Economics 302: Intermediate Macroeconomics

Professor Francesco Trebbi Office: Buchanan Tower 1004 Winter 2014 email: ftrebbi@mail.ubc.ca phone: (604) 822 – 9932 Office Hours: By Appointment (please ask, don’t be shy; also available to answer

questions via email). Course Materials: (1) A subscription to the Economist (Suggested)

(2) Text: Abel and Bernanke, Macroeconomics, Addison Wesley, Special UBC edition. (Required, but you may substitute with U.S. 6th edition).

Course Objective: The course provides the student with an introduction to macroeconomics. A first aim is to develop the basic analytical tools for understanding macroeconomic fundamentals, both in the short-run dimension (the business cycle) and in the long-run dimension (economic growth). We will focus on the aggregate behavior of consumers and producers, the role of expectations in the economy, the dynamics of prices and unemployment, the consequences of different fiscal and monetary policies. A second aim is to corroborate the analytical framework with real-world applications, ranging from the Canadian and United States' historical experience to cross-country comparisons, to develop insight in interpreting the 2008-09 US financial crisis and the 2011-12 EU debt crisis. A Note on Course Materials The bulk of course materials will come from three sources: the lectures, the book, and the course readings. Lecture notes will be posted directly on my web page. I will also make available some supplemental lecture notes. The supplemental notes (also posted on my web page) are integration to the textbook. The lectures of the course will describe important empirical regularities about the macroeconomy in order to help identify key questions, to guide model-building efforts, to evaluate the usefulness of the economic models, and/or to provide perspective on major economic developments.

A Note on Course Materials (continued) The course readings come from a variety of sources. Most readings come from the Economist. It is much more cost-efficient for you to buy a subscription to the economist to access these readings online than for me to include the readings in a course pack (the copyright fees on these articles far exceed the subscription to the Economist). If you do not wish to, you do not need to buy a subscription to the Economist. You can use the UBC’s library subscription. From an on-campus machine you should be able to access all the Economist’s content freely. A simple search for the article’s title in quotes usually is all you need to retrieve the full text. In case of multiple hits, check the date of publication –it can be one or two days off between online and paper version. The readings (in their general content not the minutia) are fair game for all subsequent tests. Note: The Abel and Bernanke textbook assigned for this class is required. Many students find the text extremely helpful. I have marked the appropriate readings from the text on the course reading list. Course Meeting time Lectures, starting from the second meeting, will begin on time and end 10 minutes early, as per university costume. There will be no practice exercitations before exams. How to Succeed in the Course This is a rewarding, but demanding class. To succeed is simple: Come to class, follow the lectures, and do all the readings. If you feel you are falling behind on the material, talk to me. Do not wait to the week before the final to ask for help. Course Grade (and grading policies):

100% Midterms and Final (Each midterm counts once, final counts three - take the highest three of those five grades and count 33% each – i.e. the two lowest of those five grades are dropped).

The first midterm will occur on February 11th 2014 and will last 1 hour and 20 minutes. The midterm will take place at the beginning of class, for the full 1:20 hours. This is a test comparable to past midterms posted on my webpage. The second midterm will occur on March 11th 2014 and will last 1 hour and 20 minutes. The midterm will take place at the beginning of class, for the full 1:20 hours. This is my “Wall Street Journal” test. You will analyze one (actual) economic commentary from a financial newspaper. If you cannot make the exam time and you want to take the midterms, you should not take my class. No alternate arrangements will be made. Final Exam times for the final are set by UBC and not me. I NEVER offer alternate final times. You must be able to make the final time if you enroll in my course. This is a test comparable to past finals posted on my webpage. Course Grading (continued)

