,Contents
Preface ix
1 Who is who in macroeconomics? 1
1 Short questions....................................................................................................... 1
2 The Cobb-Douglas production function............................................................. 1
3 The AS-AD model..................................................................................................2
4 Consumption tax....................................................................................................3
5 Tax incidence...........................................................................................................3
6 The Keynesian cross model.................................................................................. 4
7 The import leakage................................................................................................ 5
8 The liquidity trap................................................................................................... 5
9 The IS-LM-AS model with inflation.....................................................................6
2 Dynamics in aggregate demand and supply 25
1 Short questions..................................................................................................... 25
2 The Keynesian cross model (continued)........................................................... 25
3 The IS-LM model with capital accumulation................................................... 26
4 Stability of the IS-LM model............................................................................... 26
5 The Blinder-Solow model................................................................................... 27
6 Ricardian equivalence in the Blinder-Solow model........................................ 27
7 The Blinder-Solow model with capital accumulation..................................... 28
8 Adaptive expectations in a monetarist model.................................................. 29
9 More on adaptive expectations...........................................................................29
10 Optimization and computation.......................................................................... 30
11 The multiplier-accelerator model....................................................................... 31
3 Rational expectations and economic policy 65
1 Short questions..................................................................................................... 65
2 Stabilization of demand shocks..........................................................................65
3 Overlapping wage contracts and the REH....................................................... 66
4 A variation on the Muth model......................................................................... 67
5 Expectational difference equations.................................................................... 68
6 The Cagan model................................................................................................. 68
7 Fiscal policy under rational expectations..........................................................69
8 The labour market................................................................................................69
9 Liquidity trap........................................................................................................70
10 PIP meets the Pigou effect...................................................................................71
11 PIP and the output gap........................................................................................72
,vi
12 Contemporaneous information..........................................................................72
13 Sticky prices.......................................................................................................... 73
14 Automatic stabilizer.............................................................................................73
4 Anticipation effects and economic policy 109
1 Short questions................................................................................................... 109
2 The IS-LM model with sticky prices................................................................ 110
3 Leaning against the wind.................................................................................. 111
4 The term structure of interest rates.................................................................. 111
5 Fiscal policy with fixed nominal wages and
perfect foresight..................................................................................................112
5 The government budget deficit 143
1 Short questions................................................................................................... 143
2 Tax smoothing.....................................................................................................143
3 The two-period model with tax smoothing.................................................... 144
4 Ricardian equivalence........................................................................................145
5 Ricardian equivalence in the two-period model............................................ 145
6 A closer look at the labour market 157
1 Short questions................................................................................................... 157
2 Two-sector model with a skill-biased productivity shock.............................157
3 Progressive taxation...........................................................................................158
4 Indivisible labour............................................................................................... 159
5 Efficiency wages................................................................................................. 159
7 Trade unions and the labour market 173
1 Short questions................................................................................................... 173
2 Small talk.............................................................................................................173
3 The Blanchard-Summers model....................................................................... 174
4 Variable unemployment benefits......................................................................174
5 The two-sector labour market model.............................................................. 174
8 Search in the labour market 181
1 Short questions................................................................................................... 181
2 Search unemployment.......................................................................................181
3 A CES matching function..................................................................................182
4 Downward real wage rigidity.......................................................................... 183
5 Dynamics of unemployment and vacancies...................................................183
9 Macroeconomic policy, credibility, and politics 199
1 Short questions................................................................................................... 199
2 Capital taxation and income inequality...........................................................199
3 Choice of policy instrument..............................................................................200
4 Rules versus discretion...................................................................................... 201
5 Political business cycles..................................................................................... 202
, vii
10 The open economy 217
1 Short questions...................................................................................................217
2 The Mundell-Fleming model........................................................................... 217
3 The Dornbusch model.......................................................................................218
4 The Buiter-Miller model....................................................................................219
5 Dynamics of foreign reserves........................................................................... 220
6 Price flexibility in the Mundell-Fleming model............................................. 221
11 Money 253
1 Short questions...................................................................................................253
2 Optimal money growth.................................................................................... 253
3 Monetary superneutrality................................................................................. 255
4 Cash-in-advance constraint in continuous time............................................ 256
5 Cash-in-advance with labour supply.............................................................. 257
12 New Keynesian economics 279
1 Short questions...................................................................................................279
2 Cost function for a Dixit-Stiglitz technology.................................................. 279
3 The multiplier when taxes are distortionary.................................................. 280
4 Consumers in the New Keynesian model.......................................................280
5 Producers in the New Keynesian model.........................................................281
6 Monetary policy in the New Keynesian model..............................................283
13 Exogenous economic growth 305
1 Short questions...................................................................................................305
2 The Harrod-Domar model................................................................................ 306
3 The production function................................................................................... 306
4 The wage-rental ratio.........................................................................................307
5 The Solow-Swan model.................................................................................... 307
6 The Pasinetti model........................................................................................... 308
7 The Solow-Swan model with population growth..........................................308
8 Some mathematics............................................................................................. 309
9 Optimal investment...........................................................................................309
10 Welfare of future generations........................................................................... 310
11 The savings function......................................................................................... 310
12 The savings ratio in the Ramsey model.......................................................... 311
13 Technological change........................................................................................ 311
14 Constant marginal utility.................................................................................. 312
15 Intertemporal substitution................................................................................ 313
14 Endogenous economic growth 349
1 Short questions...................................................................................................349
2 Endogenous growth.......................................................................................... 349
3 Minimum consumption and endogenous growth........................................ 350
4 Asymptotic endogenous growth..................................................................... 351
5 External effect and endogenous growth......................................................... 351
6 Asymptotic capital fundamentalist model..................................................... 352
