Macroeconomics I 22104, Fall Isaac Baley. Introduction

Transcription

1 Macroeconomics I 22104, Fall 2017 Isaac Baley Introduction

2 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 2

3 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 3

4 Question #1: Economic growth and Development Once you start thinking about growth it's hard to think about anything else. Robert Lucas, Nobel Prize 1995 How do we measure economic growth? Why do some countries grow faster than others? Can a country grow forever? Why should we care about long-run growth? What are the drivers growth? What should governments do to foster growth? What shouldn t governments do? Not a topic of this course

5 How do we measure economic growth? Real GDP in Spain (Index: 1996=100) Natural Log of Real GDP (1996 = 100) GDP (Y in logs)

6 How do we measure economic growth? Real GDP in Spain (Index: 1996=100) Natural Log of Real GDP (1996 = 100) Only goods, takes away price effects Normalization to 100 for easy interpretation GDP (Y in logs) logarithms make smoother series + easy interpretation

7 How do we measure economic growth? Yearly GDP Growth in Spain (%) Δ%Yt = (Yt / Yt-1-1)* Equivalent formula: Δ%Yt = (ln Yt - ln Yt-1 )*100 Slope of previous graph

8 How do we measure economic growth? Positive growth Negative Growth Yearly GDP Growth in Spain (%) Δ%Yt = (Yt / Yt-1-1)*

9 How do we measure economic growth? Yearly GDP Growth in Spain (%) Δ%Yt = (Yt / Yt-1-1)* Positive sustained growth ~4% Slowdown Recovery Double-dip recession

10 Growth prospects for Spain in 2017

11 Growth prospects for Europe in

12 How do we measure LONG-RUN growth? Trend in country s real GDP (average yearly growth) Real GDP in Spain (Index: 1996=100) Natural Log of Real GDP (1996 = 100) Long-run trend (Ytrend in logs) GDP (Y in logs)

13 How do we measure LONG-RUN growth? FOCUS ON SLOPE OF TREND

14 Why do some countries grow faster than others? Long-run growth between 1960 and 2015 across countries Thousands of 2010 US$ Real GDP per Capita ! 2.6% per year ! 2.0% per year 51! 2.3% per year 35 10! 6.4% per year 6.4 Spain United States European Union China Nigeria 0.2! 1.2% per year Source: The World Bank - World Development Indicators, Aug

15 Why do some countries grow faster than others? Satellite imagery of night lights on the Earth

16 Can a country grow forever? GDP per capita growth US, Canada, Australia, NZ

17 Can a country grow forever? GDP per capita growth US, Canada, Australia, NZ Industrial Revolution

18 Why do we care about LONG-RUN growth? Positive correlation between income per capita and well-being Subjective well-being (SWB) & per capita gross GDP Different types of societies Source: Inglehart, Foa, Peterson, Welzel (2008)

19 Why do we care about LONG-RUN growth? but there is a lot of heterogeneity across countries Subjective well-being (SWB) & per capita gross GDP Different types of societies Source: Inglehart, Foa, Peterson, Welzel (2008) Mexico: Poor but happy Russia: Poor but unhappy

20 Why do we care about LONG-RUN growth? What other factors affect happiness? Subjective well-being (SWB) & per capita gross GDP Different types of societies Spain: Rich but a little less happy than expected Source: Inglehart, Foa, Peterson, Welzel (2008) Mexico: Poor but happy Russia: Poor but unhappy

21 What are the drivers of LONG-RUN growth? What affects the slope of the TREND? (Steeper trend = faster growth) 1. Population growth 2. Capital accumulation (physical and human) 3. Technological progress 4. Role for institutions 5..

22 What should governments do to foster growth? Positive correlation between Income per Capita and Years of Schooling

23 What should governments not do? Negative correlation between income per capita and Corruption

24 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 24

25 Question #2: Business cycle fluctuations What is the business cycle? How do we measure booms and recessions? What are the sources of these fluctuations? Should we care about fluctuations? Why some recessions are longer than others? The topic of this course

26 What is the business cycle? log Yt

27 What is the business cycle? log Yt log Ytrend

28 What is the business cycle?

29 What is the business cycle? Δ%Y cycle t = (log Yt - log Ytrend) * 100

30 What is the business cycle? Note: differences between Y growth and Y cycle Y growth = % difference btw current and previous GDP Δ%Y = (log Yt - log Yt-1 ) *100 Y cycle = % difference btw current and trend GDP Δ%Y cycle t = (log Yt - log Ytrend) * 100

31 What is the business cycle? Δ%Y cycle t = (log Yt - log Ytrend) * 100 Fact: Large and long lasting deviations from trend Zoom-in of previous graph

32 Booms and recessions Δ%Y cycle t = (log Yt - log Ytrend) * 100 Expansion (Boom) Peak Contraction Fact: Large and long lasting deviations from trend Trough Trough Zoom-in of previous graph

33 Booms and recessions Δ%Y cycle t = (log Yt - log Ytrend) * 100 Peak Peak Fact: Large and long lasting deviations from trend Peak Peak Trough Trough Trough Trough

34 Booms and recessions Δ%Y cycle t = (log Yt - log Ytrend) * 100 Fact: Large and long lasting deviations from trend RECESSIONS: LONG PERIODS OF GDP BELOW TREND

35 Recap: long-, medium-, and short-run Long-run What affects the trend? Short-run Temporary deviations from trend - Expansions and contractions Medium-run When economy is at the trend - We normalize trend to a constant - Call it natural level of Y or Yn

