Chapter1_Introduction

Chapter1_Introduction - Macroeconomic Theory Introduction...

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Unformatted text preview: Macroeconomic Theory: Introduction Introduction Juan Rubio-Ram&rez Duke University and Federal Reserve Bank of Atlanta January 7, 2009 Juan Rubio-Ram&rez (DUKE) Introduction January 7, 2009 1 / 19 The Scope of Macroeconomics Microeconomics: object of interest is a single or a small number of households and &rms. Macroeconomics: object of interest is the entire economy. We care mostly about: 1 Growth. 2 Fluctuations. 3 Optimal Policy. Juan Rubio-Ram¡rez (DUKE) Introduction January 7, 2009 2 / 19 Relation between Macro and Micro Micro and macro are consistent applications of neoclassical theory. Unifying theme ) EQUILIBRIUM APPROACH : 1 Agents optimize given preferences and technology. 2 Agents&actions are compatible with each other. This requires: 1 Explicit about assumptions. 2 Models as mathematical abstractions. Objective: 1 Confronting theory with data. Juan Rubio-Ram¡rez (DUKE) Introduction January 7, 2009 3 / 19 What are the Requirements of Theory? Well articulated models with sharp predictions. Good theory cannot be vague: predictions must be falsi&able by data. Internal Consistency. Models as measurement tools. All this is scienti&c discipline. Juan Rubio-Ram¡rez (DUKE) Introduction January 7, 2009 4 / 19 Why Should We Care about Macroeconomics? Self interest: macroeconomic aggregates a/ect our daily life. Cultural literacy: understanding our world. Common welfare: essential for policy makers to implement good policy. Civic responsibility: basic to understand and judge our politicians. Juan Rubio-Ram&rez (DUKE) Introduction January 7, 2009 5 ¡ 19 A Brief Overview of the History of Macroeconomics Classics ( Smith, Ricardo, and Marx ) did not have a sharp distinction between micro and macro. Beginning of the XXth century: Marshall, Wicksell, and Pigou . J.M. Keynes , The General Theory of Employment, Interest, and Money (1936). 1945-1970, heyday of Neoclassical Synthesis : Samuelson, Klein, and Solow . Monetary versus &scal policy: Friedman, Tobin . 1972, Rational Expectations revolution: Lucas, Prescott, Sargent, and Sims . 1982, Real Business Cycles: Kydland and Prescott . 1980s, New Growth Theory: Romer, Aghion, and Howitt. 1990¡s, Dynamic Stochastic General Equilibrium (DSGE) models....
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Chapter1_Introduction - Macroeconomic Theory Introduction...

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