MFE Macroeconomics Option

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MFE Macroeconomics Option

• Course Outline
• Gavin Cameron David Walton

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Aim and structure of course

• To gain a thorough grounding in modern
  macroeconomic theory with the aim of applying
  this to practical policy issues
• Each week will consist of two 60 minute lectures
  along with two 30 minute discussion sessions,
  separated by a coffee break. In week 8, students
  will work in teams to give a presentation on the
  macroeconomic policy issues facing various
  economies

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Course textbook

• Wendy Carlin and David Soskice, Macroeconomics
  Imperfections, Institutions and Policies, Oxford
  University Press, 2006
• Supplementary textbooks
• Macroeconomics, A European Text, Burda and
  Wyplosz, OUP
• Foundations of Modern Macroeconomics, Heijdra
  and van der Ploeg, OUP
• Advanced Macroeconomics, Romer, McGraw-Hill
• Recursive Macroeconomic Theory, Ljungqvist and
  Sargent, MIT

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Why study macroeconomics?

• Macroeconomics is the study of economic growth
  and business cycles
• Long-run economic growth determined by
  supply-side factors, such as technical progress,
  capital accumulation and the size and quality of
  the labour force
• Short-run concerned with fluctuations around
  long-run trend driven mainly by variations in
  aggregate demand. Implications for inflation,
  unemployment and the balance of payments.
  Monetary and fiscal policies affect macroeconomic
  outcomes

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What causes fluctuations in economic activity
around its trend?
UK output gap
Source ONS and own calculations. Notes
Estimated using GDP at basic prices (1960-2005)
and smoothing parameter 1600.
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Why does unemployment vary and what determines
the equilibrium rate?
Unemployment in the US and Europe
Source Carlin Soskice, p7
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Why has GDP growth become more stable in most
industrialised countries?
Volatility of US GDP growth
Standard deviation of real output growth over
previous 20 quarters
Source FRBSF Economic Letter 2005-24
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Why has inflation become lower and more stable in
most countries?
UK retail price inflation
Source Carlin Soskice, p709
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How should monetary policy respond to an oil
price shock?
Source IMF IFS (Brent Crude Oil Prices)
Datastream (US Dollar exchange rate), ONS (UK RPI
level). All quarterly averages. Notes I1973Q4
II1978Q4 III1990Q3 IV1999Q2 and V2004Q1.
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Should we be concerned about imbalances in the
United States economy?
US financial balances
Record US current account deficit
Source Carlin Soskice, p730
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How did Japan get caught in a deflation trap?
Could it be repeated elsewhere?
Japan growth, unemployment and inflation
Source Carlin Soskice, p734
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What determines whether countries get relatively
richer or poorer?
GDP per capita levels and growth rates gap
vis-à-vis the United States
Japan growth, unemployment and inflation
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Course outline

• Week 1 Measurement of the economy the
  transmission mechanism of monetary policy
• Week 2 Aggregate demand consumption and
  investment
• Week 3 Aggregate supply the labour market
  unemployment and inflation
• Week 4 Monetary policy
• Week 5 Open economy macroeconomics
• Week 6 Fiscal policy
• Week 7 Economic growth and international trade
• Week 8 Student presentations

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How is the course examined?

• 2 hour exam choose 3 essay questions from 8
  (60 of total marks)
• 3000 word essay macroeconomic behaviour and
  prospects in a country of your choice (20 of
  total marks)
• Student presentations in week 8. Participation in
  discussion sessions during weeks 2-7 (20 of
  total marks)

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Examples of essays

• 3000 word essay submitted on or before Tuesday
  6th June to Gavin Cameron.The following are
  examples only of subjects you might want to pick
• What are the prospects for the US/Japanese/euro
  area/ economy over the next two/three/five
  years?
• Does China need a floating exchange rate
• Can the euro area survive with a single monetary
  policy?
• Is the Japanese recovery sustainable?

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Week 8 presentations

• 30 minutes for each group on how they would set
  interest rates if they were running the central
  bank in chosen economy
• 15 minute presentation examine current economic
  situation, prospects for economic activity and
  inflation, policy dilemmas
• All participate no reading from notes
• 10-15 minutes questions all participate

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Week 8 teams

• China Wei Nie, Ran Wang, Xinxin Zhao, Kai He,
  Qufei Luo, Shan Liu
• US Iro Markaki, Sara Winsko, Dacia Russell,
  David Stewart, Awab Chohan, Antoine Couderioux
• Japan Marton Hübler, Thomas Hoverguimian,
  Heather Long, Christopher Taylor, Nugzari
  Jakobishvili
• Australia Udara Peiris, Malia Chappel, Harald
  Nieder, Emmanuel Vargas Morales, Michael Sassine
• India Chris Goodmacher, Sriram Ranganathan,
  Mahdi Yazdizadeh, Athanasios Paniopoulos,
  Abhishek Saxena
• EU Grant Smith, Elizabeth Masiello, Nicoleta
  Hurduc, Jamal Ismayilov, Dominique Pitot
• Japan Anisha Bansal, Rahul Malik, Sri
  Thirumaijah, Shameer Thobhani, Tao You

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MFE Macro Option

• Accompanying website with all materials relating
  to the course at
• http//www.economics.ox.ac.uk/members/gavin.camer
  on/mfe/