Intermediate Macroeconomics

I Introduction......Page 22
Calculating GDP......Page 24
Real versus Nominal......Page 29
The Consumer Price Index......Page 35
Measuring the Labor Market......Page 37
Summary......Page 40
Models and Why Economists Use Them......Page 46
Summary......Page 48
The Early Period: 1936-1968......Page 50
Blowing Everything Up: 1968-1981......Page 51
Modern Macroeconomics: 1982-2016......Page 53
Summary......Page 55
II The Long Run......Page 56
Economic Growth over Time: The Kaldor Facts......Page 59
Cross Country Facts......Page 68
Summary......Page 71
Production, Consumption, and Investment......Page 74
Graphical Analysis of the Solow Model......Page 83
The Algebra of the Steady State with Cobb-Douglas Production......Page 89
Experiments: Changes in s and A......Page 90
The Golden Rule......Page 98
Summary......Page 103
Introducing Productivity and Population Growth......Page 109
Graphical Analysis of the Augmented Model......Page 114
The Steady State of the Augmented Model......Page 115
Experiments: Changes in s and A......Page 118
The Golden Rule......Page 128
Will Economic Growth Continue Indefinitely?......Page 129
Summary......Page 130
Understanding Cross-Country Income Differences......Page 134
Convergence......Page 135
Conditional Convergence......Page 139
Can Differences in s Account for Large Per Capita Output Differences?......Page 141
The Role of Productivity......Page 143
Summary......Page 146
The General Overlapping Generations Model......Page 151
Households......Page 152
Firm......Page 154
Equilibrium and Aggregation......Page 155
Cobb-Douglas Production and Logarithmic Utility......Page 158
The Golden Rule and Dynamic Inefficiency......Page 164
Government Intervention......Page 166
Incorporating Exogenous Technological Growth......Page 173
Summary......Page 177
III The Microeconomics of Macroeconomics......Page 180
A Dynamic Consumption-Saving Model......Page 182
Model Setup......Page 183
Optimization and the Euler Equation......Page 187
Indifference Curve / Budget Line Analysis and the Consumption Function......Page 190
Wealth......Page 203
Permanent and Transitory Income Changes......Page 207
Taxes......Page 209
Uncertainty......Page 211
Consumption and Predictable Changes in Income......Page 216
Borrowing Constraints......Page 218
Summary......Page 223
Multi-Period Generalization......Page 230
The MPC and Permanent vs. Transitory Changes in Income......Page 237
The Life Cycle......Page 240
Summary......Page 244
Model Setup......Page 249
Competitive Equilibrium......Page 250
Identical Agents and Graphical Analysis of the Equilibrium......Page 251
Supply Shock: Increase in Yt......Page 258
Demand Shock: Increase in Yt+1......Page 259
An Algebraic Example......Page 262
Agents with Different Endowments......Page 263
Summary......Page 266
Firm......Page 272
Diversion on Debt vs. Equity Finance......Page 279
Household......Page 281
Equilibrium......Page 291
Summary......Page 293
The Government......Page 296
Fiscal Policy in an Endowment Economy......Page 297
Graphical Effects of Changes in Gt and Gt+1......Page 301
Algebraic Example......Page 304
Fiscal Policy in a Production Economy......Page 305
Summary......Page 308
What is Money?......Page 314
Modeling Money in our Production Economy......Page 316
Household......Page 318
Firm......Page 325
Government......Page 326
Equilibrium......Page 327
Summary......Page 330
Equilibrium Efficiency......Page 335
The Social Planner's Problem......Page 336
The Basic Planner's Problem......Page 337
Planner Gets to Choose Mt......Page 339
Planner Gets to Choose Gt and Gt+1......Page 342
Summary......Page 344
Stylized Facts......Page 348
The Bathtub Model of Unemployment......Page 353
Transition Dynamics: A Quantitative Experiment......Page 354
Two Sided Matching: The Diamond-Mortensen-Pissarides Model......Page 356
The Matching Function......Page 357
Household and Firm Behavior......Page 359
Equilibrium......Page 360
