Macroeconomics advanced
Brief description of the course
In this course, we try to understand how key macroeconomic variables including output, prices, profits, and wages influence the economy and various social groups. We study the relationships between investment and savings, money and interest rates, prices and wages, and employment growth and inflation. The course also deals with exchange rates and other open economy macro issues. John Maynard Keynes’s 1936 book The General Theory of Employment, Interest, and Money is an important turning point in the evolution of economic ideas. Keynes, Kalecki, and their followers highlighted the central role of investment, especially by the government, in reviving an economy out of recession and unemployment. In doing so, they also made a decisive break with the ideas of the classical economists. At the same time, the ‘marginalist’ or the neoclassical schools argued against government intervention in the economy. If the market forces are allowed to operate freely, that, in itself, will help establish an equilibrium level of prices, they contended. The modern-day reincarnations of this line of thinking include the new classical school and real business cycle analysis. The course will try to cover this exciting intellectual debate. Further, it will examine macroeconomic policies and the challenges that governments and central banks face in implementing them, in the Indian and international contexts.
Major references
Taylor, Lance (2010), Reconstructing Macroeconomics, Harvard University Press, Cambridge, Massachusetts. (published in India by Viva Books)
Romer, David (2018) Advanced Macroeconomics. , McGraw-Hill.
Blanchard, Oliver (2017), Macroeconomics, 7th Edition, Pearson.
Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy
Marglin, Stephen A. (2021) Raising Keynes: A Twenty-first Century General Theory, Harvard University Press
Snowdon, Brian and Howard R.Vane (2005), Modern Macroeconomics: Its Origins, Development and Current State, Edward Elgar, Cheltenham, UK.
Bhaduri, Amit (1986), Macroeconomics: The Dynamics of Commodity Production, ME Sharpe.
Keynes, John Maynard (1936), The General Theory of Employment, Interest and Money
Kalecki, Michael (1971), Selected Essays on the Dynamics of the Capitalist Economy 1933-1970, Cambridge University Press.
Taylor, Lance (2010), Maynard’s Revenge: The Collapse of Free Market Macroeconomics, Harvard University Press, Cambridge, Massachusetts.
Piketty, Thomas (2014) Capital in the Twenty-First Century, Harvard University Press, Cambridge, London.
Detailed Outline
I. Setting the Stage: Social Accounts, Social Relations, and International Connections
Income, Wages and Profits
Saving-Investment Balance
Income, Capital and Inequalities
Macroeconomy and international relations
For notes on Social Accounting matrix based on Lance Taylor’s book, please visit this link
For notes on the notes on the relation between saving and investment, please visit this link
Case Study: On macroeconomic relations in the Indian context, see this article.
II. PRICES AND DISTRIBUTION
Are prices demand determined or cost determined? (Quick answer: demand- determined according to the neoclassical view; cost-determined according to Keynes-Kalecki)
Does an increase in real wages lead to a decline in profit rate?
Are quantities and prices determined simultaneously or separately?
For notes on the notes on the relation between prices and distribution, please visit this link
III. MONEY, INTEREST, AND INFLATION
Loanable-funds theory: Irving Fischer, Ramsey’s Optical control problem, Wicksell’s inflation model
Keynes’s ideas: liquidity preference, the marginal efficiency of capital
For notes on ideas relating to money and interest, please visit this link
For notes on the Ramsey model based on Lance Taylor’s work, please visit this link
For notes on the IS-LM model based on Lance Taylor’s work, please visit this link.
On the IS-LM model fundamentals and the slopes of the IS-LM curve, please visit this link.
IV. EFFECTIVE DEMAND AND ITS IMPLICATIONS: MORE ON THE KEYNESIAN SYSTEM
For notes on the Keynesian model based partly on Lance Taylor’s work, please visit this link
V. COUNTERATTACK FROM THE MARGINALISTS AND MORE
Key questions:
Will government expenditures crowd in or crowd out private investment? See this link
Should the Central Bank target Inflation or Creating Employment?
An overview of some of the mainstream models on the above questions:
Monetarist Theory. See notes here; New Classical Theory
Real Business Cycle;
DGSE (Dynamic Stochastic General Equilibrium) Models
New Keynesian Economics
For notes on the Monetarist model based on Lance Taylor’s work, please visit this link
V. STRUCTURALIST FINANCE AND MONEY
For notes on Endogenous money based on Lance Taylor’s work, please visit this link
VI. OPEN ECONOMY
The Mundell-Flemming Model
Finance and the Macroeconomy
Labour Economy Development 