Advanced Macroeconomics I

Readings

SES #	TOPICS	READINGS
1	Fiscal policy I: Optimal taxation with heterogeneity and idiosyncratic uncertainty	Chari, V. V., and Patrick J. Kehoe. “Optimal Fiscal and Monetary Policy.” Handbook of Macroeconomics 1 (1999): 1671–745. Werning, I. “Optimal Fiscal Policy with Redistribution.” Quarterly Journal of Economics 122, no. 3 (1999): 925–67. Aiyagari, S. Rao. “Optimal Capital Income Taxation with Incomplete Markets, Borrowing Constraints, and Constant Discounting.” (PDF) Journal of Political Economy 103, no. 6 (1995): 1158–75. Aiyagari, S. Rao, Albert Marcet, et al. “Optimal Taxation without State-Contingent Debt.” Journal of Political Economy 110, no. 6 (2002): 1220–54.
2	Public liquidity	Aiyagari, R. S., and E. McGrattan. “The Optimum Quantity of Debt.” Journal of Monetary Economics 42, no. 3 (1998): 447–69. Woodford, M. “Public Debt as Private Liquidity.” American Economic Review 80, no. 2 (1990): 382–8. Lippi, F., and Nicholas Trachter. “On the Optimal Supply of Liquidity with Borrowing Constraints.” Mimeo (2012). Stein, J. “Monetary Policy as Financial-Stability Regulation.” The Quarterly Journal of Economics 127, no. 1 (2012): 57–95.
3	Default and sovereign debt	Conesa, Juan C., and Timothy J. Kehoe. “Gambling for Redemption and Self-Fulfilling Debt Crisis.” Mimeo, Federal Reserve Bank of Minneapolis (2011). Arellano. “Default Risk and Income Fluctuations in Emerging Economies.” Mimeo, Federal Reserve Bank of Minneapolis (2007). Chamon, Marcos. “Can Debt Crises be Self-Fulfilling?” Journal of Development Economics 82, no. 1 (2007): 234–44. Cole, Harold, and Timothy Kehoe. “Self-Fulfilling Debt Crises.” Review of Economic Studies 67, no. 1 (2000): 91–116. Calvo. “Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops.” Journal of Applied Economics (1998). Ghosh, Kim, et al. “Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies.” NBER Working Paper No. 16782, 2011. Hopenhyan, Hugo, and Ivan Werning. “Equilibrium Default.” (PDF) Mimeo, MIT (2008).
4	Monetary policy with nominal rigidities	Woodford, M. “Optimal Monetary Stabilization Policy.” (PDF) In Handbook of Monetary Economics, Volume 3B. Edited by B. M. Friedman, and M. Woodford. North Holland, 2010. ISBN: 9780444534545. Correia, I., J. P. Nicolini, et al. “Optimal Fiscal and Monetary Policy: Equivalence Results.” Journal of Political Economy 116, no. 1 (2008): 141–70.
5	Liquidity traps	Eggertsson, G. B., and M. Woodford. “The Zero Bound on Interest Rates and Optimal Monetary Policy.” (PDF) Brookings Papers on Economic Activity (2003). Guerrieri, V., and G. Lorenzoni. “Credit Crises, Precautionary Savings and the Liquidity Trap.” Mimeo, MIT (2011). Eggertsson, G. B., and Paul Krugman. “Debt, Deleveraging, and the Liquidity Trap.” (PDF) Quarterly Journal of Economics (2012). Werning, I. “Managing Liquidity Trap: Monetary and Fiscal Policy.”  MIT (2012). Mian, Atif R., K. Rao, et al. “Household Balance Sheets, Consumption, and the Economic Slump.” (PDF) Booth (2011). Hall, R. “The Long Slump.” American Economic Review 101 (2011): 431–69. (2011 AEA Presidential Address)
6	Fiscal policy II: Government spending	Woodford, M. “Simple Analytics of the Government Expenditure Multiplier.” (PDF) AEJ Macro, forthcoming (2010). Nakamura, E., and J. Steinsson. “Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions.” (PDF) Mimeo, Columbia University. Farhi, E., and I. Werning. “Fiscal Multipliers.” Mimeo, MIT. Gali, J., and T. Monacelli. “Optimal Monetary and Fiscal Policy in a Currency Union.” Journal of International Economics 76, no. 1 (2008): 116–32.