Example......Page 363
Efficiency......Page 364
Summary......Page 366
IV The Medium Run......Page 369
Household......Page 371
Firm......Page 373
Government......Page 376
Equilibrium......Page 377
The Demand Side......Page 378
The Supply Side......Page 382
Bringing it all Together......Page 384
The Nominal Side......Page 385
Summary......Page 388
Equilibrium......Page 391
The Effects of Changes in Exogenous Variables on the Endogenous Variables......Page 393
Productivity Shock: Increase in At:......Page 394
Expected Future Productivity Shock: Increase in At+1......Page 396
Government Spending Shock: Increase in Gt:......Page 399
An Increase in the Money Supply: Increase in Mt......Page 405
Summary of Qualitative Effects......Page 407
Summary......Page 408
Measuring the Business Cycle......Page 413
Can the Neoclassical Model Match Business Cycle Facts?......Page 416
Is there Evidence that At Moves Around in the Data?......Page 419
Summary......Page 422
Measuring the Quantity of Money......Page 425
How is the Money Supply Set?......Page 427
Money, the Price Level, and Inflation......Page 431
Inflation and Nominal Interest Rates......Page 436
The Money Supply and Real Variables......Page 439
Summary......Page 441
Measurement of TFP......Page 446
An Idealized Description of the Labor Market......Page 449
Perfect Financial Markets......Page 450
An Absence of Heterogeneity......Page 451
A Defense of the Neoclassical Model......Page 452
Summary......Page 453
Exports, Imports, and Exchange Rates......Page 455
Graphically Characterizing the Equilibrium......Page 460
Positive IS Shock......Page 468
Increase in At......Page 472
Increase in Qt......Page 475
Increase in Mt......Page 477
Summary of Qualitative Effects......Page 478
Summary......Page 479
V The Short Run......Page 482
The LM Curve......Page 486
The IS Curve......Page 490
The AD Curve......Page 491
Summary......Page 495
The Neoclassical Model......Page 499
Simple Sticky Price Model......Page 504
Partial Sticky Price Model......Page 508
Summary......Page 517
The Neoclassical Model......Page 519
Simple Sticky Price Model......Page 526
Partial Sticky Price Model......Page 536
Comparing the New Keynesian Model to the Neoclassical Model......Page 548
Summary......Page 549
Dynamics in the New Keynesian Model: Transition from Short Run to Medium Run......Page 553
A Non-Optimal Short Run Equilibrium......Page 554
Dynamic Responses to Shocks......Page 557
A Non-Optimal Short Run Equilibrium......Page 565
Dynamic Responses to Shocks......Page 568
The Phillips Curve......Page 577
Implications of the Phillips Curve for Monetary Policy......Page 581
The Possibility of Costless Disinflation......Page 584
Summary......Page 588
Monetary Policy in the New Keynesian Model......Page 592
Policy in the Partial Sticky Price Model......Page 593
The Case for Price Stability......Page 600
The Natural Rate of Interest and Monetary Policy......Page 605
The Taylor Rule......Page 610
The Zero Lower Bound......Page 613
The IS-LM-AD Curves with the ZLB......Page 615
Equilibrium Effects of Shocks with a Binding ZLB......Page 620
Why is the ZLB Costly?......Page 624
Fiscal Policy at the ZLB......Page 628
How to Escape the ZLB......Page 630
How to Avoid the ZLB......Page 632
Summary......Page 634
Open Economy Version of the New Keynesian Model......Page 637
Deriving the AD Curve in the Open Economy......Page 638
Equilibrium in the Open Economy Model......Page 640
Comparing the Open and Closed Economy Variants of the Model......Page 641
Comparison in the Small Open Economy Version of the Model......Page 647
Increase in rtF......Page 651
Increase in Qt......Page 653
Fixed Exchange Rates......Page 655
Summary......Page 661
VI Money, Credit, Banking, and Finance......Page 664
The Basics of Banking......Page 667
Asymmetric Information: Adverse Selection and Moral Hazard......Page 669
The Bank Balance Sheet......Page 674
Credit Risk......Page 677
Liquidity Risk......Page 680
