Macroeconomics

Front Cover
Front Matter
	Half title
	Full title
	Imprint
	About the Authors
	Brief Contents
	Full Contents
	Focus Boxes
	Preface
Introduction
	Chapter 1 A Tour of the World
		1.1 The crisis
		1.2 Australia
		1.3 The United States
			Should you worry about the US fiscal deficit?
		1.4 The Euro area
			How can European unemployment be reduced?
			What has the euro done for its members?
		1.5 China
		1.6 Looking ahead
		Appendix: Where to find the numbers?
	Chapter 2 A Tour of the Book
		2.1 Aggregate output
			GDP: Production and income
			Nominal and real GDP
			GDP: Level versus growth rate
		2.2 The unemployment rate
			Why do economists care about unemployment?
		2.3 The inflation rate
			The GDP deflator
			The consumer price index
			Why do economists care about inflation?
		2.4 Output, unemployment and the inflation rate: Okun\'s law and the Phillips curve
			Okun’s law
			The Phillips curve
		2.5 The short run, the medium run, the long run
		2.6 A tour of the book
			The core
			Extensions
			Back to policy
			Epilogue
		Appendix: The construction of real GDP and chain-type Indexes
The Core
	The Short Run
		Chapter 3 The Goods Market
			3.1 The composition of GDP
			3.2 The demannd for goods
				Consumption (C)
				Investment (I)
				Government spending (G)
			3.3 The determination of equilibrium output
				Using algebra
				Using a graph
				Using words
				How long does it take for output to adjust?
			3.4 Investment equals saving: An alternative way of thinking about goods–market equilibrium
			3.5 Is the government omnipotent? A warning
		Chapter 4 Financial Markets
			4.1 The demand for money
				Deriving the demand for money
			4.2 Determining the interest rate: I
				Money demand, money supply and the equilibrium interest rate
				Monetary policy and open market operations
				Bond prices and bond yields
				Choosing money or choosing the interest rate?
