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Microeconomic Structure and Macroeconomic Implications

In the early 1990s, trade and labor economists, noting the fall in wages for low-skilled workers relative to high-skilled workers, began to debate the impact of trade on wages. This debate—which led to a sometimes heated exchange on the role of trade versus the role of technological change in explaining wage movements—continues today, with the focus now shifting to workers in the middle of the wage distribution. In Offshoring in the Global Economy, noted economist Robert Feenstra offers a synthesis of fifteen years of research—linking his own work to related research by others—on the globalization of production and its relation to wage movements.

Feenstra first contrasts the views of trade economists Paul Krugman and Edward Leamer, who both relied (to different ends) on the Heckscher–Ohlin model. He then examines the new type of trade model whereby the production processes transfer across countries. Feenstra suggests a new calculation of the factor content of trade that demonstrates the durability of the Heckscher–Ohlin model.

Feenstra examines as well the impacts of business cycle volatility, prices, and productivity on the macroeconomics of offshoring. In a concluding chapter, he addresses the broader implications of both empirical and theoretical work on offshoring and suggests directions for future research.

Ohlin Lectures series

A Phillips Curve Retrospective

In 1958, economist A. W. Phillips published an article describing what he observed to be the inverse relationship between inflation and unemployment; subsequently, the “Phillips curve” became a central concept in macroeconomic analysis and policymaking. But today’s Phillips curve is not the same as the original one from fifty years ago; the economy, our understanding of price setting behavior, the determinants of inflation, and the role of monetary policy have evolved significantly since then. In this book, some of the top economists working today reexamine the theoretical and empirical validity of the Phillips curve in its more recent specifications. The contributors consider such questions as what economists have learned about price and wage setting and inflation expectations that would improve the way we use and formulate the Phillips curve, what the Phillips curve approach can teach us about inflation dynamics, and how these lessons can be applied to improving the conduct of monetary policy. ContributorsLawrence Ball, Ben Bernanke, Oliver Blanchard, V. V. Chari, William T. Dickens, Stanley Fischer, Jeff Fuhrer, Jordi Gali, Michael T. Kiley, Robert G. King, Donald L. Kohn, Yolanda K. Kodrzycki, Jane Sneddon Little, Bartisz Mackowiak, N. Gregory Mankiw, Virgiliu Midrigan, Giovanni P. Olivei, Athanasios Orphanides, Adrian R. Pagan, Christopher A. Pissarides, Lucrezia Reichlin, Paul A. Samuelson, Christopher A. Sims, Frank R. Smets, Robert M. Solow, Jürgen Stark, James H. Stock, Lars E. O. Svensson, John B. Taylor, Mark W. Watson

A Comparative Analysis of Causes, Consequences, and Reform

Contrary to general belief, and to Japan's own self-image, inequality of income and wealth distribution in Japan has grown in the past two decades. In this well-written and accessible book, Toshiaki Tachibanaki analyzes the movement toward more income inequality in Japan and offers policy recommendations to counter the trend. Tachibanaki, Japan's leading expert on income distribution, draws on new statistical data covering wealth, inheritance, farm and business holdings, salary, and other relevant factors, to demonstrate that Japan can no longer be thought of as a "90 percent middle-class society."

The book, updated and substantially expanded from Tachibanaki's 1998 Japanese bestseller, discusses the history and the causes of Japan's increasing income inequality and analyzes the effect on wealth distribution of intergenerational transfer. Employing cross-national comparisons to the United States and Europe throughout, Confronting Income Inequality in Japan examines the contrast between equality of opportunity and equality of outcome, evaluates equality of opportunity in terms of education and occupation, analyzes the relationship between income distribution and income growth, discusses the role of hierarchical positions in organizations, and considers the differences between welfare states and nonwelfare states. Concluding with policy recommendations, Tachibanaki argues against the belief of some economists that greater inequality is unavoidable if Japan is to achieve a strong economic recovery.

This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations. The Economics of Growth first presents the main growth paradigms: the neoclassical model, the AK model, Romer’s product variety model, and the Schumpeterian model. The text then builds on the main paradigms to shed light on the dynamic process of growth and development, discussing such topics as club convergence, directed technical change, the transition from Malthusian stagnation to sustained growth, general purpose technologies, and the recent debate over institutions versus human capital as the primary factor in cross-country income differences. Finally, the book focuses on growth policies--analyzing the effects of liberalizing market competition and entry, education policy, trade liberalization, environmental and resource constraints, and stabilization policy--and the methodology of growth policy design. All chapters include literature reviews and problem sets. An appendix covers basic concepts of econometrics.

Downloadable instructor resources available for this title: solution manual

Postwar U.S. Economic Growth

These two volumes present empirical studies that have permanently altered professional debates over investment and productivity as sources of postwar economic growth in industrialized countries. The distinctive feature of investment is that returns can be internalized by the investor. The most straightforward application of this idea is to investments that create property rights, but these volumes broaden the meaning of capital formation to include investments in education and training.

Postwar US Economic Growth traces the outstanding postwar performance of the US economy to investments in tangible assets and human capital. This volume provides the starting point for a new consensus on policies to generate growth by stimulating and rewarding investments. These policies will focus on returns that can be internalized by investors, ending the fruitless search for "spill overs" that can generate substantial growth without providing incentives for capital formation.

Policy makers need quantitative as well as qualitative answers to pressing policy questions. Because of advances in computational methods, quantitative estimates are now derived from coherent nonlinear dynamic macroeconomic models embodying measures of risk and calibrated to capture specific characteristics of real-world situations. This text shows how such models can be made accessible and operational for confronting policy issues.