Modern Banking and Shadow Banking......Page 683
Summary......Page 689
Some Definitions and Algebra......Page 691
Open Market Operations and the Simple Deposit Multiplier with T-Accounts......Page 695
The Money Multiplier with Cash and Excess Reserve Holdings......Page 702
Two Monetary Episodes: The Great Depression and Great Recession......Page 715
Great Depression......Page 716
Great Recession......Page 719
Fractional Reserve Banking......Page 723
Summary......Page 724
Model Assumptions......Page 725
Enter a Bank......Page 727
Bank Runs......Page 730
Policies to Deal with Bank Runs......Page 734
Summary......Page 737
Bond Pricing and the Risk and Term Structures of Interest Rates......Page 739
Bond Cash Flow Repayment Plans......Page 740
Yield to Maturity......Page 741
Bond Pricing with No Uncertainty: A General Equilibrium Approach......Page 745
Default Risk and the Risk Structure of Interest Rates......Page 750
No Income Risk......Page 754
No Default Risk......Page 758
Income Risk and Default Risk......Page 760
Time to Maturity and the Term Structure of Interest Rates......Page 763
No Uncertainty: The Expectations Hypothesis......Page 765
Uncertainty and the Term Premium......Page 771
Conventional versus Unconventional Monetary Policy......Page 784
A Model with Short and Long Term Riskless Debt and Long Term Risky Debt......Page 785
Conventional Monetary Policy......Page 792
Unconventional Policy......Page 794
Summary......Page 801
The Stock Market and Bubbles......Page 804
Equity Pricing in a Two Period General Equilibrium Model......Page 806
Comparing Different Kinds of Stocks......Page 813
Moving Beyond Two Periods......Page 818
The Gordon Growth Model......Page 828
Bubbles and the Role of the Terminal Condition......Page 830
A Numerical Example with Bubbles......Page 833
Should Monetary Policy Attempt to Prick Bubbles?......Page 840
Equilibrium Stock Prices with Endogenous Production: the Neoclassical Model......Page 842
Summary......Page 846
Financial Factors in a Macro Model......Page 849
Incorporating an Exogenous Credit Spread......Page 850
Detailed Foundations......Page 852
Equilibrium Effects of an Increase in the Credit Spread......Page 855
The Financial Accelerator......Page 858
Summary......Page 866
Financial Crises: The Great Depression and Great Recession......Page 868
The Great Recession: Some More Specifics on the Run......Page 875
Thinking About the Great Recession in the AD-AS Model......Page 882
Unconventional Policy Actions......Page 889
Federal Reserve Lending......Page 890
Fiscal Stimulus......Page 893
Unconventional Monetary Policy......Page 896
Lingering Questions......Page 903
Summary......Page 904
VII Appendices......Page 928
Variables and Parameters......Page 929
Exponents and Logs......Page 930
Summations and Discounted Summations......Page 931
Growth Rates......Page 933
Systems of Equations......Page 935
Calculus......Page 936
Optimization......Page 942
Measures of Central Tendency: Mean, Median, Mode......Page 952
Expected Value......Page 953
Measures of Dispersion: Variance and Standard Deviation......Page 956
Measures of Association: Covariance and Correlation......Page 959
The Neoclassical Model with an Upward-Sloping Ys Curve......Page 964
The Neoclassical Model with an Intertemporal Dimension to Labor Supply......Page 965
Effects of Shocks with Upward-Sloping Ys......Page 969
Sources of Output Fluctuations with an Upward-Sloping Ys Curve......Page 973
The New Keynesian Model with Sticky Wages......Page 975
Equilibrium Effects of Shocks in the Sticky Wage Model......Page 980
Comparing the Sticky Wage Model to the Neoclassical Model......Page 990
A Non-Optimal Short Run Equilibrium......Page 994
Dynamic Responses to Shocks......Page 996
The AD Curve when the MP Curve Replaces the LM Curve......Page 1004
The Modified Supply Side......Page 1010
The IS-MP-AD-AS Model......Page 1012
The Effects of Shocks in the IS-MP-AD-AS Model......Page 1014