Preface ix
1 Who is who in macroeconomics? 1
1 Short questions....................................................................................................... 1
2 The Cobb-Douglas production function............................................................. 1
3 The AS-AD model..................................................................................................2
4 Consumption tax....................................................................................................3
5 Tax incidence...........................................................................................................3
6 The Keynesian cross model.................................................................................. 4
7 The import leakage................................................................................................ 5
8 The liquidity trap................................................................................................... 5
9 The IS-LM-AS model with inflation.....................................................................6
2 Dynamics in aggregate demand and supply 25
1 Short questions..................................................................................................... 25
2 The Keynesian cross model (continued)........................................................... 25
3 The IS-LM model with capital accumulation................................................... 26
4 Stability of the IS-LM model............................................................................... 26
5 The Blinder-Solow model................................................................................... 27
6 Ricardian equivalence in the Blinder-Solow model........................................ 27
7 The Blinder-Solow model with capital accumulation..................................... 28
8 Adaptive expectations in a monetarist model.................................................. 29
9 More on adaptive expectations...........................................................................29
10 Optimization and computation.......................................................................... 30
11 The multiplier-accelerator model....................................................................... 31
3 Rational expectations and economic policy 65
1 Short questions..................................................................................................... 65
2 Stabilization of demand shocks..........................................................................65
3 Overlapping wage contracts and the REH....................................................... 66
4 A variation on the Muth model......................................................................... 67
5 Expectational difference equations.................................................................... 68
6 The Cagan model................................................................................................. 68
7 Fiscal policy under rational expectations..........................................................69
8 The labour market................................................................................................69
9 Liquidity trap........................................................................................................70
10 PIP meets the Pigou effect...................................................................................71
11 PIP and the output gap........................................................................................72
,vi
12 Contemporaneous information..........................................................................72
13 Sticky prices.......................................................................................................... 73
14 Automatic stabilizer.............................................................................................73
4 Anticipation effects and economic policy 109
1 Short questions................................................................................................... 109
2 The IS-LM model with sticky prices................................................................ 110
3 Leaning against the wind.................................................................................. 111
4 The term structure of interest rates.................................................................. 111
5 Fiscal policy with fixed nominal wages and
perfect foresight..................................................................................................112
5 The government budget deficit 143
1 Short questions................................................................................................... 143
2 Tax smoothing.....................................................................................................143
3 The two-period model with tax smoothing.................................................... 144
4 Ricardian equivalence........................................................................................145
5 Ricardian equivalence in the two-period model............................................ 145
6 A closer look at the labour market 157
1 Short questions................................................................................................... 157
2 Two-sector model with a skill-biased productivity shock.............................157
3 Progressive taxation...........................................................................................158
4 Indivisible labour............................................................................................... 159
5 Efficiency wages................................................................................................. 159
7 Trade unions and the labour market 173
1 Short questions................................................................................................... 173
2 Small talk.............................................................................................................173
3 The Blanchard-Summers model....................................................................... 174
4 Variable unemployment benefits......................................................................174
5 The two-sector labour market model.............................................................. 174
8 Search in the labour market 181
1 Short questions................................................................................................... 181
2 Search unemployment.......................................................................................181
3 A CES matching function..................................................................................182
4 Downward real wage rigidity.......................................................................... 183
5 Dynamics of unemployment and vacancies...................................................183
9 Macroeconomic policy, credibility, and politics 199
1 Short questions................................................................................................... 199
2 Capital taxation and income inequality...........................................................199
3 Choice of policy instrument..............................................................................200
4 Rules versus discretion...................................................................................... 201
5 Political business cycles..................................................................................... 202
, vii
10 The open economy 217
1 Short questions...................................................................................................217
2 The Mundell-Fleming model........................................................................... 217
3 The Dornbusch model.......................................................................................218
4 The Buiter-Miller model....................................................................................219
5 Dynamics of foreign reserves........................................................................... 220
6 Price flexibility in the Mundell-Fleming model............................................. 221
11 Money 253
1 Short questions...................................................................................................253
2 Optimal money growth.................................................................................... 253
3 Monetary superneutrality................................................................................. 255
4 Cash-in-advance constraint in continuous time............................................ 256
5 Cash-in-advance with labour supply.............................................................. 257
12 New Keynesian economics 279
1 Short questions...................................................................................................279
2 Cost function for a Dixit-Stiglitz technology.................................................. 279
3 The multiplier when taxes are distortionary.................................................. 280
4 Consumers in the New Keynesian model.......................................................280
5 Producers in the New Keynesian model.........................................................281
6 Monetary policy in the New Keynesian model..............................................283
13 Exogenous economic growth 305
1 Short questions...................................................................................................305
2 The Harrod-Domar model................................................................................ 306
3 The production function................................................................................... 306
4 The wage-rental ratio.........................................................................................307
5 The Solow-Swan model.................................................................................... 307
6 The Pasinetti model........................................................................................... 308
7 The Solow-Swan model with population growth..........................................308
8 Some mathematics............................................................................................. 309
9 Optimal investment...........................................................................................309
10 Welfare of future generations........................................................................... 310
11 The savings function......................................................................................... 310
12 The savings ratio in the Ramsey model.......................................................... 311
13 Technological change........................................................................................ 311
14 Constant marginal utility.................................................................................. 312
15 Intertemporal substitution................................................................................ 313
14 Endogenous economic growth 349
1 Short questions...................................................................................................349
2 Endogenous growth.......................................................................................... 349
3 Minimum consumption and endogenous growth........................................ 350
4 Asymptotic endogenous growth..................................................................... 351
5 External effect and endogenous growth......................................................... 351
6 Asymptotic capital fundamentalist model..................................................... 352
