Macroeconomics

by Blanchard, Olivier

• ISBN13: 9780131860261
• ISBN10: 0131860267
• Edition: 4th
• Format: Hardcover
• Copyright: 2009-01-01
• Publisher: Prentice Hall

Summary

Do you want a book that provides an integrated view of macroeconomics? Olivier Blanchard helps students to see the big macroeconomic picture by integrating one unifying model throughout the text. Are you tired of macroeconomics texts that take too many shortcuts? Olivier Blanchard gives thorough treatment to many concepts that other books just skim over ,with the understanding that students will use these tools throughout their academic and professional careers. Do you want a book that allows the greatest degree of flexibility in learning and teaching macroeconomics? Olivier Blanchardrs"s organization allows for the greatest degree flexibility ,so professors can direct their class as they see fit, and students can learn from a methodology that matches the goals of their course.

Author Biography

Olivier Blanchard is the Class of 1941 Professor of Economics at MIT. He is also Chairman of the Department of Economics at MIT. He did his undergraduate work in France, and received a Ph.D. in economics from MIT in 1977. He taught at Harvard from 1977 to 1982, and has taught at MIT since 1983. He has frequently received the award for best teacher in the department of economics, most recently in 1999. He is a research associate of the National Bureau of Economic Research, a fellow of the Econometric Society, a member of the American Academy of Arts and Sciences, and a past Vice President of the American Economic Association.

Table of Contents

Preface	xiv
Introduction	1	(2)
A Tour of the World	3	(18)
The United States	4	(4)
Has the United States Entered a New Economy?	5	(2)
Should You Worry about the U.S. Budget Deficit?	7	(1)
The European Union	8	(4)
How Can European Unemployment Be Reduced?	10	(1)
What Will the Euro Do for Europe?	11	(1)
Japan	12	(3)
What Triggered the Slump?	13	(2)
How Will Japan Recover?	15	(1)
Looking Ahead	15	(6)
Appendix: Where to Find the Numbers?	19	(2)
A Tour of the Book	21	(22)
Aggregate Output	22	(6)
GDP: Production and Income	22	(2)
Nominal and Real GDP	24	(4)
The Other Major Macroeconomic Variables	28	(6)
The Unemployment Rate	28	(3)
The Inflation Rate	31	(3)
The Short Run, the Medium Run, the Long Run	34	(1)
A Tour of the Book	35	(8)
The Core	35	(1)
Extensions	36	(1)
Back to Policy	36	(1)
Epilogue	37	(3)
Appendix: The Construction of Real GDP, and Chain-Type Indexes	40	(3)
The Core	43	(1)
The Short Run	43	(72)
The Goods Market	45	(20)
The Composition of GDP	46	(2)
The Demand for Goods	48	(2)
Consumption (C)	48	(2)
Investment (/)	50	(1)
Government Spending (G)	50	(1)
The Determination of Equilibrium Output	50	(8)
Using Algebra	51	(1)
Using a Graph	52	(3)
Using Words	55	(1)
How Long Does It Take for Output to Adjust?	55	(3)
Investment Equals Saving: An Alternative Way of Thinking about Goods--Market Equilibrium	58	(2)
Is the Government Omnipotent? A Warning	60	(5)
Financial Markets	65	(24)
The Demand for Money	66	(3)
Deriving the Demand for Money	68	(1)
The Determination of the Interest Rate. I	69	(7)
Money Demand, Money Supply, and the Equilibrium Interest Rate	69	(4)
Monetary Policy and Open Market Operations	73	(1)
Open Market Operations	74	(1)
Choosing Money or Choosing the Interest Rate?	75	(1)
Money, Bonds, and Other Assets	76	(1)
The Determination of the Interest Rate. II	76	(6)
What Banks Do	76	(1)
The Supply and the Demand for Central Bank Money	77	(5)
Two Alternative Ways of Looking at the Equilibrium	82	(7)
The Federal Funds Market and the Federal Funds Rate	82	(1)
