SPRING TERM 2024

Macroeconomic events are a fundamental source of changes in the business environment, markets, and society. The purpose of this course is to give you a better understanding of the macro-economy, to familiarise you with the workings of the global economy and the main factors that determine the incomes of nations and their fluctuations. We will consider a range of questions such as: why are some countries growing faster than others; how does technology and institutions affect the economy; how does climate change impact the growth of countries; why do business cycles occur; what are the determinants of exchange rates and inflation; what is driving unemployment; what are the principles and motivation underlying monetary and fiscal policy.

After this course, you should be able to recognise and construct logical economic arguments, understand when, why and how the government makes important policy decisions, read policy reports and non-technical academic papers that can be used for the writing of policy notes. The aim is to provide a set of general skills portable across a range of industries, professions, and countries, which will make it possible to understand the forces that will dominate the domestic and global business environment in the immediate future as well as over the coming years.

The course consists of twelve lectures. Sessions 1 to 5 cover the long-run while 6 to 12 are more about the short/medium-run. Classroom participation is essential. You are encouraged to contribute with insights from your own experiences. Classroom participation will enhance your ability to think critically and to organize your thoughts in a clear and insightful manner. Throughout, theoretical concepts are backed and illustrated by real-world examples from a macroeconomic perspective and from a corporate perspective. The focus of the course will be on policy oriented questions and not as theoretical and model oriented as a standard macroeconomics course in a research oriented master. However, students are expected to handle basic algebra.

Possible textbooks: Macroeconomics, S. Williamson, 4th edition.

Macroeconomics, Charles. I. Jones, 3rd edition.

In addition, the course contains additional readings available on the course website.

Grades are based on a group homework (50%) and a final examination (50%)

Homework: by groups of 4 or 5max. To be handed back the week of lecture 12 before 8am on April 30th; choose a policy YES/NO question which deals with a current issue in macroeconomics (some suggestions will be provided in class but students can come up with their own question).  Using policy and academic articles (see among others IMF, World Bank, ECB, Federal Reserve, Economic Policy, NBER, CEPR discussion papers, see also in VOX the columns that refer to research articles) or press articles (FT, The Economist...), provide a critical answer to the question. You are expected to define precisely the question and provide an answer weighting the pros and cons in 3500 words maximum. Providing data to justify your conclusions is strongly encouraged.

Final exam: Multiple choice questions, exercises and/or short essay

The files below contain sample questions to practice for the exam. On the quantitative side, students are expected to handle basic calculus. 

Sample multiple choice  - Grading policy for multiple choice

Sample short exercises and essays

Sessions 1 and 2 - Why are some countries richer than others?

Part 1 - Growth and factors of production [slides]

What is macroeconomics? The key debates. GDP/Value Added and Welfare. GDP and the production function. Determinants of productivity. Solow growth model. Capital accumulation and the return on capital. Growth miracles and growth disasters.

Readings:

Nations seek beyond GDP, Wall Street Journal, 2011. [pdf] 

The Myth of the Asian Miracle, Paul Krugman, Foreign Affairs, 1994. [pdf]*

The longer run economic consequences of pandemics, O. Jorda, S.R. Singh and A. Taylor, vox column, 2020. [link]*

Is China's Growth Miracle Over?, Zheng Liu, Federal Reserve Bank of San Francisco Economic Letter, 2015. [link]

More technical: Beyond GDP? Welfare across Countries and Time, C. Jones and P. Klenow, American Economic Review, 2016. [pdf]

Part 2 - Total Factor Productivity and Technological Progress [slides]

Development accounting. Why are some countries richer, some emerging and some stagnant? What makes countries efficient – the role of institutions and technology? How does technological progress produce growth? What determines how much R&D a country does? Growth and technology transfer.

Readings:

Institutions as a fundamental cause of long-run growth, Acemoglu, Johnson and Robinson, 2005, chapter 6, Handbook of Economic Growth. Read pdf until p53 [pdf]*

A 'dark side' to the commodity boom in Africa. New evidence on the resource curse. American Economic Association Blog, 2017 [link]*. For more details: Berman, Couttenier, Rohner, and Thoenig. 2017. This Mine Is Mine! How Minerals Fuel Conflicts in Africa. American Economic Review.

