Macro Economics
P. Roman
Notes de cours et résumé de syllabus
Academic Year 2023 - 2024
1
,0° Introduction
2
, 1. Warm-Up
1° Macro VS Micro
Macroeconomics = the study of the economy at the aggregate level (usually the nation).
Microeconomics = studies individual economic actors, their behaviour and interactions.
No clear cut between micro and macro !
Many problems can be looked at from either perspective.
Beyond the national and the individual, there are other lenses through which one can look at
economic reality:
Supply chains
Economic sectors
Territories (regions)
Collective actions
Communities
…
Sometimes referred to as the “meso” level of analysis
Recent mainstream economics: find micro foundations to macro phenomena.
difficulty of bridging micro and macroeconomics:
Ex. Paradox of thrift = Higher individual saving rates lead to a reduction in total
savings:
When individual households save, they spend less, therefore businesses realise less
revenue and reduce investment. Thereby, aggregate income declines and so does
total savings.
Ex. Paradox of debt = Efforts to de-leverage might lead to higher leverage ratios:
When everybody saves more out of their income to repay debt, aggregate income
declines and leverage ratios rise.
Ex. Paradox of tranquillity = Stability is destabilizing:
A stable economy makes people more optimistic, leading to higher risk taking and
higher gross debt-income ratios, which creates instability.
! microeconomic behaviours can lead to unforeseen and complex macroeconomic
consequences !
Emerging properties = properties that cannot be deduced from individual behaviour in a
straightforward manner.
2° Contending visions
o Keynesian
o Neoclassical
o New Keynesians
o Austrian school
3
, 2. Short Introduction to Macro
o Before: the Classicals (neither micro or macro) & the Neoclassicals (micro)
o Birth of macro: Keynes, in the aftermath of the Great Depression (1930s)
o Interwar period: first national income data, Keynesian theories, Great Depression, and
Roosevelt’s New Deal
o After WWII: dominance of Keynesian thoughts and models, New Keynesian Synthesis
(= Keynes interpreted with neoclassical lenses)
o Up until 1970s: dominance of big macro econometric Keynesian models of national
economies (with some insights from contemporary micro, Neo-Keynesian approach)
o 1970s: stagflation; empirical limits of Keynesian models + theoretical criticism from
Lucas, Sargent and others:
Keynesian macro is superseded by New Classical macro
Importance of micro foundations
Real Business Cycles theory
Lucas critique = traditional Keynesian economic models used for policy analysis may
not hold when people's expectations and behaviors change in response to policy
changes.
o 2007 – 2008: financial crisis + sovereign debt crisis : Great Recession (= Huge blow to
the New Classical ‘consensus’)
o 2020: Corona crisis
o 2022 - …: return to inflation threats
4
P. Roman
Notes de cours et résumé de syllabus
Academic Year 2023 - 2024
1
,0° Introduction
2
, 1. Warm-Up
1° Macro VS Micro
Macroeconomics = the study of the economy at the aggregate level (usually the nation).
Microeconomics = studies individual economic actors, their behaviour and interactions.
No clear cut between micro and macro !
Many problems can be looked at from either perspective.
Beyond the national and the individual, there are other lenses through which one can look at
economic reality:
Supply chains
Economic sectors
Territories (regions)
Collective actions
Communities
…
Sometimes referred to as the “meso” level of analysis
Recent mainstream economics: find micro foundations to macro phenomena.
difficulty of bridging micro and macroeconomics:
Ex. Paradox of thrift = Higher individual saving rates lead to a reduction in total
savings:
When individual households save, they spend less, therefore businesses realise less
revenue and reduce investment. Thereby, aggregate income declines and so does
total savings.
Ex. Paradox of debt = Efforts to de-leverage might lead to higher leverage ratios:
When everybody saves more out of their income to repay debt, aggregate income
declines and leverage ratios rise.
Ex. Paradox of tranquillity = Stability is destabilizing:
A stable economy makes people more optimistic, leading to higher risk taking and
higher gross debt-income ratios, which creates instability.
! microeconomic behaviours can lead to unforeseen and complex macroeconomic
consequences !
Emerging properties = properties that cannot be deduced from individual behaviour in a
straightforward manner.
2° Contending visions
o Keynesian
o Neoclassical
o New Keynesians
o Austrian school
3
, 2. Short Introduction to Macro
o Before: the Classicals (neither micro or macro) & the Neoclassicals (micro)
o Birth of macro: Keynes, in the aftermath of the Great Depression (1930s)
o Interwar period: first national income data, Keynesian theories, Great Depression, and
Roosevelt’s New Deal
o After WWII: dominance of Keynesian thoughts and models, New Keynesian Synthesis
(= Keynes interpreted with neoclassical lenses)
o Up until 1970s: dominance of big macro econometric Keynesian models of national
economies (with some insights from contemporary micro, Neo-Keynesian approach)
o 1970s: stagflation; empirical limits of Keynesian models + theoretical criticism from
Lucas, Sargent and others:
Keynesian macro is superseded by New Classical macro
Importance of micro foundations
Real Business Cycles theory
Lucas critique = traditional Keynesian economic models used for policy analysis may
not hold when people's expectations and behaviors change in response to policy
changes.
o 2007 – 2008: financial crisis + sovereign debt crisis : Great Recession (= Huge blow to
the New Classical ‘consensus’)
o 2020: Corona crisis
o 2022 - …: return to inflation threats
4