Given my grading system above, you need not take the midterms (i.e. the midterms are optional). If you do not take the midterms, 100% of your course grade will be applied to the final. But, I strongly suggest you take the midterms and take them seriously. The midterms are easier than the final. That is my goal. I do not normalize the means of the midterms and final when computing the course average. I want to reward those who take the midterms and take the midterms seriously. If, for some reason (extreme medical emergency, death in the family) you cannot make the final exam, contact me in advance of the exam. For those who have an emergency and contact me in advance, you will be given a grade of ‘incomplete’. For those who do not contact me in advance, you will fail the course. Those who receive an incomplete can sit the final exam the next time I teach this macro class (likely, although not guaranteed, winter of next year). I will then assign a course grade based on your midterm and final exam scores. I do not give any make up finals! Again, you must notify me in advance (or as soon as possible) if you are going to miss the final. Any Exam for which there is a re-grade request must be done within 7 days after I return the exam to you. The request for re-grade MUST be done in writing and attached to the exam when submitting the exam for a re-grade. The request must include a description of what the problem is and why you think the exam should be graded differently. In such cases, I will re-grade the whole exam – not just the question you identified. There will be no graded homework, but I will post practice quizzes with separate solution material. You have to be disciplined in following through with practice, but it is necessary if you do not wish to hit a wall on the Final. Communication On occasion, I will post email questions from students and my answers to these questions. I will discuss the questions that I think lots of students have. Hopefully, this will be an efficient way to disseminate information and review core material from the course. All student identifiers will be removed when I post the questions. Note: If you do not want your question posted, you can explicitly state that in any emails you send. Additionally, I will tend to only answer email questions 2 days a week. We will set these days as the class progresses. Tentatively, I will plan on allocating Monday afternoons and Friday afternoons for responding to emails. Honor Code Even if not explicitly stated on each test, the honor code is always in effect. By taking this course, you explicitly pledge your honor that you will not cheat (or help others to cheat) in any way on the quizzes/exams. Any violations will be punished to the greatest extent allowed.

Course Outline/Reading List

The articles listed are required reading. All other readings can be found in the online version of the Economist. Below, I list the tentative schedule of topics. This is the order in which we will be covering material in this class. It is tentative in the sense that some lectures are a little longer and may extend into the following class, while others are shorter, meaning I will introduce a new topic during that week’s lecture. After each lecture, I will tell you for which readings you will be responsible. Topic 0: Getting in the Mood for Macro! Pre-Course Readings. Goal: To frame the issues of the course via a few short articles from the popular press. We will explore many of the details of these articles throughout the course. Topic 0 articles are here just for inducing interest in the subject. I. Overview of Macroeconomics

1. How Did Economists Get It So Wrong? (Paul Krugman: 9/2/2009) 2. In Defense of the Dismal Science (Economist: 8/6/2009)

II. A Brief History of Economic Time: U.S. Recessions? A Double Dip? Where’re the Jobs? Oil Shocks?

Inflation? Financial Crisis? Housing Markets Recovering? European Crisis? 3. The New European Union

http://www.economist.com/blogs/freeexchange/2013/12/euro-crisis 4. Soft or Hard (Economist: 4/22/2000) 5. U, V or W for recovery (Economist: 8/20/2009) 6. Poised for Growth? (Economist: 6/14/2003) 7. Losing its Way (Economist: 8/14/2004) 8. By the Numbers (Economist: 8/13/2005)

III. The Times They Are a Changin’: U.S./World Economy in 2009-10

9. Crisis Compels Economists to Reach for New Paradigm

(Wall Street Journal: 11/3/2009) IV. Economists and Politics 10. Not Exactly Major League (search major league) (Economist: 3/19/2005) 11. Paulson to the Rescue (Economist: 6/3/2006) V. Economists and Public Discourse 12. The Invisible Hand on the Keyboard (Economist: 8/5/2006) VI. Macroeconomic Modeling 13. Big Questions and Big Numbers (Economist: 7/15/2006)

Topic 1: Introduction to Macro Data Course Readings Goal: To complement the course lectures via some short articles from the popular press. Topic 1 readings cover material related to week 1 lectures, and so on. All the subsequent readings (in their general content, not the minutia) are fair game for the tests. Chapters 1, 2, and 3.5 from Text. I. The Difficulty in Measuring Economic Variables