The Supply of Money, the Demand for Money, and the Money Multiplier	83	(6)
Goods and Financial Markets: The IS-LM Model	89	(26)
The Goods Market and the IS Relation	90	(4)
Investment, Sales, and the Interest Rate	90	(1)
Determining Output	91	(1)
Deriving the IS Curve	92	(2)
Shifts of the IS Curve	94	(1)
Financial Markets and the LM Relation	94	(4)
Real Money, Real Income, and the Interest Rate	95	(1)
Deriving the LM Curve	95	(2)
Shifts of the LM Curve	97	(1)
Putting the IS and the LM Relations Together	98	(5)
Fiscal Policy, Activity, and the Interest Rate	99	(2)
Monetary Policy, Activity, and the Interest Rate	101	(2)
Using a Policy Mix	103	(4)
How Does the IS-LM Model Fit the Facts?	107	(8)
The Medium Run	115	(88)
The Labor Market	117	(22)
A Tour of the Labor Market	118	(2)
The Large Flows of Workers	118	(2)
Movements in Unemployment	120	(4)
Wage Determination	124	(4)
Bargaining	125	(1)
Efficiency Wages	125	(1)
Wages, Prices, and Unemployment	126	(2)
Price Determination	128	(1)
The Natural Rate of Unemployment	129	(4)
The Wage-Setting Relation	129	(1)
The Price-Setting Relation	129	(1)
Equilibrium Real Wages and Unemployment	130	(2)
From Unemployment to Employment	132	(1)
From Employment to Output	132	(1)
Where We Go From Here	133	(6)
Appendix: Wage- and Price-Setting Relations versus Labor Supply and Labor Demand	137	(2)
Putting All Markets Together: The AS-AD Model	139	(26)
Aggregate Supply	140	(2)
Aggregate Demand	142	(3)
Equilibrium in the Short Run and in the Medium Run	145	(3)
Equilibrium in the Short Run	145	(1)
From the Short Run to the Medium Run	146	(2)
The Effects of a Monetary Expansion	148	(3)
The Dynamics of Adjustment	148	(1)
Going Behind the Scenes	149	(2)
The Neutrality of Money	151	(1)
A Decrease in the Budget Deficit	151	(4)
Deficit Reduction, Output, and the Interest Rate	153	(1)
Budget Deficits, Output, and Investment	154	(1)
Changes in the Price of Oil	155	(4)
Effects on the Natural Rate of Unemployment	156	(1)
The Dynamics of Adjustment	157	(2)
Conclusions	159	(6)
The Short Run versus the Medium Run	159	(1)
Shocks and Propagation Mechanisms	160	(1)
Where We Go From Here: Output, Unemployment, and Inflation	160	(5)
The Natural Rate of Unemployment and the Phillips Curve	165	(20)
Inflation, Expected Inflation, and Unemployment	166	(1)
The Phillips Curve	167	(6)
The Early Incarnation	167	(1)
Mutations	168	(4)
Back to the Natural Rate of Unemployment	172	(1)
A Summary and Many Warnings	173	(12)
Variations in the Natural Rate Across Countries	174	(2)
Variations in the Natural Rate Over Time	176	(1)
High Inflation and the Phillips Curve Relation	176	(4)
Deflation and the Phillips Curve Relation	180	(3)
Appendix: From the Aggregate Supply Relation to a Relation between Inflation, Expected Inflation, and Unemployment	183	(2)
Inflation, Activity, and Nominal Money Growth	185	(18)
Output, Unemployment, and Inflation	186	(4)
Okun's Law	186	(2)
The Phillips Curve	188	(1)
The Aggregate Demand Relation	188	(2)
The Effects of Money Growth	190	(3)
The Medium Run	191	(1)
The Short Run	192	(1)
Disinflation	193	(10)
A First Pass	193	(2)
Expectations and Credibility: The Lucas Critique	195	(1)
Nominal Rigidities and Contracts	196	(7)
The Long Run	203	(86)
The Facts of Growth	205	(18)
Growth in Rich Countries since 1950	206	(4)
The Large Increase in the Standard of Living since 1950	208	(1)
The Decrease in Growth Rates since the Mid-1970s	209	(1)
The Convergence of Output per Capita	209	(1)
A Broader Look across Time and Space	210	(3)
Looking across Two Millennia	211	(1)
Looking across Countries	211	(2)
Thinking about Growth: A Primer	213	(10)
The Aggregate Production Function	214	(2)
Returns to Scale and Returns to Factors	216	(1)