				Money, bonds and other assets
			4.3 Determining the interest rate: II
				What banks do
				The supply of and demand for central bank money
					The demand for money
					The demand for reserves
					The demand for central bank money
					The determination of the interest rate
			4.4 Two alternative ways of looking at the equilibrium
				The interbank cash market and the cash rate
				The supply of money, the demand for money and the money multiplier
					Understanding the money multiplier
		Chapter 5 Goods and Financial Markets: The IS–LM Model
			5.1 The goods market and the IS relation
				Investment, sales and the interest rate
				Determining output
				Deriving the IS curve
				Shifts of the IS curve
			5.2 Financial markets and the LM relation
				Real money, real income and the interest rate
				Deriving the LM curve
				Shifts of the LM curve
			5.3 Putting the IS and the LM relations together
				Fiscal policy, activity and the interest rate
				Monetary policy, activity and the interest rate
			5.4 Using a policy mix
			5.5 How does the IS–LM model fit the facts?
			Appendix: An alternative derivation of the LM relation as ann interest rate rule
	The Medium Run
		Chapter 6 The Labour Market
			6.1 A tour of the labour market
				The large flows of workers
			6.2 Movements in unemployment
			6.3 Wage determination
				Bargaining
				Efficiency wages
				Wages, prices and unemployment
					The expected price level
					The unemployment rate
					The other factors
			6.4 Price determination
			6.5 The natural rate of unemployment
				The wage-setting relation
				The price-setting relation
				Equilibrium real wages and unemployment
				From unemployment to employment
				From employment to output
			6.6 Tax distortions and the natural rate of unemployment
			6.7 Where we go from here
			Appendix: Wage- and price-setting relations versus labour supply and labour demand
		Chapter 7: Putting All Markets Together: The AS–AD Model
			7.1 Aggregate supply
			7.2 Aggregate demand
				Deriving the AD curve with a fixed money stock
				Deriving the AD curve with an interest rate rule
			7.3 Equilibrium in the short run and in the medium run
				Equilibrium in the short run
				From the short run to the medium run
			7.4 The effects of a monetary policy expansion
				The dynamics of adjustment
				Going behind the scenes
				The neutrality of money
			7.5 A decrease in the budget deficit
				Deficit reduction, output and the interest rate
				Budget deficits, output and investment
			7.6 An increase in the price of oil
				Effects on the natural rate of unemployment
				The dynamics of adjustment
			7.7 Conclusions
				The short run versus the medium run
				Shocks and propagation mechanisms
				Where we go from here
		Chapter 8 The Phillips Curve, the Natural Rate of Unemployment and Inflation
			8.1 Infaltion, expected inflation and unemployment
			8.2 The Phillips curve
				The early incarnation
				Mutations
				The Phillips curve and the natural rate of unemployment
				The neutrality of money, revisited
			8.3 A summary and many warnings
				Variations in the natural rate across countries
				Variations in the natural rate over time
				Disinflation, credibility and unemployment
				High inflation and the Phillips curve relation
				Deflation and the Phillips curve relation
			Appendix: From the aggregate supply relation to a relation between inflation, expected inflation and unemployment
		Chapter 9 The Crisis
			9.1 From a housing problem to a financial crisis
				Housing prices and subprime mortgages
				The role of banks
				Leverage
				Complexity
				Liquidity
				Amplification mechanisms
			9.2 The use and limits of policy
				Initial policy responses
				The limits of monetary policy: The liquidity trap
				The limits of fiscal policy: High debt
			9.3 The slow recovery
				Why is the US recovery so slow?
	The Long Run
		Chapter 10 The Facts of Growth
			10.1 Measuring the standard of living
			10.2 Growth in rich countries since 1950
				The large increase in the standard of living since 1950
				The convergence of output per person
			10.3 A broader look across time and space
				Looking across two millennia
				Looking across countries
			10.4 Thinking about growth: A primer
				The aggregate production function
				Returns to scale and returns to factors
				Output per worker and capital per worker
				The sources of growth
		Chapter 11 Saving, Capital Accumulation and Output
			11.1 Interactions between output and capital
				The effects of capital on output
				The effects of output on capital accumulation
				Output and investment
				Investment and capital accumulation
			11.2 The implications of alternative saving rates
				Dynamics of capital and output
				Steady-state capital and output
				The saving rate and output
				The saving rate and consumption
			11.3 Getting a sense of magnitudes
				The effects of the saving rate on steady-state output
				The dynamic effects of an increase in the saving rate
				The saving rate and the golden rule
			11.4 Physical versus human capital
				Extending the production function
				Human capital, physical capital and output
				Endogenous growth
			Appendix: The Cobb–Douglas production function and the steady state
		Chapter 12 Technological Progress and Growth
			12.1 Technological progress and the rate of growth
				Technological progress and the production function
				Interactions between output and capital
				Dynamics of capital and output
				The effects of the saving rate
			12.2 The determinants of technological progress
				The fertility of the research process
				The appropriability of research results
			12.3 The facts of growth revisited
				Capital accumulation versus technological progress in rich countries since 1985
				Capital accumulation versus technological progress in China
			Appendix: Constructing a measure of technological process
		Chapter 13 Technological Progress: The Short, the Medium and the Long Run
			13.1 Productivity, output and unemployment in the short run
				Technological progress, aggregate supply and aggregate demand
				The empirical evidence
			13.2 Productivity and the natural rate of unemployment
