Advanced Macroeconomics: An Easy Guide

Cover
Title Page
Copyright Page
Dedication Page
Short Contents
Contents
List of Figures
List of Tables
Preface
Acknowledgments
About the Authors
Chapter 1. Introduction
	Note
Growth Theory
	Chapter 2. Growth theory preliminaries
		2.1 Why do we care about growth?
		2.2 The Kaldor facts
		2.3 The Solow model
			2.3.1 The (neoclassical) production function
			2.3.2 The law of motion of capital
			2.3.3 Finding a balanced growth path
			2.3.4 Transitional dynamics
			2.3.5 Policy experiments
			2.3.6 Dynamic inefficiency
			2.3.7 Absolute and conditional convergence
		2.4 Can the model account for income differentials?
		2.5 The Solow model with exogenous technological change
		2.6 What have we learned?
		Notes
		References
	Chapter 3. The neoclassical growth model
		3.1 The Ramsey problem
			3.1.1 The consumer\'s problem
			3.1.2 The resource constraint
			3.1.3 Solution to consumer\'s problem
			3.1.4 The balanced growth path and the Euler equation
			3.1.5 A digression on inequality: Is Piketty right?
			3.1.6 Transitional dynamics
			3.1.7 The effects of shocks
		3.2 The equivalence with the decentralised equilibrium
			3.2.1 Integrating the budget constraint
			3.2.2 Back to our problem
		3.3 Do we have growth after all?
		3.4 What have we learned?
		Notes
		References
	Chapter 4. An application: The small open economy
		4.1 Some basic macroeconomic identities
		4.2 The Ramsey problem for a small open economy
			4.2.1 A useful transformation
			4.2.2 Solution to consumer\'s problem
			4.2.3 Solving for the stock of domestic capital
			4.2.4 The steady state consumption and current account
			4.2.5 The inexistence of transitional dynamics
			4.2.6 Productivity shocks and the current account
			4.2.7 Sovereign wealth funds
		4.3 What have we learned?
		4.4 What next?
		Notes
		References
	Chapter 5. Endogenous growth models I: Escaping diminishing returns
		5.1 The curse of diminishing returns
		5.2 Introducing human capital
			5.2.1 Laws of motion
			5.2.2 Balanced growth path
			5.2.3 Still looking for endogenous growth
		5.3 The AK model
			5.3.1 Solution to household\'s problem
			5.3.2 At long last, a balanced growth path with growth
			5.3.3 Closing the model: The TVC and the consumption function
			5.3.4 The permanent effect of transitory shocks
			5.3.5 In sum
		5.4 Knowledge as a factor of production
			5.4.1 Learning by doing
			5.4.2 Adam Smith\'s benefits to specialisation
		5.5 Increasing returns and poverty traps
			5.5.1 Poverty trap in the Solow model
			5.5.2 Policy options to overcome poverty traps
			5.5.3 Do poverty traps exist in practice?
		5.6 What have we learned?
		5.7 What next?
		Notes
		References
	Chapter 6. Endogenous growth models II: Technological change
		6.1 Modelling innovation as product specialisation
		6.2 Modelling innovation in quality ladders
		6.3 Policy implications
			6.3.1 Distance to the technological frontier and innovation
			6.3.2 Competition and innovation
			6.3.3 Scale effects
		6.4 The future of growth
		6.5 What have we learned?
		6.6 What next?
		Notes
		References
	Chapter 7. Proximate and fundamental causes of growth
		7.1 The proximate causes of economic growth
			7.1.1 Growth accounting
			7.1.2 Using calibration to explain income differences
			7.1.3 Growth regressions
			7.1.4 Explaining cross-country income differences, again
			7.1.5 Summing up
		7.2 The fundamental causes of economic growth
			7.2.1 Luck
			7.2.2 Geography
			7.2.3 Culture
			7.2.4 Institutions
		7.3 What have we learned?
		7.4 What next?
		Notes
		References
Overlapping Generations Models
	Chapter 8. Overlapping generations models
		8.1 The Samuelson-Diamond model
			8.1.1 The decentralized equilibrium
			8.1.2 Goods and factor market equilibrium
			8.1.3 The dynamics of the capital stock
			8.1.4 A workable example
		8.2 Optimality
			8.2.1 The steady-state marginal product of capital