Output per Worker and Capital per Worker	217	(1)
The Sources of Growth	218	(5)
Saving, Capital Accumulation, and Output	223	(24)
Interactions between Output and Capital	224	(3)
The Effects of Capital on Output	224	(1)
The Effects of Output on Capital Accumulation	225	(2)
The Implications of Alternative Saving Rates	227	(9)
Dynamics of Capital and Output	227	(2)
Steady-State Capital and Output	229	(1)
The Saving Rate and Output	229	(3)
The Saving Rate and Consumption	232	(4)
Getting a Sense of Magnitudes	236	(4)
The Effects of the Saving Rate on Steady-State Output	237	(1)
The Dynamic Effects of an Increase in the Saving Rate	237	(1)
The U.S. Saving Rate and the Golden Rule	238	(2)
Physical versus Human Capital	240	(7)
Extending the Production Function	240	(1)
Human Capital, Physical Capital, and Output	241	(1)
Endogenous Growth	242	(3)
Appendix: The Cobb-Douglas Production Function and the Steady State	245	(2)
Technological Progress and Growth	247	(22)
Technological Progress and the Rate of Growth	248	(7)
Technological Progress and the Production Function	248	(1)
Interactions between Output and Capital	249	(3)
Dynamics of Capital and Output	252	(1)
The Effects of the Saving Rate	253	(2)
The Determinants of Technological Progress	255	(3)
The Fertility of the Research Process	255	(1)
The Appropriability of Research Results	256	(2)
The Facts of Growth Revisited	258	(2)
Capital Accumulation versus Technological Progress	258	(2)
Fluctuations in the Pace of Technological Progress	260	(1)
Institutions and Growth	260	(9)
Appendix: Constructing a Measure of Technological Progress	267	(2)
Technological Progress, Wages, and Unemployment	269	(20)
Productivity, Output, and Unemployment in the Short Run	270	(4)
Technological Progress, Aggregate Supply, and Aggregate Demand	270	(3)
The Empirical Evidence	273	(1)
Productivity and the Natural Rate of Unemployment	274	(5)
Price Setting and Wage Setting Revisited	274	(1)
The Natural Rate of Unemployment	275	(1)
The Empirical Evidence	276	(3)
Technological Progress and Distribution Effects	279	(10)
The Increase in Wage Inequality	280	(1)
The Causes of Increased Wage Inequality	281	(8)
Extensions	289	(1)
Expectations	289	(84)
Expectations: The Basic Tools	291	(22)
Nominal versus Real Interest Rates	292	(3)
Nominal and Real Interest Rates in the United States since 1978	294	(1)
Expected Present Discounted Values	295	(5)
Computing Expected Present Discounted Values	296	(1)
Using Present Values: Examples	297	(2)
Nominal Versus Real Interest Rates, and Present Values	299	(1)
Nominal and Real Interest Rates, and the IS--LM Model	300	(1)
Money Growth, Inflation, Nominal and Real Interest Rates	301	(12)
Revisiting the IS--LM Model	302	(1)
Nominal and Real Interest Rates in the Short Run	303	(1)
Nominal and Real Interest Rates in the Medium Run	304	(1)
From the Short to the Medium Run	305	(1)
Evidence on the Fisher Hypothesis	306	(5)
Appendix: Deriving the Expected Present Discounted Value Using Real or Nominal Interest Rates	311	(2)
Financial Markets and Expectations	313	(22)
Bond Prices and Bond Yields	314	(8)
Bond Prices as Present Values	316	(1)
Arbitrage and Bond Prices	316	(2)
From Bond Prices to Bond Yields	318	(1)
Interpreting the Yield Curve	319	(1)
The Yield Curve and Economic Activity	319	(3)
The Stock Market and Movements in Stock Prices	322	(4)
Stock Prices as Present Values	323	(1)
The Stock Market and Economic Activity	324	(2)
Bubbles, Fads, and Stock Prices	326	(9)
Appendix: Arbitrage and Stock Prices	332	(3)
Expectations, Consumption, and Investment	335	(20)
Consumption	336	(5)
The Very Foresighted Consumer	337	(1)
An Example	337	(1)
