Along with Julio Garin (Claremont-McKenna
College) and Robert
Lester (Colby College), I have written a textbook
designed to be used in an intermediate macroeconomics or
master level course in macroeconomics. You can download the
latest version of the manuscript HERE.
If you are an instructor, you are more than welcome to use the
book as a resource for your class (provided you give the
proper credit and direct students to the latest version of the
book, which will be posted here).
The textbook is currently used at over 40 institutions across 12 countries. It has been adopted by instructors at US schools such as the University of Chicago, Emory University, University of Houston, Kenyon College, University of Maryland, University of Mississippi, Wake Forest University, University of Wisconsin-Madison, and Temple University, among others. It has also been adopted at several international universities, such as the Hong Kong University of Science and Technology, Fudan and Tsinghua University (China), Universidad de Montevideo (Uruguay), the University of Queensland (Australia), Sharif University of Technology (Iran), and Vilnius University (Lituania), among others.
The current version of the text makes a number of additions and improvements over previous versions. There are a number of smaller issues that have been fixed, including notational confusion, typos, and broken links/references. We are grateful to previous users for pointing these out. Typos and points of confusion inevitably remain.
We welcome any feedback you might have on the textbook. If you have comments or suggestions, please email any of us: Julio Garin, Robert Lester, Eric Sims.
As of Summer 2020, we have a type solutions manual for end of chapter problems. If you are an instructor and would like the manual, please email any (or all) of the three of us.
The textbook is currently used at over 40 institutions across 12 countries. It has been adopted by instructors at US schools such as the University of Chicago, Emory University, University of Houston, Kenyon College, University of Maryland, University of Mississippi, Wake Forest University, University of Wisconsin-Madison, and Temple University, among others. It has also been adopted at several international universities, such as the Hong Kong University of Science and Technology, Fudan and Tsinghua University (China), Universidad de Montevideo (Uruguay), the University of Queensland (Australia), Sharif University of Technology (Iran), and Vilnius University (Lituania), among others.
The current version of the text makes a number of additions and improvements over previous versions. There are a number of smaller issues that have been fixed, including notational confusion, typos, and broken links/references. We are grateful to previous users for pointing these out. Typos and points of confusion inevitably remain.
The major substantive changes are:
(1) In the long run/growth section,
we have added a new chapter on overlapping generations (OLG)
models. This is Chapter 8 in the new version. We relate OLG
models back to the Solow model but can use them to address a
number of other issues, including integenerational
inefficiencies. Because it is based on optimization rather
than a constant saving rate as in the Solow model, the OLG
model provides a nice bridge to the rest of the text.
(2) We have included a chapter on models on monopolistic competition and their uses in macroeconomics (Chapter 16).
(2) We have included a chapter on models on monopolistic competition and their uses in macroeconomics (Chapter 16).
(2) We have an improved treatment of
search, matching, and unemployment (Chapter 17).
(3) We have included an appendix
chapter on what we call the neoclassical model with an
upward-sloping Ys curve. In our baseline
treatment, we (implicitly) assume GHH preferences so that
there is no intertemporal dimension to labor supply and the
Ys curve is vertical. This simplifies the
analysis and allows us to get to more interesting questions
quicker. But the version with the upward-sloping Ys
curve is nevertheless interesting and is close to what
Williamson calls the real intertemporal model. This is now
covered in Appendix C.
(4) We have included an Appendix,
Appendix E, with an "MP" formulation of monetary policy
rather than using the more traditional LM curve.
(5) We have a completed section on
money, credit, banking, and finance (Part 6). This includes
five chapters:
- Chapter 31: basics of banking. Talks about asymmetric information and the role of financial intermediation, assets, liabilities, credit risk, liquidity risk, and summarizes developments in the banking sector in the last decades, including the rise of the so-called "shadow banking" sector.
- Chapter 32: money creation process. This is fairly boilerplate but talks about the relationship between the monetary base, the money supply, and the money multiplier in depth.
- Chapter 33: liquidity transformation and bank runs. This chapter considers a simple version of a Diamond-Dybvig model to talk about the beneficial aspect of liquidity transformation and the susceptibility of financial intermediaries to runs.
- Chapter 34: bond pricing. Chapters 33 and 34 (stock pricing) use a Lucas tree framework in which assets are in fixed supply and endowments are exogenous to explore asset pricing and related issues. Chapter 33 focuses on bond pricing, including the risk and term structure of interest rates. Topics like yield curves, the expectations hypothesis, and the liquidity premium are discussed. We also use the model to compare and contrast conventional vs. unconventional monetary policy and to discuss why "quantitative easing works in practice but not in theory" (Bernanke).
- Chapter 35: stock market. We talk about the equity premium and devote significant attention to (rational) bubbles. We discuss how one might detect bubbles (ex-post) and whether central banks ought to try to prick bubbles.
- Chapter 36: financial factors in a macro model. Here we argue that a straightforward way to model financial factors is to include an exogenous credit spread into the cost of funds facing a firm's investment decision. We can think about crisis periods as periods in which this spread increases, reducing the demand for investment and aggregate demand more generally. We also explore a version of the model with a Bernanke, Gertler, and Gilchrist style financial accelerator wherein the credit spread depends on the level of economic activity. We discuss how the financial accelerator affects both the shape of the AD curve as well as how the AD curve shifts in response to shocks.
- Chapter 37: financial crises and the Great Recession. We give a broad historical overview of both the Great Depression and the Great Recession. We emphasize the fundamental similarity in that both featured "runs" (one on deposits, the other on short term funding / repo / commercial paper). We provide some specifics on the Great Recession, largely following the work of Gary Gorton. We then use the version of the IS-LM-AD-AS model with financial frictions (Chapter 35) to model the Great Recession, including the effects of the ZLB and unconventional policy actions.
(6) The statistics appendix has been
completed, including a better discussion of probability and
expectations, with a particular focus on covariance and the
relationship between the expected value of a product and the
product of expected values (which is particularly relevant
for the asset pricing chapters).
We welcome any feedback you might have on the textbook. If you have comments or suggestions, please email any of us: Julio Garin, Robert Lester, Eric Sims.
As of Summer 2020, we have a type solutions manual for end of chapter problems. If you are an instructor and would like the manual, please email any (or all) of the three of us.
