Real Business Cycle Theory notes
Friedman's Descendants, I: Real Business Cycle theory (Long and Plosser
1983; Mankiw 1989)
Lucas famously formalized Friedman's arguments with his
"island" model. Expectations formalized as "rational
Monetary Base notes
The Monetary Base
There are numerous measures of "the" money supply; the least
controversial and the most fundamental is known as the monetary
In a fiat regime, the monetary base is currency, coins, and
deposits with the Fe
New Keynesianism notes
Friedman's Descendants, II: New Keynesianism (Romer 1993)
To rebut RE "policy irrelevance" arguments, NKs develop a
large number of nominal andreal rigidity models.
Monetary policy matters in the short-run in nominal rigidity
Efficient Policy notes
What does monetary policy do?
Real view: Affects the price level, inflation, and the
nominal interest rate.
Nominal view: In addition, has short-run impact on
employment, output, and real interest rates.
Rational Expectations notes
Rational Expectations: What It Is, What It Isn't
The RE assumption is a critical addition to basic micro. It is
probably the first formalization of the link between economic
actors' beliefs and the real world. (And without s
Rational Ignorance vs Rational Irrationality notes
Alternatives to Rational Expectations, II: "Rational Ignorance vs. Rational
The puzzle: Low-information, high certainty, systematically
biased beliefs. (Examples)
My model: People tra
Underlying Questions notes
Why does output fluctuate around its trend?
Real view: Multi-factor productivity ("technology")
shocks, other supply shocks (oil crisis), plus fiscal policy
shocks. Taste shocks also theoretically poss
Solving for RE Models notes
Solving a RE Model: A Simple Macroeconomy
Adding uncertainty complicates matters, but the extra insight is worth the
People can have both nominal and real uncertainties, so both NK and
RBC models can and do apply
The Equation of Exchange notes
The Equation of Exchange
M is money -measured however you like it.
M is money
V, velocity, is the number that makes the equation true; its
value depends on your choice of monetary aggregate. (V1 is
Bias Toward Zero in Aggregate Perceptions notes
Alternatives to Rational Expectations, I: Fremling and Lott's "Bias Toward
Zero in Aggregate Perceptions"
Look at agents as implicit econometricians. Estimation has
Setting up your specific