				Price setting and wage setting revisited
				The natural rate of unemployment
				The empirical evidence
			13.3 Technological progess, churning and distribution effects
				The increase in wage inequality
				The causes of increased wage inequality
			13.4 Institutions, technological progress and growth
Extensions
	Expectations
		Chapter 14: Expectations: The Basic Tools
			14.1 Nominal versus real interest rates
				Nominal and real interest rates in Australia since 1978
			14.2 Nominal and real interest rates, and the IS–LM model
			14.3 Money growth, inflation, nominal and real interest rates
				Revisiting the IS–LM model
				Nominal and real interest rates in the short run
				Nominal and real interest rates in the medium run
				From the short run to the medium run
				Evidence on the Fisher hypothesis
			14.4 Expected present discounted values
				Computing expected present discounted values
					A general formula
					Using present values: Examples
				Constant interest rates
					Constant interest rates and payments
					Constant interest rates and payments, forever
				Zero interest rates
				Nominal versus real interest rates, and present values
			Appendix: Deriving the expected present discounted value using real or nominal interest rates
		Chapter 15 Financial Markets and Expectations
			15.1 Bond prices and bond yields
				Bond prices as present values
				Arbitrage and bond prices
				From bond prices to bond yields
				Interpreting the yield curve
				The yield curve and economic activity
			15.2 The stock market and movements in stock prices
				Stock prices as present values
					The stock market and economic activity
					A monetary expansion and the stock market
					An increase in consumer spending and the stock market
			15.3 Risk, bubbles, fads and asset prices
				Stock prices and risk
				Asset prices, fundamentals and bubbles
				House prices and housing finance
		Chapter 16 Expectations, Consumption and Investment
			16.1 Consumption
				The very foresighted consumer
				An example
				Towards a more realistic description
				Putting things together: Current income, expectations and consumption
			16.2 Investment
				Investment and expectations of profit
					Depreciation
					The present value of expected profits
					The investment decision
				A convenient special case
				Current versus expected profit
				Profit and sales
			16.3 The Volatility of consumption and investment
			Appendix: Derivation of the expected present value of profits under static expectations
		Chapter 17 Expectations, Output and Policy
			17.1 Expectations and decisions: Taking stock
				Expectations, consumption and investment decisions
				Expectations and the IS relation
				The LM relation revisited
			17.2 Monetary policy, expectations and output
				From the short nominal rate to current and expected real rates
				Monetary policy revisited
			17.3 Deficit reduction, expectations and output
				The role of expectations about the future
				Back to the current period
	The Open Economy
		Chapter 18 Openness in Goods and Financial Markets
			18.1 Openness in goods markets
				Exports and imports
				The choice between domestic goods and foreign goods
				Nominal exchange rates
				From nominal to real exchange rates
				From bilateral to multilateral exchange rates
			18.2 Openness in financial markets
				The balance of payments
					The current account
					The capital account
				The choice between domestic and foreign assets
				Interest rates and exchange rates
			18.3 Conclusions and a look ahead
		Chapter 19 The Goods Market in an Open Economy
			19.1 The IS relation in the open economy
				The demand for domestic goods
					The determinants of C, I and G
					The determinants of imports
					The determinants of exports
					Putting the components together
			19.2 Equilibrium output and the trade balance
			19.3 Increases in demand, domestic or foreign
				Increases in domestic demand
				Increases in foreign demand
				Fiscal policy revisited
			19.4 Depreciation, the trade balance and output
				Depreciation and the trade balance: The Marshall–Lerner condition
				The effects of a depreciation
				Combining exchange rate and fiscal policies
			19.5 Looking at dynamics: The J-curve
			19.6 Saving, investment and the current account balance
			Appendix: Derivation of the Marshall–Lerner condition
		Chapter 20 Output, the Interest Rate and the Exchange Rate
			20.1 Equilibrium in the goods market
			20.2 Equilibrium in financial markets
				Money versus bonds
				Domestic bonds versus foreign bonds
			20.3 Putting goods and financial markets together
			20.4 The effects of policy in an open economy
				The effects of fiscal policy in an open economy
				The effects of monetary policy in an open economy
			20.5 Fixed exchange rates
				Pegs, crawling pegs, bands, the EMS and the euro
				Pegging the exchange rate and monetary control
				Fiscal policy under fixed exchange rates
			Appendix 1: Exchange rates, interest rates and capital substitutability
			Appendix 2: Fixed exchange rates, interest rates and capital mobility
		Chapter 21 Exchange Rate Regimes
			21.1 The medium run
				Aggregate demand under fixed exchange rates
				Equilibrium in the short run and in the medium run
				The case for and against a devaluation
			21.2 Exchange rate crises under fixed exchange rates
			21.3 Exchange rate movements under flexible exchange rates
				Exchange rates and the current account
				Exchange rates, and current and future interest rates
				Exchange rate volatility
				Overshooting exchange rates
				Short-run and medium-run equilibrium under flexible exchange rates
					Monetary policy contraction—the medium run
					Monetary policy contraction—from the short run to the medium run
					Rational or adaptive expectations
					A permanent fiscal shock
			21.4 Choosing between exchange rate regimes
				Common currency areas
				Hard pegs, currency boards and dollarisation
			Appendix 1: Deriving aggregate demand under fixed exchange rates
			Appendix 2: The real exchange rate, and domestic and foreign real interest rates
	Back to Policy
		Chapter 22 Should Policy-makers Be Restrained?