			8.2.2 Why is there dynamic inefficiency?
			8.2.3 Are actual economies dynamically inefficient?
			8.2.4 Why is this important?
		8.3 Overlapping generations in continuous time
			8.3.1 The closed economy
			8.3.2 A simple extension
			8.3.3 Revisiting the current account in the open economy
		8.4 What have we learned?
		Notes
		References
	Chapter 9. An application: Pension systems and transitions
		9.1 Fully funded and pay-as-you-go systems
			9.1.1 Fully funded pension system
			9.1.2 Pay-as-you-go pension system
			9.1.3 How do pensions affect the capital stock?
			9.1.4 Pensions and welfare
		9.2 Moving out of a pay-as-you-go system
			9.2.1 Financing the transition with taxes on the young
			9.2.2 Financing the transition by issuing debt
			9.2.3 Discussion
			9.2.4 Do people save enough?
		9.3 What have we learned?
		9.4 What next?
		Notes
		References
	Chapter 10. Unified growth theory
		10.1 From Malthus to growth
			10.1.1 The post-Malthusian regime
			10.1.2 Sustained economic growth
		10.2 A “unified” theory
			10.2.1 A simple model of the demographic transition
			10.2.2 Investing in human capital
			10.2.3 The dynamics of technology, education and population
		10.3 The full picture
		10.4 What have we learned?
		10.5 What next?
		Notes
		References
Consumption and Investment
	Chapter 11. Consumption
		11.1 Consumption without uncertainty
			11.1.1 The consumer\'s problem
			11.1.2 Solving for the time profile and level of consumption
		11.2 The permanent income hypothesis
			11.2.1 The case of constant labour income
			11.2.2 The effects of non-constant labour income
		11.3 The life-cycle hypothesis
		Notes
		References
	Chapter 12 Consumption under uncertainty and macro finance
		12.1 Consumption with uncertainty
			12.1.1 The random walk hypothesis
			12.1.2 Testing the random walk hypothesis
			12.1.3 The value function
			12.1.4 Precautionary savings
		12.2 New frontiers in consumption theory
			12.2.1 Present bias
		12.3 Macroeconomics and finance
			12.3.1 The consumption-CAPM
			12.3.2 Equity premium puzzle
		12.4 What next?
		Notes
		References
	Chapter 13 Investment
		13.1 Net present value and the WACC
			13.1.1 Pindyck\'s option value critique
		13.2 The adjustment cost model
			13.2.1 Firm\'s problem
			13.2.2 Tobin\'s q
			13.2.3 The dynamics of investment
			13.2.4 The role of x
		13.3 Investment in the open economy
			13.3.1 The consumer\'s problem
			13.3.2 Bringing in the firm
			13.3.3 Initial steady state
			13.3.4 The surprising effects of productivity shocks
		13.4 What next?
		Notes
		References
Short Term Fluctuations
	Chapter 14. Real business cycles
		14.1 The basic RBC model
			14.1.1 The importance of labour supply
			14.1.2 The indivisible labour solution
		14.2 RBC model at work
			14.2.1 Calibration: An example
			14.2.2 Does it work?
		14.3 Assessing the RBC contribution
		14.4 What have we learned?
		14.5 What next?
		Notes
		References
	Chapter 15 (New) Keynesian theories of fluctuations: A primer
		15.1 Keynesianism 101: IS-LM
			15.1.1 Classical version of the IS-LM model
			15.1.2 The Keynesian version of the IS-LM model
			15.1.3 An interpretation: The Fed
			15.1.4 From IS-LM to AS-AD
		15.2 Microfoundations of incomplete nominal adjustment
			15.2.1 The Lucas island model
			15.2.2 The model with perfect information
			15.2.3 Lucas\' supply curve
		15.3 Imperfect competition and nominal and real rigidities
		15.4 New Keynesian DSGE models
			15.4.1 The canonical New Keynesian model
			15.4.2 A Taylor rule in the canonical New Keynesian model
			15.4.3 Back to discrete time
		15.5 What have we learned?
		15.6 What next?
		Notes
		References
	Chapter 16 Unemployment
		16.1 Theories of unemployment
		16.2 A model of job search
			16.2.1 Introducing labour turnover
		16.3 Diamond-Mortensen-Pissarides model
			16.3.1 Nash bargaining
			16.3.2 Unemployment over the cycle
		16.4 Efficiency wages