The death of innovation, the end of growth, TED Talk, Robert Gordon [video link]

Globalization Helps Spread Knowledge and Technology Across Borders, IMFBlog, 2018 [link]*

The Covid Crisis and Productivity  Growth, F. di Mauro and C. Syverson, vox column, 2020 [link]

Session 3 - Labour Market and Unemployment [slides]

Stylized facts about labour markets.  Wages and productivity. The determinants of unemployment rates. The role of institutions, policy and labour market reform. Government legislation on wages and employment and its impact on corporate decisions.

Readings:

Why long-term unemployment in the euro area is so high?, The Economist, 2015. [link]*

Unemployment among young workers during Covid-19, S. Aaronson and F. Alba, Brookings, Sept. 2020. [link]*

Understanding the decline in the labour force participation rate in the United States, Braun, Coglianese, Furman, Stevenson and Stock, Vox column, 2014. [link]

More technical: European Unemployment: The Evolution of Facts and Ideas. Oliver Blanchard, NBER working paper 11750, November 2005. [pdf]

Session 4 - Income and wealth inequalities [slides]

Measuring economic inequality. Inequalities across countries and time. Labour market inequalities. What is driving inequalities? The role of technology and globalization. Policies to address inequalities.

Readings:

Inequality in the long-run, T. Piketty and E. Saez, Science, 2014. [link]*

Children and gender inequality: Evidence from Denmark, H. Kleven, C. Landais and J. Sogaard, Vox Column, 2018. [link]*

Where machines could replace humans---and where they can't (yet), McKinsey Global Institute, 2016. [link]*

Reducing income inequality while boosting economic growth: can it be done? Economic Policy Reforms, OECD, 2012. [link]

More technical: The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade, D. Autor, D. Dorn and G. Hanson, Anual Review of Economics, 2016. [link]

Session 5 - The Macroeconomics of Climate Change [slides]

The origins of climate change.  Climate change and growth. Economic damages and the climate change externality. Environmental policies (Carbon tax and Quota-based mechanisms). The challenges of environmental policies. Redistributive effects of environmental policies.

Readings:

Testing the pollution-haven hypothesis, American Economic Association, based on Tanaka et al., October 2022  [link]*. More technical: North-South Displacement Effects of Environmental Regulation: The Case of Battery Recycling. Tanaka et al., American Economic Review: Insights, 2022. [link]

The Portfolio of Economic Policies Needed to Fight Climate Change, O. Blanchard,  C. Gollier and J. Tirole, Annual Review of Economics, 2023. [link]*

Global Warming from an Economic Perspective, Conny Olovsson, Riksbank, 2020. [link]

More technical: Climate Change Around the World. Per Krussell and Anthony Smith, NBER WP  2022. [link] 

Sessions 6 - Business cycle fluctuations [slides]

Definition of the business cycle. The output gap.  Business cycles across different economies and different sectors. Business cycles facts. Causes of business cycles. Supply and demand shocks. Real Business Cycles and Demand-Driven Cycles. The Covid-19 recession.

Readings:

Flattening the Pandemic and Recession Curves, Pierre-Olivier Gourinchas, March 13, 2020. Mimeo Clausen Center UC Berkeley. [pdf]*

Supply versus Demand: Unemployment and Inflation in the Covid 19 recession, D. Baqaae and E. Fahri, vox column, June 2020. [link]

The World Economic Outlook, IMF, October 2023 (Update January 2024). Chapter 1 covers the the growth forecasts around the world. There are lots of other information in this publication: pick your favourite topic and see whether by now you can understand a thorough discussion of recent developments, growth prospects and risks. Check also the summary videos on the website. [link]. The update from January 2024 provides more up-to-date information on global growth forecasts.  This should be your main reading. [link]*.

For France: Macroeconomic Projections, Banque de France, December 2023. [link]

Session 7 - Money and Inflation [slides]

Measurement and history of inflation. Oil prices and the macroeconomy. What is money? Banks and the money multiplier. Quantity theory of money and long run inflation. Seigniorage and hyperinflation.