			22.1 Uncertainty and policy
				How much do macroeconomists actually know?
				Should uncertainty lead policy-makers to do less?
				Uncertainty and restraints on policy-makers
			22.2 Expectations and policy
				Hostage takings and negotiations
				Inflation and unemployment revisited
				Establishing credibility
				Time consistency and restraints on policy-makers
			22.3 Politics and policy
				Games between policy-makers and voters
				Games between policy-makers
				Politics and fiscal restraints
		Chapter 23 Fiscal Policy: A Summing Up
			23.1 What you have learned
			23.2 The government budget constraint: Deficits, debt, spending and taxes
				The arithmetic of deficits and debt
				Current versus future taxes
					Full repayment in year 2
					Full repayment in year t
					Debt stabilisation in year t
				The evolution of the debt-to-GDP ratio
			23.3 Ricardian equivalence, cyclical adjusted deficits and war finance
				Ricardian equivalence
				Deficits, output stabilisation and the cyclically adjusted deficit
				Wars and deficits
					Passing on the burden of the war
					Reducing tax distortions by tax smoothing
			23.4 The dangers of high debt
				High debt, default risk and vicious cycles
				Debt default
				Money finance
		Chapter 24 Monetary Policy: A Summing Up
			24.1 What er have learned
			24.2 The optimal inflation rate
				The costs of inflation
					Shoe-leather costs
					Tax distortions
					Money illusion
					Inflation variability
				The benefits of inflation
					Seignorage
					The option of negative real interest rates
					Money illusion revisited
				The optimal inflation rate: The current debate
			24.3 The decision of monetary policy
				Money growth targets and target ranges
				Money growth and inflation revisited
				Inflation targeting
					Interest rate rules
			24.4 Challenges from the crisis
				The liquidity trap
					Avoiding falling into the trap
					Getting out of the trap
					Dealing with the trap
					Macro prudential regulation
			Appendix: The Reserve Bank of Australia in action
	Epilogue
		Chapter 25 Epilogue: The Story of Macroeconomics
			25.1 Keynes and the Great Depression
			25.2 The neoclassical synthesis
				Progress on all fronts
					The IS–LM model
					Theories of consumption, investment and money demand
					Growth theory
					Macroeconometric models
				Keynesians versus monetarists
					Monetary policy versus fiscal policy
					The Phillips curve
					The role of policy
			25.3 The rational expectaations critique
				The three implications of rational expectations
					The Lucas critique
					Rational expectations and the Phillips curve
					Optimal control versus game theory
				The integration of rational expectations
					The implications of rational expectations
				Wage and price setting
					The theory of policy
			25.4 Recent developments up to the crisis
				New classical economics and real business cycle theory
				New Keynesian economics
				New growth theory
					Towards an integration
			25.5 First lessons from the crisis
Appendices
	Appendix 1 An Introduction to National Income and Product Accounts
	Appendix 2 A Maths Refresher
	Appendix 3 An Introduction to Econometrics
Glossary
Index
List of Symbols