Toward a More Realistic Description	338	(1)
Putting Things Together: Current Income, Expectations, and Consumption	339	(2)
Investment	341	(8)
Investment and Expectations of Profit	342	(1)
A Convenient Special Case	343	(3)
Current versus Expected Profit	346	(1)
Profit and Sales	347	(2)
The Volatility of Consumption and Investment	349	(6)
Appendix: Derivation of the Expected Present Value of Profits under Static Expectations	354	(1)
Expectations, Output, and Policy	355	(18)
Expectations and Decisions: Taking Stock	356	(4)
Expectations, Consumption, and Investment Decisions	356	(1)
Expectations and the IS Relation	356	(3)
The LM Relation Revisited	359	(1)
Monetary Policy, Expectations, and Output	360	(4)
Monetary Policy Revisited	361	(3)
Deficit Reduction, Expectations, and Output	364	(9)
The Role of Expectations about the Future	364	(1)
Back to the Current Period	365	(8)
The Open Economy	373	(92)
Openness in Goods and Financial Markets	375	(20)
Openness in Goods Markets	376	(8)
Exports and Imports	376	(1)
The Choice between Domestic Goods and Foreign Goods	377	(1)
Nominal Exchange Rates	378	(2)
From Nominal to Real Exchange Rates	380	(3)
From Bilateral to Multilateral Exchange Rates	383	(1)
Openness in Financial Markets	384	(8)
The Balance of Payments	385	(2)
The Choice between Domestic and Foreign Assets	387	(2)
Interest Rates and Exchange Rates	389	(3)
Conclusions and a Look Ahead	392	(3)
The Goods Market in an Open Economy	395	(26)
The IS Relation in the Open Economy	396	(3)
The Demand for Domestic Goods	396	(1)
The Determinants of C, I, and G	396	(1)
The Determinants of Imports	397	(1)
The Determinants of Exports	397	(1)
Putting the Components Together	397	(2)
Equilibrium Output and the Trade Balance	399	(1)
Increases in Demand, Domestic or Foreign	400	(5)
Increases in Domestic Demand	400	(2)
Increases in Foreign Demand	402	(1)
Fiscal Policy Revisited	403	(2)
Depreciation, the Trade Balance, and Output	405	(4)
Depreciation and the Trade Balance: The Marshall-Lerner Condition	405	(1)
The Effects of a Depreciation	406	(1)
Combining Exchange-Rate and Fiscal Policies	407	(2)
Looking at Dynamics: The J-Curve	409	(4)
Saving, Investment, and the Trade Balance	413	(8)
Appendix 1: Multipliers: Belgium versus the United States	418	(1)
Appendix 2: Derivation of the Marshall-Lerner Condition	419	(2)
Output, the Interest Rate, and the Exchange Rate	421	(20)
Equilibrium in the Goods Market	422	(1)
Equilibrium in Financial Markets	423	(3)
Money versus Bonds	423	(1)
Domestic Bonds versus Foreign Bonds	424	(2)
Putting Goods and Financial Markets Together	426	(1)
The Effects of Policy in an Open Economy	427	(2)
The Effects of Fiscal Policy in an Open Economy	427	(2)
The Effects of Monetary Policy in an Open Economy	429	(1)
Fixed Exchange Rates	429	(12)
Pegs, Crawling Pegs, Bands, the EMS, and the Euro	430	(2)
Pegging the Exchange Rate, and Monetary Control	432	(1)
Fiscal Policy under Fixed Exchange Rates	433	(5)
Appendix: Fixed Exchange Rates, Interest Rates, and Capital Mobility	438	(3)
Exchange Rate Regimes	441	(24)
The Medium Run	442	(5)
Aggregate Demand under Fixed Exchange Rates	443	(1)
Equilibrium in the Short Run and in the Medium Run	443	(2)
The Case for and against a Devaluation	445	(2)
Exchange Rate Crises under Fixed Exchange Rates	447	(2)
Exchange Rate Movements under Flexible Exchange Rates	449	(5)
Exchange Rates and the Current Account	452	(1)
Exchange Rates, and Current and Future Interest Rates	453	(1)
Exchange Rates Volatility	453	(1)
Choosing between Exchange Rate Regimes	454	(11)
Common Currency Areas	455	(2)
Hard Pegs, Currency Boards, and Dollarization	457	(6)
