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November 30, 2007
November 29, 2007
Class Materials for Lecture 17
Brief Outline of Topics Covered in Lecture 17
Chapter 25 Rational Expectations and Implications for Policy
- Anti-inflation policies
- Traditional model
- New classical model
- New Keynesian model
- The role of credibility in fighting inflation
- Show with AD-AS and Phillips curve diagrams
- Show with AD-AS and Phillips curve diagrams
Materials from class:
Continue with materials posted for lecture 16.
Video:
Lecture 17 [Google video] - Fall 2007
Lecture 17 [Windows Media] - Fall 2007
| Economics 470 Lecture 17 |
|
Previous (these were taped outside of class):
Lecture 17 - Chapter 25, pgs. 652-658
Google Video
Additional Reading:
- Is the sky falling on both Wall Street and Main Street? - Maverecon
- Dreaded 'R' Word Starts Tripping Off the Tongue - Caroline Baum
- Does offshoring boost domestic productivity? Evidence from Italy - Vox EU
- Size Limits for Cable Look Likely - New York Times
- New Findings Underscore an Earth-Venus Kinship - New York Times
- Subprime Series, part 2: - Vox EU
- Trust and European capital market integration - Vox EU
- In Study of Brain Evolution, Zeal and Bitter Debate - New York Times
- The Dance of Evolution, or How Art Got Its Start - New York Times
- China Rejects Europe’s Call for Currency to Rise Faster - New York Times
- A Slowdown in Jobs Lost, and Created - New York Times
Application:
This graph is from the San Francisco Fed. It shows the relationship between unemployment and wage inflation:
The accompanying write-up says:
Conventional wisdom holds that when the unemployment rate falls below the NAIRU, wage inflation increases, which eventually feeds through to price inflation. A key question for policymakers is whether this conventional wisdom remains relevant today.
There are a number of potentially mitigating factors that might temper the relevance of this historical relationship. Three factors that have received particular study of late are: (1) mismeasurement of available workers, (2) mismeasurement of the NAIRU, and (3) changes in the sensitivity of wage inflation to the unemployment rate owing to the rising importance and stability of inflation expectations.
Although the measured unemployment rate is quite low, some would argue that it does not fully capture the population available for work. Relative to the late 1990s, the labor force participation rate (LFP) and the employment-to-population ratio remain low, suggesting that there is some room for the total workforce to expand. On the other hand, the aging of the baby boom makes the return to past peaks in LFP or the employment-to-population ratio less than certain.
The NAIRU is difficult to measure and is affected by a number of demographic and institutional factors. There is a wide range of credible estimates of the current NAIRU—4.7 to 5.2—suggesting that labor markets may not be quite as tight as the consensus estimate would imply.
The sensitivity of wage inflation to the unemployment rate depends in part on the inflation expectations of workers. Despite elevated levels of price inflation of late, inflation expectations remain well-contained, likely tempering the magnitude of cost-of-living based wage increases demanded by workers.
November 28, 2007
November 26, 2007
Class Materials for Lecture 16
Brief Outline of Topics Covered in Lecture 16
Chapter 25 Rational Expectations and Implications for Policy
- New Classical Macroeconomics Model
- Effects of unanticipated and anticipated policy
- Can an expansionary policy lead to a decline in aggregate output?
- Policy ineffectiveness and implications for policymakers
- New Keynesian Model
- Effects of unanticipated and anticipated policy
- Implications for policymakers
- Comparisons of New Classical, New Keynesian, and Traditional Keynesian Models
- Short-Run Output and Price Responses
Materials from class:
Video:
Lecture 16 [Google video] - Fall 2007
Lecture 16 [Windows Media] - Fall 2007
| Economics 470 Lecture 16 |
|
Previous (these were taped outside of class):
Lecture 16 - Chapter 25, pgs. 641-652
Google Video
Additional Reading:
- Greenspan Shrugged - Economic Principals
- F.C.C. Chief Seeks Votes to Tighten Cable Rules - New York Times
- Subprime Series, part 1: Financial Crises Are Not Going Away - Vox EU
- Do firm-level productivity differences explain wage inequality? - Vox EU
- EU to press China over yuan - International Herald Tribune
- Why Does a Salad Cost More Than a Big Mac? - Mathew Yglesias
- August in November - Paul Krugman Blog
- Economy May Defy Past and Disregard Housing - New York Times
- Polar Bears for the South Pole? - Spiegel
- A new fashion in modelling - Economist.com
- The Ice-Cream Scoop Taken Out of the Universe - Discover
- Have we sealed the universe's fate by looking at it? - EurekAlert
- Who’s the Richest [Country] of Them All? - WSJ Economics Blog
- Intergenerational payoffs from mothers’ education - Vox EU
- Dollar Will Weather the Whines, Jeers and Jokes - John M. Berry
- Giant fossil sea scorpion bigger than man - EurekAlert
- Fed’s New Forecasts: What’s Surprising and What Isn’t - WSJ Econ Blog
- Dovish Fed vs. Hawkish Fed: More on the FOMC Minutes - WSJ Econ Blog
- What to Look for in New, Improved Fed Minutes - WSJ Economics Blog
- China voices alarm at dollar weakness - FT.com
- European vision blurred by the fog of finance - Project Syndicate
- Monkeys Have Sense of Fairness, Study Finds - Emory Wheel
- A Swarm of Swindlers - New York Times
- Bills Would Let Judges Remake Mortgages - washingtonpost.com
- Fed Watch: Long Run Forecast vs. Short Run Reality - Tim Duy
Application:
Wake up to the dangers of a deepening crisis, by Lawrence Summers, Commentary, Financial Times: Three months ago it was reasonable to expect that the subprime credit crisis would ... not ... threaten ... economic growth. This is still a possible outcome but no longer the preponderant probability.
Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses..., moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.
November 24, 2007
November 19, 2007
November 18, 2007
November 16, 2007
November 15, 2007
Class Materials for Lecture 14
Brief Outline of Topics Covered in Lecture 14
Chapter 22 Aggregate Demand and Supply Analysis
- Shifts in the AS curve
- Shifts in the SRAS
- Shifts in the LRAS and RBC models
Chapter 24 Money and Inflation
- Inflation
- Monetarist view
- Keynesian view
- Supply shocks
- Always a monetary phenomena?
- How does inflationary policy arise?
- Cost push - demand for higher wages
- Demand pull - shooting at the wrong target
- Budget deficits and inflation
Materials from class:
Video:
Lecture 14 [Google video] - Fall 2007
Lecture 14 [Media Player] - Fall 2007
| Economics 470 Lecture 14 |
|
Previous (these were taped outside of class):
Lecture 14 - Chapter 22, pgs. 569-580; Chapter 24, pgs 613-626
Google Video
Additional Reading:
- Bernanke Sets Plan to Make Fed More Transparent - washingtonpost.com
- Federal Reserve Communications - FRB: Speech--Bernanke
- World too complex for one-size-fits-all models - Dani Rodrik
- International financial stability by design - Vox EU
- The Coming Foreclosure Tsunami - Chris Hayes
- Understanding the Falling Dollar - Brad Setser - washingtonpost.com
- Facts and fallacies about US FDI in China - Vox EU
- China's October Inflation Matches Decade High of 6.5% - Bloomberg
- Subprime crisis: time for an inflation-targeting rethink? - Vox EU
- SpongeBob and the proper role of the State - Salon.com
- Yes, Virginia, the Fed Has an Inflation Target ... And It’s Missing It - WSJ
Application:
Bloomberg's John Berry on changes in Fed transparency:
Fed Changes More Than the Number of Forecasts, by John M. Berry, Bloomberg: Federal Reserve officials are going public with lots of the details missing from their traditional bare-bones forecasts, and they're going to do it four times a year instead of two.
The Federal Open Market Committee announced the changes yesterday in a statement, and Chairman Ben S. Bernanke discussed them in detail in a speech at the Cato Institute in Washington.
One thing the changes won't include is a formal target for inflation. And all the added information being released won't necessarily provide better guidance about what policy makers will do with their overnight lending-rate target at the next FOMC meeting. Minutes of the meetings already provide significant information about participants' views on the short- term economic outlook and the balance of risks to growth and inflation.
But what's really going to be new is that along with all the figures will be explanations that, according to the FOMC statement, ''will provide a fuller discussion of the projections, covering not only the outcomes that most meeting participants see as most likely, but also the risks to the economic outlook and the dispersion of views among policymakers.''
November 14, 2007
November 12, 2007
Class Materials for Lecture 13
Brief Outline of Topics Covered in Lecture 13
Chapter 22 Aggregate Demand and Supply Analysis
- Aggregate Demand
- Monetarist view
- Keynesian view
- Shifts in the AD curve
- Monetary policy (M)
- Fiscal policy (G,T)
- Other factors
- Aggregate supply
- Aggregate supply in the short-run
- Aggregate supply in the long-run
- Equilibrium
- Does the economy self-correct?
Materials from class:
Video:
Lecture 13 [Google video] - Fall 2007
Lecture 13 [Media Player] - Fall 2007
| Economics 470 Lecture 13 |
|
Previous (these were taped outside of class):
Lecture 13 - Chapter 22, pgs. 561-568
Google Video
Additional Reading:
- Dani Rodrik Seminar at Crooked Timber
- Consumer Spending Won't Fall and Cause Recession - John M. Berry
- A Necessary Profession, Reinvented (Develop. Econ.) - Economic Principals
- Astronomers' big news from the habitable zone - The Boston Globe
- From Ants to People, an Instinct to Swarm - New York Times
- Striking Out - James Surowiecki - The New Yorker
- Some Wonder if the Banks’ Stabilization Fund Will Work - New York Times
- Science-based approach in poverty fight - MIT News Office
- The Fed's policy space is not one-dimensional - Interfluidity
- The Man Who Imagined Wormholes and Schooled Hawking - Discover
- Do stronger patents limit the circulation of ideas? - Vox EU
- Solow reviews A Farewell to Alms - The Bayesian Heresy
Application:
This is from Bruce Blonigen and a co-author, Alyson Ma:
Will China soon be making not only cheaper, but also better, products than everyone else?, by Bruce Blonigen and Alyson C. Ma, Vox EU: The opening of China and its breathtaking ascendancy to major-player status in world markets has led to significant hand-wringing by the rest of the world on many fronts. The huge outflow of cheap unskilled-labour-intensive products from China and its ramifications for wages and welfare in both developed and other less-developed countries has been a primary concern.