36 What are the sources of SHORT-RUN fluctuations? Why does the economy deviate from its TREND? Main reason: SHOCKS + PRICE RIGIDITY SHOCKS: (unexpected changes in ) Preferences and consumer confidence Technological, productivity and investment Labor market Government spending PRICE RIGIDITIES: (prices do not adjust in the short-run) Allegory for ALL inefficiencies in the private markets Examples: financial frictions, imperfect information, etc. AMPLIFICATION FACTORS Openness, financial markets, leverage

37 Should we care about fluctuations? Volatility/uncertainty may be harmful for the economy Consumers and firms value stability

38 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 38

39 Question #3: Policy interventions Should the government intervene to reduce fluctuations? What instruments are available for intervention? What should/can governments do? What shouldn t governments do? The topic of this course

40 Alternative views about policy intervention 1) Private markets are efficient No reason for policy intervention 2) Private markets are inefficient, but public policies.. Are largely ineffective (small and temporary effects) Could be inefficient themselves (making things worse) Little/adverse scope for policy intervention 3) Private markets are inefficient, but public policies.. Are effective and efficient to correct market imperfections Role for policy intervention We will focus on pros/cons of FISCAL and MONETARY policy

41 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 41

42 What will we learn? You have been exposed to basic macro models (IS-LM, AD-AS) How does the macroeconomy work? What are the crucial markets? What are the effects of fiscal and monetary policy? But we leb out two key features: Rest of the world: globaliza?on in trade and finance Future: expecta?ons, forward-looking decisions, financial markets How can we introduce these features into the basic models? How can they help us think about real-world problems? 42

43 Objectives for this course Learn terminology Ex: GDP, current account, government deficit, fiscal multiplier Analyze models Ex: An increase in the real exchange rate increases the current account deficit. True, false, uncertain? Interpret data Ex: Yearly data on current account balance for European countries Understand current macroeconomic issues and their policy implications Ex: Future of Euro, Brexit, high government debt 43

44 Course Contents I. International Trade in Goods and Assets IS-LM in Open Economy Exchange rate regimes European Monetary Union II. The Role of Expectations Financial Markets Consumption, Investment, and Output Economic Policy III. Current Topics in Macroeconomics Financial Crisis Sovereign Debt Crisis Monetary and Fiscal Policy Responses 44

45 Introduction 1. Key issues in Macroeconomics Economic growth and development Business cycle fluctuations Policy interventions 2. This course Objectives Bureaucracy 45

46 ADE/ECO Theory Classes (20 lectures) Mon-Tue 16:30-18:00 (groups 1 and 2) Aula Start 16:35 Finish 17:55 Seminars (6 seminars) Wed-Thu (see schedule for subgroups) Start on Oct You MUST attend the sections of your subgroup Office Hours Office: Hours: Tuesdays, 18:00 19:00 (please RSVP by ) isaac.baley@upf.edu (for doubts, first your TA) 46

47 Activities Plan 47

48 Course Evaluation 1. CONTINUING EVALUATION 35 points a. Seminars 20 points Problem set solution (in groups) 50% Presentation in seminar (individual) 50% b. Active Participation 10 points Real-time questions in class and seminars Readings (correct answer matters) Surveys (only participation matters) c. Online Quizzes 5 points 2. FINAL EXAM (Date TBA) 65 points 48

49 Evaluation: 1a) Seminars Before seminar, teams work on problem set Applications of theory to real world cases (data, Excel) Exercises distributed week before Work in teams up to 6 people, prepare 1 answer per group Submit answers before seminar Group grades: Excellent, Sufficient, Insufficient During seminar, different activities: (I) Students present solutions to problem set Volunteers allowed, TA will make sure everyone participates. Describe your methodology, results, interpretation, and implications Individual grades: Excellent, Sufficient, Insufficient (II) Additional exercises with real time questionnaires 20 points (50% solutions + 50% presentations) 49

50 Evaluation: 1b) Active Participation Attend class and seminars Meaningful participation in class discussions Real-time online questionnaires - During class and seminars - Bring laptop, tablet or mobile phone - Answer at least 80% of questions - Some require right answer, other only participation Q1 10 points 50

51 Evaluation: 1c) Online Quizzes Online multiple choice questions (Aula Global) About 1 quiz per week. Material covered in class / relevant book chapter. May include questions on additional readings. Each quiz: Random questions to be done in a limited time. Unlimited trials, only the highest score counts. Very good practice for exams. 5 points 51

52 Evaluation: 2) Final Exam Date: To be assigned (Dec) Material: Entire course: Part I, II and III Required readings Additional notes You MUST take the exam. If you don t come, you have to repeat the course next year. (Apart from very exceptional circumstances) 52

53 Make-up exam (Recuperació) AVOID RECUPERACIÓ!!!! NOT a chance to INCREASE your grade You lose all continuing evaluation grade» Make-up exam = 100% of grade Date: Jan 19 th or Feb 10 th (exact date TBA) Only for people who took final exam + DID NOT PASS NOT for people who did not take final exam in December No make-up exam in September 2018 People who failed must take the course again next year 53

54 One last thing Please, no talking in class! In a crowded room, it is otherwise impossible to teach Be respeclul, no one forces you to come to class Every Nme class is interrupted the difficulty of the final exam will increase 54

55 Class Material Textbook: Blanchard, Amighini and Giavazzi Macroeconomics: A European Perspective Pearson/Prentice Hall, 2013, 2 nd Edition. Other versions not recommended, do not have full material. 55

56 Class Material Additional material posted on Aula Global Lecture Slides (please download before coming to class) Problem Sets, Quizzes Required readings Research papers, Articles, The Economist, VOXEU Real time questionnaires Bring a device with Internet (phone, tablet, laptop) to class. 56