7	Time inconsistency and reputation	Chari, V. V., and P. J. Kehoe. “Sustainable Plans.” Journal of Political Economy 98, no. 4 (1990): 783–802. Athey, S., A. Atkeson, et al. “The Optimal Degree of Discretion in Monetary Policy.” Econometrica 73, no. 5 (2005): 1431–75. Farhi, E., C. Sleet, et al. “Non-linear Capital Taxation without Commitment.” Review of Economic Studies (2012).
8	Borrowing constraints, investment, and fluctuations	Kiyotaki, N., and J. Moore. “Credit Cycles.” Journal of Political Economy 105, no. 2 (1997): 211–48. Brunnermeier, M., and Y. Sannikov. “A Macroeconomic Model with a Financial Sector.” Mimeo, Princeton (2012). Adrian, T., P. Colla, and Hyun Song Shin. “Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007–9.” (PDF) Mimeo (2012). Adrian, T, and Nina Boyarchenko. “Intermediary Leverage Cycles and Financial Stability.” Mimeo (2012).
9	Inefficient insurance	Lorenzoni, G. “Inefficient Credit Booms.” (PDF) Review of Economic Studies 75, no. 3 (2008): 809–33. Korinek, A., and O. Jeanne. “Managing Credit Booms and Busts: A Pigouvian Taxation Approach.” (PDF) Mimeo, University of Maryland (2010). Jeske, K. “Private International Debt with Risk of Repudiation.” Journal of Political Economy 114, no. 3 (2006): 576–93. Bianchi, J., and Enrique G. Mendoza. “Overborrowing, Financial Crises and ‘Macro-Prudential’ Policy?” Mimeo (2011). Farhi, E., and Ivan Werning. “Fiscal Unions.” NBER Working Paper No. 18280, 2012.
10	Employment and unemployment dynamics with wage rigidity	Shimer, R. “Wage Rigidities and Jobless Recoveries.” (PDF) Mimeo, University of Chicago (2012). Hall, R. “Employment Fluctuations with Equilibrium Wage Stickiness.” (PDF) American Economic Review 95, no. 1 (2005): 50–65. Alvarez, F., and R. Shimer. “Search and Rest Unemployment.” Econometrica 79, no. 1 (2011): 75–122. Shimer, R. “Reassessing the Ins and Outs of Unemployment.” Review of Economic Dynamics 15, no. 2 (2012): 127–48.
11	Classic coordination games in macroeconomics	Benhabib, J., and R. E. A. Farmer. “Indeterminacy and Increasing Returns.” Journal of Economic Theory 63, no. 1 (1994): 19–41. Calvo, G. A. “Servicing the Public Debt: The Role of Expectations.” American Economic Review 78, no. 4 (1998): 647–61. Cole, Harold, and Timothy Kehoe. “Self-Fulfilling Debt Crises.” Review of Economic Studies 67, no. 1 (2000): 91–116. Diamond, Douglas, and Philip Dybvig. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91, no. 3 (1983): 401–19. Diamond, Peter. “Aggregate Demand Management in Search Equilibrium.” Journal of Political Economy 90, no. 5 (1982): 881–94. Farhi, E., and J. Tirole. “Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts.” American Economic Review 102, no. 1 (2012): 60–93. Additional Readings Azariadis, Costas. “Self-Fulfilling Prophecies.” Journal of Economic Theory 25, no. 3 (1981): 380–96. Cass, D., and K. Shell. “Do Sunspots Matter?.” Journal of Political Economy 91, no. 2 (1983): 193–227. Cooper, Russell, and Andrew John. “Coordinating Coordination Failures in Keynesian Models.” Quarterly Journal of Economics 103, no. 3 (1988): 441–63. Murphy, Kevin M., Andrei Shleifer, et al. “Industrialization and the Big Push.” Journal of Political Economy 97, no. 5 (1989): 1003–26.
