Macroeconomic Theory: Fluctuations, Inflation and Growth in Closed and Open Economies

Preface to the Second Edition
Introduction
	Macroeconomics
	Mathematical Tool: Dynamical Systems
	Book Layout
Contents
Part I: Growth
	1: The Representative Agent Model
		1.1 Basic Model
			1.1.1 Dynamical System
			1.1.2 Experiment
		1.2 Economy with a Government
			1.2.1 Experiments
		1.3 Monetary Economy
			1.3.1 Monetary Policy Rule: Money Stock Control
			1.3.2 Government
			1.3.3 Goods and Services Market Equilibrium
			1.3.4 Dynamical System
			1.3.5 Monetary Policy Rule: Nominal Interest Rate Control
			1.3.6 Monetary Policy Rule
			1.3.7 Government Budget Constraint
			1.3.8 Algebra
			1.3.9 Dynamical System
		1.4 Exercises
	2: The Open-Economy Representative Agent Model
		2.1 Goods Aggregation
			2.1.1 Example: The Cobb-Douglas Function
			2.1.2 Utility of the Representative Agent
		2.2 Constant Rate of Time Preference
			2.2.1 Algebra
			2.2.2 Dynamical System
			2.2.3 Experiment
		2.3 Variable Rate of Time Preference
			2.3.1 Algebra
			2.3.2 Dynamical System
		2.4 Interest Rate Risk Premium
			2.4.1 Dynamical System
		2.5 Complete Financial Markets: The New Keynesian IS Curve
			2.5.1 Domestic Goods Market Equilibrium
			2.5.2 Complete Financial Markets
			2.5.3 Equilibrium Real Output
			2.5.4 The Euler Equation
			2.5.5 The IS Curve
			2.5.6 Uncovered Real Interest Rate Parity
			2.5.7 Natural Interest Rate and International Interest Rate
			2.5.8 Perfect Foresight Stationary Equilibrium
		2.6 Taking Stock
		2.7 Exercises
	3: Overlapping Generations
		3.1 Infinite-Life Overlapping Generations
			3.1.1 Consumption Function
			3.1.2 Aggregation
			3.1.3 Aggregate Consumption Change
			3.1.4 Financial Wealth Change
			3.1.5 Product
			3.1.6 Dynamical System
		3.2 Economy with a Government
		3.3 Open Economy
			3.3.1 Dynamical System
			3.3.2 Experiment
		3.4 Open-Economy New Keynesian IS Curve
			3.4.1 Algebra
			3.4.2 Log-Linear Approximation
			3.4.3 IS Curve
		3.5 Finite-Life Overlapping Generations
			3.5.1 Actuarial Notes
			3.5.2 Consumer
			3.5.3 Aggregation
			3.5.4 Aggregate Consumption
			3.5.5 Aggregate Wealth
			3.5.6 Dynamical System
			3.5.7 Economy with Production
			3.5.8 Open Economy
			3.5.9 Economy with a Government
		3.6 Social Security
			3.6.1 Fully Funded System
			3.6.2 PAYG System
		3.7 Taking Stock
		3.8 Exercises
	4: The Solow Model
		4.1 The Solow Model
			4.1.1 Algebra
			4.1.2 Dynamical System
			4.1.3 Experiments
			4.1.4 Labor Productivity
			4.1.5 The Golden Rule and Dynamic Inefficiency
			4.1.6 Convergence
			4.1.7 Rate of Convergence
			4.1.8 Income Per Capita: Differences Between Countries
			4.1.9 Rate of Return on Capital and Income Per Capita
			4.1.10 Elasticity of Substitution
			4.1.11 Share of Capital in Output
			4.1.12 Endogenous Growth
		4.2 The Solow Model with Human Capital
			4.2.1 Dynamical System
			4.2.2 Labor Productivity
		4.3 The Solow Model in the Small Open Economy
			4.3.1 GDP Growth
			4.3.2 Current Account on the Balance of Payments
			4.3.3 Gross National Product Dynamics
			4.3.4 Sustainability of the Foreign Debt
		4.4 A Malthusian Model
			4.4.1 Dynamical System
		4.5 Growth Accounting
			4.5.1 Labor Productivity
			4.5.2 Potential Output: Growth Rate
			4.5.3 Labor Productivity
		4.6 Exercises
	5: Endogenous Savings and Growth
		5.1 The Ramsey-Cass-Koopmans Model
			5.1.1 Euler Equation
			5.1.2 Dynamical System
			5.1.3 Labor Productivity
			5.1.4 Experiment
		5.2 Overlapping Generations Model
			5.2.1 Dynamical System
			5.2.2 Labor Productivity
		5.3 Endogenous Growth Models: An Introduction
			5.3.1 The AK Model
			5.3.2 Human Capital
			5.3.3 Varieties of Inputs
			5.3.4 Schumpeterian Model
			5.3.5 Growth: Exogenous Versus Endogenous
		5.4 The AK Model
			5.4.1 Labor Productivity
			5.4.2 Labor Productivity
		5.5 The Acemoglu-Ventura AK Model of an Open Economy
		5.6 Increasing Returns to Scale Model
			5.6.1 Dynamical System
		5.7 The Lucas Human Capital Model
		5.8 Romer´s Varieties of Inputs Model
		5.9 The Aghion and Howitt´s Schumpeterian Model
		5.10 Taking Stock
		5.11 Exercises
Part II: Fluctuation and Inflation
	6: Keynesian Models: The IS and LM Curves, the Taylor Rule, and the Phillips Curve
		6.1 The Keynesian IS Curve
		6.2 The New Keynesian IS Curve
			6.2.1 Consumer Preferences