Appendix 1: The Real Exchange Rate, and Domestic and Foreign Real Interest Rates	463	(1)
Appendix 2: Deriving Aggregate Demand under Fixed Exchange Rates	464	(1)
Pathologies	465	(46)
Depressions and Slumps	467	(26)
Disinflation, Deflation, and the Liquidity Trap	468	(7)
The Nominal Interest Rate, the Real Interest Rate, and Expected Inflation	469	(2)
The Liquidity Trap	471	(3)
Putting Things Together: The Liquidity Trap and Deflation	474	(1)
The Great Depression	475	(6)
The Initial Fall in Spending	477	(1)
The Contraction in Nominal Money	478	(1)
The Adverse Effects of Deflation	479	(1)
The Recovery	480	(1)
The Japanese Slump	481	(12)
The Rise and Fall of the Nikkei	483	(1)
The Failure of Monetary and Fiscal Policy	484	(2)
The Recovery	486	(7)
High Inflation	493	(18)
Budget Deficits and Money Creation	494	(2)
Inflation and Real Money Balances	496	(3)
Deficits, Seignorage, and Inflation	499	(4)
The Case of Constant Nominal Money Growth	499	(2)
Dynamics and Increasing Inflation	501	(1)
Hyperinflation and Economic Activity	502	(1)
How Do Hyperinflations End?	503	(2)
The Elements of a Stabilization Program	503	(1)
Can Stabilization Programs Fail?	504	(1)
The Costs of Stabilization	505	(1)
Conclusions	505	(6)
Back to Policy	511	(64)
Should Policy Makers Be Restrained?	513	(20)
Uncertainty and Policy	514	(4)
How Much Do Macroeconomists Actually Know?	514	(2)
Should Uncertainly Lead Policy Makers to Do Less?	516	(1)
Uncertainty and Restraints on Policy Makers	517	(1)
Expectations and Policy	518	(4)
Hostage Taking and Negotiations	518	(1)
Inflation and Unemployment Revisited	519	(1)
Establishing Credibility	520	(1)
Time Consistency and Restraints on Policy Makers	521	(1)
Politics and Policy	522	(11)
Games between Policy Makers and Voters	523	(2)
Games between Policy Makers	525	(3)
Politics and Fiscal Restraints	528	(5)
Monetary Policy: A Summing Up	533	(20)
The Optimal Inflation Rate	534	(5)
The Costs of Inflation	535	(2)
The Benefits of Inflation	537	(2)
The Optimal Inflation Rate: The Current Debate	539	(1)
The Design of Monetary Policy	539	(6)
Money Growth Targets and Target Ranges	539	(1)
Money Growth and Inflation Revisited	540	(1)
Inflation Targeting	541	(3)
Interest Rate Rules	544	(1)
The Fed in Action	545	(8)
The Mandate of the Fed	545	(1)
The Organization of the Fed	546	(1)
The Instruments of Monetary Policy	546	(2)
The Implementation of Policy	548	(5)
Fiscal Policy: A Summing Up	553	(22)
The Government Budget Constraint	554	(7)
The Arithmetic of Deficits and Debt	554	(3)
Current versus Future Taxes	557	(2)
The Evolution of the Debt-to-GDP Ratio	559	(2)
Four Issues in Fiscal Policy	561	(6)
Ricardian Equivalence	561	(2)
Deficits, Output Stabilization, and the Cyclically Adjusted Deficit	563	(1)
Wars and Deficits	563	(2)
The Dangers of Very High Debt	565	(2)
The U.S. Budget: Current Numbers and Future Prospects	567	(8)
Current Numbers	567	(2)
Medium-Run Budget Projections	569	(1)
The Long-Run Challenges: Low Saving, Aging, and Medical Care	570	(5)
Epilogue	575
Epilogue: The Story of Macroeconomics	575
Keynes and the Great Depression	576	(1)
The Neoclassical Synthesis	576	(3)
Progress on All Fronts	577	(1)
Keynesians versus Monetarists	578	(1)
The Rational Expectations Critique	579	(4)
The Three Implications of Rational Expectations	580	(1)
The Integration of Rational Expectations	581	(2)
Current Developments	583	(2)
New Classical Economics and Real Business Cycle Theory	583	(1)
New Keynesian Economics	583	(1)
New Growth Theory	584	(1)
Common Beliefs	585
Appendix 1 An Introduction to National Income and Product Accounts	1	(5)
Appendix 2 A Math Refresher	6	(6)
Appendix 3 An Introduction to Econometrics	12
Glossary	1	(1)
Index	1