The book starts with a simple setting based on market-clearing price flexibility. It gradually incorporates departures from the simple competitive framework in the form of price and wage stickiness, taxes, rigidities in investment, financial frictions, and habit persistence in consumption.

Most chapters end with computational exercises; the MATLAB code for the base model can be found in the appendix. As the models evolve, readers are encouraged to modify the codes from the first simple model to more complex extensions.

Computational Macroeconomics for the Open Economy can be used by graduate students in economics and finance as well as policy-oriented researchers.

Dynamic General Equilibrium in a Non-Ricardian World

An important recent advance in macroeconomics is the development of dynamic stochastic general equilibrium (DSGE) macromodels. The use of DSGE models to study monetary policy, however, has led to paradoxical and puzzling results on a number of central monetary issues including price determinacy and liquidity effects. In Money, Interest, and Policy, Jean-Pascal Bénassy argues that moving from the standard DSGE models--which he calls "Ricardian" because they have the famous "Ricardian equivalence" property--to another, "non-Ricardian" model would resolve many of these issues. A Ricardian model represents a household as a homogeneous family of infinitely lived individuals, and Bénassy demonstrates that a single modification--the assumption that new agents are born over time (which makes the model non-Ricardian)--can bridge the current gap between monetary intuitions and facts, on one hand, and rigorous modeling, on the other.After comparing Ricardian and non-Ricardian models, Bénassy introduces a model that synthesizes the two approaches, incorporating both infinite lives and the birth of new agents. Using this model, he considers a number of issues in monetary policy, including liquidity effects, interest rate rules and price determinacy, global determinacy, the Taylor principle, and the fiscal theory of the price level. Finally, using a simple overlapping generations model, he analyzes optimal monetary and fiscal policies, with a special emphasis on optimal interest rate rules.

Essays in Honor of Guillermo A. Calvo

Guillermo Calvo, one of the most influential macroeconomists of the last thirty years, has made pathbreaking contributions in such areas as time-inconsistency, lack of credibility, stabilization, transition economies, debt maturity, capital flows, and financial crises. His work on macroeconomic issues relevant for developing countries has set the tone for much of the research in this area and greatly influenced practitioners' thinking in Latin America, Eastern Europe, Asia, and elsewhere. In Money, Crises, and Transition, leading specialists in Calvo's main areas of expertise explore the themes behind this impressive body of work.

The essays take on the issues that have fascinated Calvo most as an academic, a senior advisor at the International Monetary Fund, and as the chief economist at the Inter-American Development Bank: monetary and exchange rate policy (both in theory and practice); financial crises; debt, taxation, and reform; and transition and growth. A final section provides a behind-the-scenes look at Calvo's career and intellectual journey and includes an interview with Calvo himself.

Contributors: Leonardo Auernheimer, Fabrizio Coricelli, Padma Desai, Allan Drazen, Sebastian Edwards, Roque B. Fernández, Stanley Fischer, Ricardo Hausmann, Bostjan Jazbec, Peter Isard, Graciela L. Kaminsky, Michael Kumhof, Amartya Lahiri, I. Igal Magendzo, Enrique G. Mendoza, Frederic S. Mishkin, Igor Masten, Pritha Mitra, Alejandro Neut, Maurice Obstfeld, Edmund S. Phelps, Assaf Razin, Carmen M. Reinhart, Francisco Rodriguez, Efraim Sadka, Ratna Sahay, Rajesh Singh, Evan Tanner, Carlos A. Végh, Andrés Velasco, Rodrigo Wagner.

Reconciling Theory and Evidence

Though competition occupies a prominent place in the history of economic thought, among economists today there is still a limited, and sometimes contradictory, understanding of its impact. In Competition and Growth, Philippe Aghion and Rachel Griffith offer the first serious attempt to provide a unified and coherent account of the effect competition policy and deregulated entry has on economic growth.

The book takes the form of a dialogue between an applied theorist calling on "Schumpeterian growth" models and a microeconometrician employing new techniques to gauge competition and entry. In each chapter, theoretical models are systematically confronted with empirical data, which either invalidates the models or suggests changes in the modeling strategy. Aghion and Griffith note a fundamental divorce between theorists and empiricists who previously worked on these questions. On one hand, existing models in industrial organization or new growth economics all predict a negative effect of competition on innovation and growth: namely, that competition is bad for growth because it reduces the monopoly rents that reward successful innovators. On the other hand, common wisdom and recent empirical studies point to a positive effect of competition on productivity growth. To reconcile theory and evidence, the authors distinguish between pre- and post-innovation rents, and propose that innovation may be a way to escape competition, an idea that they confront with microeconomic data. The book's detailed analysis should aid scholars and policy makers in understanding how the benefits of tougher competition can be achieved while at the same time mitigating the negative effects competition and imitation may have on some sectors or industries.

This 21st edition of the NBER Macroeconomics Annual treats many questions at the cutting edge of macroeconomics that are central to current policy debates. The first four papers and discussions focus on such current macroeconomic issues as how structural-vector-autoregressions help identify sources of business cycle fluctuations and the evolution of U.S. macroeconomic policies. The last two papers analyze theoretical developments in optimal taxation policy and equilibrium yield curves.Daron Acemoglu is Charles P. Kindleberger Professor of Applied Economics at MIT. Kenneth Rogoff is Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University. Michael Woodford is John Bates Clark Professor of Political Economy at Columbia University. All three are Research Associates of the National Bureau of Economic Research.

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