: The Aggregate Supply and Demand Model
(1) Simple static and dynamic versions; inflation, growth and businesses cycles;
(2) Links with Phillips Curve, wage and price inflation, labour productivity and
unemployment;
(3) Explore within the static AS-AD model main differences between new Keynesians and
new classical/monetarist schools,
(4) The role of expectations
Readings:
Dornbusch, R and Fischer, S, Macroeconomics, McGraw-Hill, Chapters 3-4.
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986, chapters 6-7.
Afternoon session (1.25 hours): Seminar on curriculum development: Participants,
divided in groups, will critically assessed existing curricula and identify ways of their
possible restructuring.
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Program of the seminar
1.
What are the current needs for advanced macroeconomic courses in your university?
2.
To what extent are those needs satisfied?
The above questions should be discussed separately for the undergraduate and graduate
teaching.
Afternoon problem solving session: (1.25 hours): Introduction to macroeconomics and
the aggregate supply and demand model
1.
2.
Discussion on the basic assumptions of the aggregate supply and aggregate demand
models.
Discussion of concepts of rational and adaptive expectations, time inconsistency, price
and wage stickiness and the hysteresis effects.
Day 2 (July, 17)
Morning lectures 5-8: The Micro Foundations of Aggregate Demand and Supply.
(1) Consumption and inter-temporal budget constraints; investment theories; government
spending and taxation; the current account, the real exchange rate and external debt;
money supply and demand; the IS-LM-BP model and aggregate demand
(2) The labour market; demand and supply and the labour-leisure trade-off; market
imperfections, efficiency wages, insider-outsider theories, overlapping wage contracts; the
natural rate of unemployment; nominal versus real wage flexibility; the production
function; from the labour market to aggregate supply
Readings:
Burda, M and Wyplosz, C, Macroeconomics: a European text, Oxford University Press,
1997. Chapters 5,6, 8.
Dornbusch, R and Fischer, S, Macroeconomics, McGraw-Hill, Chapter 5.
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986, Chapters 12-13.
Parkin, M and Bade, R, Modern macroeconomics, Philip Allan, 1991, Chapters 2-3.
Sachs, J and Larrain, F, Macroeconomics in the global economy, Harvester Wheatsheaf,
1993, Chapters 15-16.
Afternoon problem session: (2.5 hours) The Micro Foundations of Aggregate Demand
and Supply
1
2
Discussion of the assumptions which underpin the micro foundations of aggregate
demand and aggregate supply models.
The causes of unemployment in different economic models.
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Day 3 (July, 18)
Morning lectures 9-12: An Introduction to Macroeconomic Policy
(1) Instruments and targets;
(2) Stabilisation policy versus supply-side policy;
(3) Monetary/exchange rate policy versus fiscal policy;
(4) Inside and outside lags; policy ineffectiveness proposition;
(5) Time inconsistent polices; reputation and credibility; other constraints on policy making;
international policy co-ordination
Readings
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994, Chapter 22.
Burda, M and Wyplosz, C, Macroeconomics: a European text, Oxford University Press,
1997, Chapter 10.
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986, Chapter 18.
Parkin, M and Bade, R, Modern macroeconomics, Philip Allan, 1991, Chapters 14-15.
Afternoon session on teaching techniques: (2.5 hours): An Introduction to
Macroeconomic Policy
The session will concentrate on the discussion about the possible methods of introducing
macroeconomic policy issues to students, and possible pitfalls and oversimplifications of the
process.
Day 4 (July, 19)
Morning lectures 13-14: Demand Management Policy I - Fiscal Policy
(1) The tax base; structural versus cyclical budget deficits; tax smoothing;
(2) Automatic stabilisers; sustainable fiscal policy; crowding out;
(3) Ricardian equivalence; international debt problems; fiscal policy in transition economies
Readings
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994, Chapter 17.
Morning lectures 15-16: Demand Management Policy II - Monetary and Exchange Rate
Policy
(1) Principles of monetary policy, reserve ratios, open market operations and interest rates;
(2) Monetary targets versus fixed exchange rates; managed exchange rate systems;
(3) Sterilisation; central bank independence; seignorage and the inflation tax; monetary
problems in transition economies, dollarisation and the choice of nominal anchor
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Readings
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994, Chapter 18.
Burda, M and Wyplosz, C, Macroeconomics: a European text, Oxford University Press,
1997., Chapter 12, 13.
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986, Chapter 19.
Parkin, M and Bade, R, Modern macroeconomics, Philip Allan, 1991, Chapter 16.
Afternoon curriculum development seminar (2.5 hours): Recapitulation and
identification (with discussion) of tasks and subjects for the ‘curriculum
development’ assessment
Program of the seminar:
1.
2.
Identify (prioritise) particular topics relevant for undergraduate and graduate students.
How would you draft a curriculum for a) a short undergraduate course, b) a long
undergraduate course, c) for a selected postgraduate course?
By the end of this day assessment topics will be allocated to participants.
Day 5 (July, 21)
Morning lectures 17-20: Supply-side Policy.
(1) Sources of economic growth; endogenous growth theories;
(2) State intervention versus deregulation/market liberalisation;
(3) Taxes, social security systems and incentives to work; labour market policies;
(4) The capital and financial markets; the globalisation of business;
(5) Supply-side policy in transition economies
Readings:
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994, Chapter 18.
Sachs, J and Larrain, F, Macroeconomics in the global economy, Harvester Wheatsheaf,
1993, Chapters 12, 13, 20.
Afternoon problem solving session (2.5 hours): Demand and supply management policy
Program of the seminar:
1.
2.
3.
What are main contradictions in aggregate demand and supply policies?
Is the demand or supply side policy more relevant for the transition economies?
Is current European macroeconomic policy demand-oriented, or supply-oriented?
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Day 6 (July, 22)
There will be no formal classes and seminars on that day. Participants are expected to work
on preparation of their assignment papers.
Morning questions and answers session (4 hours): ‘curriculum development’
assignment.
Afternoon is reserved for extensive individual consultations.
Day 7 (July, 23)
In the morning the assignment papers will be handed in and marked. Therefore this time is
allocated for marking papers and preparation of feedback to the participants. Participants will
use this time for their preparation for the final examination.
Afternoon session on curriculum development (2 hours): General feedback to
participants related to their assignment papers. Last minute question and answer
session before the examination
Day 8 (July, 24)
Morning: written 2-hours examination
Afternoon: marking papers
Evening: Summing up and final discussion ‘where do we go from here?’
General References:
Barro, R J and Grilli, V, European macroeconomics, Macmillan, 1994.
Burda, M and Wyplosz, C, Macroeconomics: a European text, Oxford University Press,
1997.
Dornbusch, R and Fischer, S, Macroeconomics, McGraw-Hill
Hall, R E and Taylor, J B, Macroeconomics 3rd ed., Norton, 1986.
Parkin, M and Bade, R, Modern macroeconomics, Philip Allan, 1991.
Sachs, J and Larrain, F, Macroeconomics in the global economy, Harvester Wheatsheaf,
1993.
Notes:
A pack of photocopied reading material for each day (journal articles, extracts from official
reports, etc) will be provided to participants.
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