Business cycle, economic growth, inflation, employment, unemployment, interest rate, macro-economic policy

Macroeconomics study the behaviour of the economy as a whole. This includes analysis of the business cycle, long-run economic growth, inflation, unemployment, etc. Our main objective in “Advanced macroeconomics I” is that students master key developments in macroeconomics during the last 25 to 30 years: new-classical macroeconomics, modern business cycle analysis, more advanced topics of long-run growth and development, relatively recent game theoretic applications in macroeconomics.

New-classical macroeconomics: rational expectations (+ applications), policy implications Modern business cycle analysis new-classical approach: ‘real business cycle’ theory modern new-Keynesian approach: imperfect competition, real and nominal rigidity empirical research into the causes and characteristics of the business cycle (VAR-analysis) Advanced analysis of inflation and unemployment Monetary policy, inflation, interest rates and exchange rates: the long-run relations; Interactions between fiscal policy, monetary policy and inflation / hyperinflation; Game theoretic aspects of macroeconomics, institutions and macroeconomic performance: time inconsistency, the Barro-Gordon model, commitment, credibility and reputation, monetary institutions and inflation, structural and institutional determinants of unemployment (Calmfors-Driffill model). The new Phillips curve The theory of long-run economic growth: the Solow model, the convergence debate, ‘augmented’ Solow models, endogenous growth theory, the model of overlapping generations, empirical research on the determinants of GDP per capita in the long-run. The method of analysis in this course is graphical-intuitive as well as formal. As to formal methods, various models are analysed (model with rational expectations, real business cycle model, endogenous growth models, Diamond model of overlapping generations)

Students should have mastered a good basic macroeconomics course, including the IS-LM-BP-model (Mundell-Fleming model) and the AD-AS-model, the Phillips-curve. Knowledge of the Solow model of long-run growth is recommended.

Know the basic assumptions and policy implications of new-classical macroeconomics. Be able to show these (policy) implications in specific situations;
Be able to define rational expectations in general, and to derive them in a specific simple model;
Be able to show and explain the evolution of macroeconomic activity (GDP) and the main macroeconomic variables (private consumption and investment, unemployment and employment, real wage, interest rate) within the standard ‘real business cycle’ theory;
Know the strengths and weaknesses of the standard ‘real business cycle’ theory;
Understand and be able to explain the role of imperfect competition and nominal and real rigidity within modern new-Keynesian business cycle theory;
Understand the method and assess the results of modern empirical business cycle research (VAR analysis);
Be able to analyse the potential effects of fiscal policy on monetary policy, and its consequences for money growth, inflation, the exchange rate, etc. Be able to explain the problem of time inconsistency and the Barro-Gordon model;
Be able to explain the Calmfors-Driffill model;
Be able to analyse and explain economic growth and development of countries in the long run, be able to analyse and explain differences among countries. Be able to apply both the neoclassical and the endogenous growth framework. Understand and be able to interpret accessible formal models (e.g. models with rational expectations, models of economic growth, standard ‘real business cycle’ models, accessible new-Keynesian models, …). Be able to work out simple variants of such models Be able to read accessible papers from the macroeconomic literature.

Textbook : Heylen, F., 2004, Macro-economie, Garant, Antwerpen-Apeldoorn, ch. 15-21. The book can be obtained in the beginning of the academic year at the “Vakgroep Sociale Economie”. Price is 43 euro.
Complimentary journal articles and working papers (available via Minerva)

• Barro, R.J. en V. Grilli, 1994, European Macroeconomics, MacMillan, London (voor de klassieke visie op de macro-economie)
• Sorensen P.B. en H.J. Whitta-Jacobsen, 2005, Introducing Advanced Macroeconomics: Growth and Business Cycles, McGraw-Hill.
• Snowdon, B., Vane, H. en P. Wynarczyk, 1994, A Modern Guide to Macroeconomics: An Introduction to Competing Schools of Thought, Edward Elgar, Aldershot.
• Valdès, B., 1999, Economic Growth, Edward Elgar, Cheltenham.

Students can get help, explanation and coaching from an assistant. If necessary the responsible teacher can also be contacted for additional explanation.
Interactive support via Minerva (forum)

Ex-cathedra teaching with plenty of room for interaction with students and discussion

End-of-term evaluation (100%).

Written examination and oral examination (with written preparation).