Recently, new hand-wringing concerns have been raised by various commentators. As it turns out, the composition of China’s exports is much closer to that of OECD countries than its level of per-capita income would suggest.[1] This has substantial implications not only for China’s ability to sustain its growth, but also for real wages of all workers in developed countries, not just unskilled ones.
A significant factor behind this surprising export sophistication by China may be the role of industrial policy to promote technologically-advanced industries. While it is well known that the Chinese government has historically had preferential tax treatment and free trade zones for foreign firms, it also often negotiates technology transfer arrangements with foreign firms. These are either through restrictions that limit FDI to joint venturing with a domestic partner or simply offering quid pro quo arrangements of technology transfer from the foreign firm to domestic ones in exchange for the foreign firm’s ability to sell to the huge Chinese market.[2]
November 07, 2007
November 05, 2007
Class Materials for Lecture 12
Brief Outline of Topics Covered in Lecture 12
Chapter 21 Monetary and Fiscal Policy in the IS-LM Model
- The Fed cannot control both i and M simultaneously
- Poole's Pules
- Unstable IS curve
- Unstable LM curve
- The IS-LM model in the long-run
- Natural rate of output
- Monetary and fiscal policy in the short-run and long-run
- The aggregate demand curve
- Derive from IS-LM model
- Slope of aggregate demand curve
- Shifts in the aggregate demand curve
Materials from class:
Video:
Lecture 12 [Google video] - Fall 2007
Lecture 12 [Media Player] - Fall 2007
| Economics 470 Lecture 12 |
|
Previous (these were taped outside of class):
Lecture 12 - Chapter 20, pgs. 549-558
Google Video
Additional Reading:
- Performance-pay Perplexes - James Surowiecki
- Putting an End to Abusive Lending - New York Times
- Study Finds Working At Work Improves Productivity - The Onion
- In Portland, Cultivating a Culture of Two Wheels - New York Times
- Competitively Priced Electricity Costs More, Studies Show - New York Time
- Financial Instability and Monetary Policy - FRB: Speech--Mishkin
- Cognitive Dissonance (monkeys rationalize) - New York Times
- The Decline in the U.S. Personal Saving Rate - FRB St. Louis
- Religiosity and income in the U.S. - Andrew Gelman
- Gesturing helps solve math problems - EurekAlert
- Fed Cuts, Signals Markets Don't Look for Another - John M. Berry
- How the Brain Maps Symbols to Numbers - Scientific American
- Video of a sphere turning inside out without creasing - Sciam Observations
- $75 Billion Fund Is Seen as Stopgap - New York Times
- Helpful tax competition: new empirical evidence - Vox EU
Application:
Justin Fox on how Federal Reserve Governor Frederic Mishkin views the risk management approach to monetary policy in the current financial environment, and Mishkin's view of whether further rate cuts will be needed:
Rick Mishkin says the Fed is out to fight feedback loops, not bail out investors, by Justin Fox: Federal Reserve governor Frederic Mishkin gave a speech Monday... He said some interesting stuff:
Two types of risks are particularly important for understanding financial instability. The first is ... valuation risk: The market, realizing the complexity of a security or the opaqueness of its underlying creditworthiness, finds it has trouble assessing the value of the security. For example, ... during the turmoil of the past few months ... investors have struggled to understand how potential losses in subprime mortgages might filter through the layers of complexity that such products entail.
The second type of risk that I consider central to the understanding of financial stability is what I call macroeconomic risk--that is, an increase in the probability that a financial disruption will cause significant deterioration in the real economy. Because economic downturns typically result in even greater uncertainty about asset values, such episodes may involve an adverse feedback loop whereby financial disruptions cause investment and consumer spending to decline, which, in turn, causes economic activity to contract. Such contraction then increases uncertainty about the value of assets, and, as a result, the financial disruption worsens. In turn, this development causes economic activity to contract further in a perverse cycle.
So what is the Fed to do?
November 02, 2007
November 01, 2007
Economics 470
Mark Thoma
Office: BRB 3.158
Phone: TBA
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and by appointment
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Department of Economics
University of Oregon 1285
Eugene, OR 97403-1285
GTF Info - 470
TA: Yaran Jin
Office: BRB 2.138
Email: [email protected]
Office Hours: W,Th 3:30-4:30
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