			6.2.2 Consumer Equilibrium: The Euler Equation
			6.2.3 The New Keynesian IS Curve: Discrete Variables
			6.2.4 New Keynesian IS Curve: Continuous Variables
		6.3 The Natural Interest Rate
		6.4 The LM Curve
		6.5 The LM Curve: Microfoundations
			6.5.1 Money in the Utility Function (MIU)
			6.5.2 Cash-in-Advance (CIA) Constraint
			6.5.3 Transaction Cost
		6.6 The Taylor Rule
		6.7 The Phillips Curve
		6.8 The New Keynesian Phillips Curve
		6.9 Natural Rate of Unemployment
		6.10 Exercises
	7: Fluctuation, Inflation, and Stabilization
		7.1 Keynesian Model
		7.2 Monetarist Model: Friedman´s Framework
		7.3 Chronic Inflation
		7.4 Real Business Cycle
		7.5 New Keynesian Model
		7.6 The Fiscal Theory of the Price Level
			7.6.1 The Fiscal Theory with Flexible Prices
			7.6.2 The Fiscal Theory of the Price Level with Sticky Prices
		7.7 Taking Stock
			7.7.1 RBC Model
			7.7.2 NKM Model
			7.7.3 FTPL Model
			7.7.4 Keynes Versus Lucas Agenda
		7.8 Exercises
	8: Open Economy Macroeconomics
		8.1 Goods and Services Arbitrage
			8.1.1 Absolute Purchasing Power Parity
			8.1.2 Relative Purchasing Power Parity
			8.1.3 Tradable and Non-tradable Goods
			8.1.4 Terms of Trade and Real Exchange Rate
		8.2 Interest Rate Arbitrage
			8.2.1 Uncovered Interest Rate Parity
			8.2.2 Exchange Rate Determination
			8.2.3 Covered Interest Rate Parity
			8.2.4 Uncovered Real Interest Rate Parity
		8.3 The Marshall-Lerner Condition
		8.4 IS Curve in an Open Economy
			8.4.1 Keynesian IS Curve
			8.4.2 New Keynesian IS Curve
		8.5 Natural Exchange Rate
		8.6 Monetary Rule in an Open Economy
		8.7 Phillips Curve in an Open Economy
			8.7.1 Keynesian Phillips Curve
			8.7.2 New Keynesian Phillips Curve
		8.8 Taking Stock
		8.9 Exercises
	9: Fluctuation, Inflation, and Stabilization in an Open Economy
		9.1 Mundell-Fleming-Dornbusch Model: Fixed Exchange Rate
		9.2 Extended Mundell-Fleming-Dornbusch Model: Fixed Exchange Rate
		9.3 New Keynesian Model: Fixed Exchange Rate
		9.4 Mundell-Fleming-Dornbusch Model: Flexible Exchange Rate
		9.5 Extended Mundell-Fleming-Dornbusch Model: Flexible Exchange Rate
		9.6 New Keynesian Model: Flexible Exchange Rate
		9.7 Exercises
Part III: Monetary and Fiscal Policies
	10: Government Budget Constraint: Fiscal Policy and Pathologies
		10.1 Consolidating the Treasury and the Central Bank Balance Sheets
		10.2 Public Debt Fundamental Equation
			10.2.1 Public Debt Sustainability: r - g > 0
			10.2.2 Public Debt Sustainability: r - g < 0
		10.3 Inflation Tax
		10.4 Hyperinflation
			10.4.1 Bubble
			10.4.2 Multiple Equilibria
			10.4.3 Fiscal Crisis and Rigidity
			10.4.4 Intertemporal Approach: Fiscal Crisis and Rational Expectations
		10.5 Ricardian Equivalence
		10.6 Sustainable Monetary Regime
		10.7 Tax Smoothing
		10.8 Taking Stock
		10.9 Exercises
	11: Monetary Theory and Policy
		11.1 Price of Money
			11.1.1 Bubbles x Fundamentals
			11.1.2 Multiple Equilibria
			11.1.3 Indeterminacy
		11.2 Optimum Quantity of Money
		11.3 Zero-Lower Bound Nominal Interest Rate
		11.4 Dynamic Inconsistency
		11.5 Optimal Monetary Rules
			11.5.1 Keynesian Model
			11.5.2 New Keynesian Model
		11.6 Interest Rate Smoothing
			11.6.1 Keynesian Model
			11.6.2 New Keynesian Model
		11.7 Inflation Targeting
		11.8 Monetary Policy Operational Procedures
		11.9 Term Structure of Interest Rates
		11.10 Exercises
Appendix A: Differential Equations
	First-Order Linear Differential Equation
	Second-Order Linear Differential Equation
	First-Order Linear Differential Equations System
	Linear System of n First-Order Differential Equations
	Initial and Terminal Conditions of the Differential Equations Solution
	Hysteresis
	Exercises
Appendix B: Optimal Control Theory
	Optimal Control: Basic Problem
	Hamiltonian and Transversality Condition
	Discounted Infinite Horizon Optimal Control
	Linear Optimal Control
	Comparative Dynamics
		.0.0 Permanent Change: Unanticipated Versus Anticipated
		.0.0 Transitory Change: Unanticipated Versus Anticipated
	Exercises
Appendix C: Difference Equations
	First-Order Linear Difference Equations
	Forward- and Backward-Looking Models
	Keynesian Model
	New Keynesian Model
	Encompassing Keynesian Model
	Hybrid Models
	Hybrid New Keynesian Model
	Exercises
Bibliography
	I. General References
	II. Classic References
	III. Textbooks, Handbooks and Collected Works
Index