			16.4.1 Wages and effort: The Shapiro-Stiglitz model
		16.5 Insider-outsider models of unemployment
			16.5.1 Unemployment and rural-urban migration
		16.6 What next?
		Notes
		References
Monetary and Fiscal Policy
	Chapter 17. Fiscal policy I: Public debt and the effectiveness of fiscal policy
		17.1 The government budget constraint
		17.2 Ricardian equivalence
			17.2.1 The effects of debt vs tax financing
			17.2.2 Caveats to Ricardian equivalence
		17.3 Effects of changes in government spending
			17.3.1 The initial steady state
			17.3.2 Permanent increase in government spending
			17.3.3 Temporary increase in spending
		17.4 Fiscal policy in a Keynesian world
			17.4.1 The current (empirical) debate: Fiscal stimulus and fiscal adjustment
		17.5 What have we learned?
		17.6 What next?
		17.7 Appendix
			17.7.1 Debt sustainability
			17.7.2 A simplified framework
		17.8 Measurement issues
			17.8.1 The role of inflation
			17.8.2 Asset sales
			17.8.3 Contingent liabilities
			17.8.4 The balance sheet approach
		Notes
		References
	Chapter 18. Fiscal policy II: The long-run determinants of fiscal policy
		18.1  Tax smoothing
			18.1.1 The government objective function
			18.1.2 Solving the government\'s problem
			18.1.3 The time profile of tax distortions
			18.1.4 The level of tax distortions
			18.1.5 The steady state
			18.1.6  Changes in government expenditures
			18.1.7 Countercyclical fiscal policy
			18.1.8 Smoothing government spending
			18.1.9 Summing up
		18.2 Other determinants of fiscal policy
			18.2.1 The political economy approach
			18.2.2 Fiscal rules and institutions
		18.3 Optimal taxation of capital in the NGM
		18.4 What have we learned?
		18.5 What next?
		Notes
		References
	Chapter 19. Monetary policy: An introduction
		19.1 The conundrum of money
			19.1.1 Introducing money into the model
		19.2 The Sidrauski model
			19.2.1 Finding the rate of inflation
			19.2.2 The optimal rate of inflation
			19.2.3 Multiple equilibria in the Sidrauski model
			19.2.4 Currency substitution
			19.2.5 Superneutrality
		19.3 The relation between fiscal and monetary policy
			19.3.1 The inflation-tax Laffer curve
			19.3.2 The inflation-tax and inflation dynamics
			19.3.3 Unpleasant monetary arithmetic
			19.3.4 Pleasant monetary arithmetic
		19.4 The costs of inflation
			19.4.1 The Tommasi model: Inflation and competition
			19.4.2 Taking stock
		Notes
		References
	Chapter 20. Rules vs Discretion
		20.1 A basic framework
			20.1.1 Time inconsistency
			20.1.2 A brief history of monetary policy
		20.2 The emergence of inflation targeting
			20.2.1 A rigid inflation rule
			20.2.2 Which regime is better?
			20.2.3 The argument for inflation targeting
			20.2.4 In sum
		Notes
		References
	Chapter 21. Recent debates in monetary policy
		21.1 The liquidity trap and the zero lower bound
		21.2 Reserves and the central bank balance sheet
			21.2.1 Introducing the financial sector
			21.2.2 A model of quantitative easing
			21.2.3 Effects of monetary policy shocks
		21.3 Policy implications and extensions
			21.3.1 Quantitative easing
			21.3.2 Money and banking
			21.3.3 Credit easing
		21.4 Appendix
		Notes
		References
	Chapter 22. New developments in monetary and fiscal policy
		22.1 Secular stagnation
		22.2 The fiscal theory of the price level
			22.2.1 Interest rate policy in the FTPL
		22.3 Rational asset bubbles
			22.3.1 The basic model
			22.3.2 Government debt as a bubble
			22.3.3 Implications for fiscal, financial and monetary policy
		22.4 Appendix 1
		22.5 Appendix 2
		22.6 Appendix 3
		Notes
		References
Appendix A. Very brief mathematical appendix
	A.1 Dynamic optimisation in continuous time
	A.2 Dynamic optimisation in discrete time
	A.3 First-order differential equations
		A.3.1 Integrating factors
		A.3.2 Eigenvalues and dynamics
	Notes
Appendix B. Simulating an RBC model
Appendix C. Simulating a DSGE model
Index