A. Difficulty in Measuring Prices 14. Fighting America's Inflation Flab (Economist: 10/7/2000) 15. Feeling the Heat (Economist: 6/24/2006)

B. Difficulty in Measuring Output/Output Growth

16. Divining the Future (Economist: 1/15/2005) 17. Leading Us Astray? (Economist: 4/8/2006)

C. Difficulty in Measuring Unemployment

18. It’s The Taking Part That Counts (Economist: 7/30/2005) D. Difficulty Measuring Well Being 19. Chilled Out (Economist: 2/25/2012) 20. France to count happiness in GDP (Financial Times: 9/14/2009) II. The Yield Curve

21. The Long and the Short of It (Economist: 1/7/2006) 22. Inversion and Reversion (Economist: 9/7/2006)

Topic 2: Production, the Labor Market and Economic Growth Chapters 3, 6.1 and 6.3 (skim 6.2 - do not worry about the math) from Text I. Production and Labor Markets

23. A Stickier Problem (Economist: 26/8/2010) 24. Has Structural Change Contributed to a Jobless Recovery? (FED at: http://www.ny.frb.org/research/current_issues/ci9-8/ci9-8.html ) 25. In the bleak midwinter (Economist: 12/16/2010) 26. Jobless Growth (Economist: 6/3/2010) 27. The Land of Leisure (Economist: 2/4/2006)

II. Growth in the New Economy

28. Productivity on Stilts (Economist: 6/10/2000) 29. Performing Miracles (Economist: 6/17/2000)

III. Productivity

30. Secret Sauce (Economist: 11/12/2009) 31. A thinkers’ guide (Economist: 4/1/2000) 32. The gamble (Economist: 5/13/2007) 33. Use IT or lose it (Economist: 5/17/2007)

IV. Income Inequality

34. Like a piece of string (Economist: 10/13/2012)

Topic 3: Consumption, Saving, and Investment Chapters 4.1, 4.2 and Appendix 4.A from Text I. Consumption/Savings

35. Low and Slow http://www.economist.com/blogs/freeexchange/2012/07/americas-economy

36. Europe’s Other Debt Crisis (Economist: 10/26/2013) 37. The Shift Away from Thrift (Economist: 4/9/2005) 38. Home truths (Economist: 10/12/2006) 39. U.S. Household Deleveraging and Future Consumption Growth

(http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html ) II. Investment

40. The Profits Prophet (Economist: 10/5/2013) 41. Hey, small spender (Economist: 10/6/2012)

Topic 4: Fiscal Policy Chapter 9.2 and 15 from Text (skip 15.4) I. Government Savings

42. Tomorrow’s Burden (Economist: 10/22/2009) 43. The Money Comes Pouring In (Economist: 7/15/2006)

II. Taxes

44. When cuts aren’t kind enough (Economist: 9/22/2005) 45. The Case for Flat Taxes (Economist: 4/16/2005) 46. What’s Wrong With Cutting Taxes? (Simon Johnson for NYT

http://economix.blogs.nytimes.com/2010/12/09/whats-wrong-with-cutting-taxes/ ) III. Supply Side Economics

47. Europe Isn’t Working (Regulation) (Economist: 4/5/1997)

IV. Fiscal Policy in Action

48. Fiscal Cliff

http://www.economist.com/blogs/freeexchange/2012/07/fiscal-cliff-and-economy 49. Stampede to Stimulus (Economist: 1/17/2008) 50. Scattering Cash (Economist: 1/24/2008) 51. Stimulus: To Spend or Not to Spend? (Business Week: 1/28/2009) 52. Why the war against terror will boost the economy. (Business Week: 11/5/2001)

Topic 5: Introduction into Money/Federal Reserve Policy Chapters 7, 9.3, 14.1 and 14.2 from Text I. Monetary Basics

53. Some Monetary Facts (McCandless and Weber www.minneapolisfed.org/research/QR/QR1931.pdf )

54. Who Needs Money (Economist: 1/22/2000) II. Monetary Policy In Action

55. A Blunt Tool (Economist: 6/30/2001) 56. QE through the looking glass

http://www.economist.com/blogs/freeexchange/2012/11/monetary-policy-unintended-consequences