Readings:

The Bolivian Hyperinflation and Stabilization, Jeffrey Sachs, The American Economic Review, Vol. 77, No. 2, Papers and Proceedings of the Ninety-Ninth Annual Meeting of the American Economic Association. (May, 1987), pp. 279-283 [pdf]*

14m bolivars for a chicken: Venezuela hyperinflation explained, The Guardian, 2018. [link]*

Zimbabwe after hyperinflation: in dollars they trust. The Economist, 2013. [link]

Plunging Oil Prices: A Boost for the U.S. Economy, a Jolt for Texas. Dallas Fed Economic Letter, 2015. [link]

What really went wrong at Silicon Valley Bank, The Economist, March 2023. [link]

Session 8 - Monetary Policy [slides]

Stabilization policy using monetary policy. The trade-off between inflation and unemployment.  Rational expectations and credibility. How do central banks set interest rates? How does this affect the economy? Monetary policy in extraordinary times and quantitative easing.

Readings:

The Transmission Mechanism of Monetary Policy, Bank of England’s Monetary Policy Committee. [pdf]*

Monetary policy in extraordinary times, David Miles interviewed by Viv Davies, Vox, 2011. [interview link]

Soaring inflation puts Central Banks on a difficult journey, by T. Adrian, C. Erceg and F. Natalucci, IMF Blog. August 2022. [link]

Today’s inflation and the Great Inflation of the 1970s: Similarities and differences, by Ha et al., VoxEU, 2022. [link]*

Federal Reserve announces extensive new measures to support the economy. Press Relese by the Federal Reserve, March 23, 2020. [link] 

What Central Banks  have done to help the economy survive Covid-19. Bloc-Notes Eco, Banque de France. April 2020. [link] 

Session 9 - Fiscal Policy [slides]

How much do governments spend and why? Where do governments raise their revenue? Principles of taxation. Fiscal deficits and debt. Debt sustainability. Stabilization policy using fiscal policy.

Readings:

Fiscal Policies to Protect People During the Coronavirus Outbreak. IMF Blog. March 2020. [link]* 

Deciding when debt become unsafe, O. Blanchard, IMF Finance & Development, March 2022. [link]*

T. Sargent, An american history lesson for Europe, 2012, Wall Street Journal, based on T. Sargent's Nobel Prize lecture (US then, Europe Now). [pdf].

America's deficit: confronting the monster, The Economist, 2010. [link] or [pdf]

Government Spending Is No Free Lunch, R. Barro, Wall Street Journal, 2009. [link]

Measuring the output responses to fiscal policy, Auerbach and Gorodnichenko, Vox column, 2010. [link]

Play with Debtwatch by OFCE. Assess the sustainability of gov't debt using different macroeconomic scenarios. For further explanations, see OFCE Policy Brief 96, October 2021.

Session 11 and 12 – Open economy macroeconomics and exchange rates

Open economy macroeconomics and exchange rates - Part 1 [slides]

Definitions of exchange rates – nominal and real. The Law of One Price and Purchasing Power Parity. Balance of payments. Current account imbalances. Balance of payments theory of exchange rates.

Readings:

The Purchasing Power Parity Debate, A.M. Taylor and M.P. Taylor, Journal of Economic Perspectives, 2004. [pdf]

Donald Trump's Tax Proposals Could Double The Trade Deficit, L. Burman, Tax Policy Center, 2016. [link]*

Open economy macroeconomics and exchange rates - Part 2 [slides]

Exchange rates and asset markets. Interest rates and Uncovered Interest Parity. Stabilization policies in open economies. Currency unions.

Readings:

How do UK based Foreign Echange Dealers think their market operates?, Cheung, Chinn and Marsh, International Journal of Finance and Economics. [pdf]

Revenge of the Optimum Currency Area, P. Krugman, NBER Macroeconomics Annual, 2012. [pdf]*

How big are fiscal multipliers? New evidence from new data, Mendoza, Vegh and Ilzetzki, vox column, 2009. [link]*

Session 12 – International financial crisis [slides]

Currency crises. Self fulfilling prophecies. Financial factors and amplification. Balance sheets effects. Sovereign debt crises.

Readings:

This Time is Different: A Panoramic View of Eight Centuries of Financial Crises, Carmen M. Reinhart and Kenneth S. Rogoff, NBER WP 13882, 2008. [pdf]*

From Stagflation to Debt Crisis. Ha et al., voxeu, July 2022. [link]*. More detailed policy report can be found here.

Is COVID-19 triggering a new emerging-market crisis?,  Bruegel Blog, March 2020. 

Caught by a cresting debt wave. Kose Ayhan et al., Finance & Development, IMF , June 2020.

More technical: Jeanne, Olivier D., Currency Crises: A Perspective on Recent Theoretical Developments, CEPR Discussion paper, 2000. [pdf]