Lecture8_June30

Lecture8_June30 - A BRIEF HISTORY OF MACROECONOMICS JUNE...

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1 AB RIEF H ISTORY OF M ACROECONOMICS J UNE 30, 2010 June 30, 2010 2 T HE P HASES OF M ACROECONOMICS The Evolution of Macroeconomics ± Three seminal phases of the history of macroeconomic thought/practice ± Phase I: Measuring macroeconomic activity (1930’s – 1950) ± Phase II: Keynesian-inspired macroeconometric models (1950 – 1970’s) ± Phase III: Dynamic General Equilibrium (DGE) methodology (1980’s – today)
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2 June 30, 2010 3 T HE P HASES OF M ACROECONOMICS The Evolution of Macroeconomics ± Three (four?) seminal phases of the history of macroeconomic thought/practice ± Phase I: Measuring macroeconomic activity (1930’s – 1950) ± Phase II: Keynesian-inspired macroeconometric models (1950 – 1970’s) ± Phase III: Dynamic General Equilibrium (DGE) methodology (1980’s – today) ± Phase IV? What changes are forthcoming in the profession (policy-making and theory) spurred by current financial and economic downturn? Focus on linkages between financial markets and the macroeconomy? Who knows… June 30, 2010 4 T HE B IRTH OF M ACROECONOMICS The Evolution of Macroeconomics: Phase I ± “Macroeconomics” born as a field during and because of the Great Depression ± Idea that government could/should regulate the periodic ups and downs of the economy rose to prominence ± John Maynard Keynes, The General Theory of Employment, Interest, and Money (1936) ± Basic tenet: various “rigidities” in many markets lead to “disequilibria” that can last a long time ± Burns and Mitchell, Measuring Business Cycles (1946) ± First systematic accounting of the co-movement of various aggregates ± i.e., GDP, consumption, employment, inflation, unemployment rate, etc…
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3 June 30, 2010 5 L ONG- R UN G ROWTH VS. B USINESS C YCLES Macro Fundamentals ± Decompose time series into trends and cycles ± Two clear patterns ± Long-run growth ± Frequent and sometimes big short-run fluctuations around long-run trend ± Are the short-run fluctuations tightly related to the long-run trend? ± Conventional view in economics is “no” ± But (very) recent work provocatively suggests answer may be “yes” ± Linkage through R&D: R&D typically thought to be a driver of long-run growth…but perhaps cyclical fluctuations in R&D themselves have consequences for “business cycles” (much more research needed here…) time Actual GDP (or virtually any real economic series…) Long-run trend of GDP -- a linear trend very simple; but can also construct (more nuanced) nonlinear trends (statistics and econometrics) June 30, 2010 6 L ONG- R UN G ROWTH VS. B USINESS C YCLES ± Decompose time series into trends and cycles ± Two clear patterns ± Long-run growth ± Frequent and sometimes big short-run fluctuations around long-run trend ± Are the short-run fluctuations tightly related to the long-run trend?
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Lecture8_June30 - A BRIEF HISTORY OF MACROECONOMICS JUNE...

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