57. Desperate Measures (Economist: 1/22/2008) III. Know Your Central Banker

58. The Education of Ben Bernanke (New York Times: 1/20/2008) 59. Mark Carney: The man who speaks the truth (Globe and Mail: 12/14/2011)

(http://www.theglobeandmail.com/news/opinions/jeffrey-simpson/mark-carney-the-man-who-speaks-the-truth/article2270030/)

Topic 6: Inflation and Unemployment in the Short Run (Putting it All Together) Chapters 8-11 from Text I. A Look at Recessions

60. Recessions Compared http://www.economist.com/blogs/dailychart/2011/07/american-recessions-and-recoveries

II. Why We Care about Inflation

61. Germany's hyperinflation-phobia http://www.economist.com/blogs/freeexchange/2013/11/economic-history-1

62. Inflation Fears (Simon Johnson on 2009 Inflationary Prospects) (http://economix.blogs.nytimes.com/2009/05/28/inflation-fears/#more-14731 )

III. Should We Care About Deflation?

63. The Big Inflation Scare (New York Times, Krugman 5/29/2009) 64. Hear that Hissing Sound? (Economist: 5/17/2003)

IV. Shifts in Aggregate Supply: Technology Shocks

65. A Thinkers' Guide (Economist: 4/1/2000)

V. Shifts in Aggregate Supply: Oil Shocks 66. The 2011 Oil Shock (Economist: 3/3/2011) 67. Unstoppable? (Economist: 8/21/2004) 68. Counting the Cost (Economist: 8/27/2005)

VI. Credit Crunch and Credit Crisis

69. Mend the Money Machine (Economist: 5/4/2013) 70. Everything You Need to Know about the Credit Crisis

http://freakonomics.blogs.nytimes.com/2008/10/15/everything-you-need-to-know-about-the-financial-crisis-a-guest-post-by-diamond-and-kashyap/

Topic 7: A Deeper Look at Policy in Action Chapter 12 and 14.3 from Text I. A Policy Discussion

71. NGDP Targeting http://www.economist.com/blogs/freeexchange/2011/10/monetary-policy-3

72. Bernanke’s Response to the Financial Crisis (in his own lectures) http://www.federalreserve.gov/newsevents/files/chairman-bernanke-lecture3-20120327.pdf

II. The Inflation/Unemployment Tradeoff

73. Curve Ball (Economist: 9/30/2006) III. Monetary Rules (see web page for online locations)

74. Money Rules http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2012/12/25/central-banks-can -phase-in-nominal-gdp-targets-without-losing-the-inflation-anchor/

IV. Putting it all Together

75. A Nasty Whiff of Inflation (Economist: 9/24/2005) 76. Between Bears and Hawks (Economist: 5/13/2006)

Topic 8: Special Topics I. The 2009 Recession and Recovery

77. A Joyless Recovery (Economist: 10/29/2009) 78. The Long Climb (Economist: 10/1/2009) 79. Surviving the Slump (Economist: 5/28/2009)

II. A Primer on Japan in the 1990s.

80. Chronic Sickness (Economist: 6/2/2001) 81. After the Flood (Economist: 3/11/2006)

III. China

82. Speed isn’t everything (Economist: 4/20/2013)

IV. The European Union 83. A Trio of Trilemmas (Economist: 7/6/2013) 84. Fixing Europe's single currency (Economist: 9/23/2010)

V. Political systems and the Macroeconomy 85. Politics, race and redistribution (Economist: 3/11/2004)

Topic 9: The International Economy Chapter 5 and 13 from Text 86. The passing of the Buck? (Economist: 12/4/2004) 87. Growth After the Crisis (http://www.imf.org/external/pubs/ft/fandd/2009/09/giavazzi.htm ) 88. Reflections on the Trade Deficit and Fiscal Policy (Greg Mankiw http://www.economics.harvard.edu/faculty/mankiw/columns/trade_deficit_dec_2005.pdf)