12	Global games, with applications to crises	Angeletos, George-Marios, and Ivan Werning. “Crises and Prices: Information Aggregation, Multiplicity and Volatility.” American Economic Review 96, no. 5 (2006): 1720–36. Angeletos, George-Marios, Christian Hellwig, et al. “Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks.” Econometrica 75, no. 3 (2007): 711–56. Angeletos, George-Marios, and Alessandro Pavan. “Selection-Free Predictions in Global Games with Endogenous Information and Multiple Equilibria.” Theoretical Economics (2012). Frankel, David, and Ady Pauzner. “Resolving Indeterminacy in Dynamic Settings: The Role of Shocks.” Quarterly Journal of Economics 115, no. 1 (2000): 283–304. Morris, Stephen, and Hyun Song Shin. “Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks.” American Economic Review 88 (1998): 587–97. ———. “Rethinking Multiple Equilibria in Macroeconomics.” In NBER Macroeconomics Annual 2000. MIT Press, 2001. ISBN: 9780262523141. [Preview with Google Books]  ———. “Global Games—Theory and Applications.” In Advances in Economics and Econometrics, 8th World Congress of the Econometric Society. Edited by M. Dewatripont, L. Hansen, and S. Turnovsky. Cambridge University Press, 2003. ISBN: 9780521524124. [Preview with Google Books] Abreu, Dilip, and Markus Brunnermeier. “Bubbles and Crashes.” Econometrica 71, no. 1 (2003): 173–204. Additional Readings Angeletos, George-Marios, Christian Hellwig, et al. “Signaling in a Global Game: Coordination and Policy Traps.” Journal of Political Economy 114, no. 3 (2006): 452–84. Chamley, Christophe. “Coordinating Regime Switches.” Quarterly Journal of Economics 114, no. 3 (1999): 869–905. Corsetti, Giancarlo, Amil Dagupta, et al. “Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders.” Review of Economic Studies 71, no. 1 (2004): 87–113. Edmond, Chris. “Information Manipulation, Coordination and Regime Change.” Mimeo, NYU (2011). Goldstein, Itay, and Ady Pauzner. “Demand Deposit Contracts and the Probability of Bank Runs.” Journal of Finance 60, no. 3 (2005): 1293–328. He, Z., and W. Xiong. “Dynamic Debt Runs.” Review of Financial Studies 25, no. 6 (2012): 1799–843. Hellwig, Christian, Arijit Mukerji, et al. “Self-Fulfilling Currency Crises: the Role of Interest Rates.” American Economic Review 96, no. 5 (2006): 1769–87. Huang, Chong. “Defending Against Speculative Attacks: Reputation, Learning, and Coordination.” Mimeo, UC Irvine (2012). Morris, Stephen, and Hyun Song Shin. “Liquidity Black Holes.” Review of Finance 8, no. 1 (2004): 118. ———. “Catalytic Finance.” Journal of International Economics 70, no. 1 (2006): 161–77. Ozdenoren, Emre, and Kathy Yuan. “Feedback Effects and Asset Prices.” Journal of Finance 63, no. 4 (2008): 1939–75.
13	Beauty contests, social value of information, and information aggregation	Angeletos, G. M., and A. Pavan. “Efficient Use of Information and Social Value of Information.” Econometrica 75, no. 4 (2007): 1103–42. Bergman, Dirk, and Stephen Morris. “Robust Predictions in Games of Incomplete Information.” Mimeo, Yale/Princeton (2012). Grossman, Sanford, and Joseph Stiglitz. “On the Impossibility of Informationally Efficient Markets.” American Economic Review 70, no. 3 (1980): 393–408. Hassan, Tarek, and Thomas Mertens. “Market Sentiment: A Tragedy of the Commons.” _American Economic Review_101, no.2 (2011): 402–5. Hirshleifer, Jack. “The Private and Social Value of Information and the Reward to Inventive Activity.” American Economic Review 61, no. 4 (1971): 561–74. Additional Readings Allen, Franklyn, Stephen Morris, et al. “Beauty Contests and Iterated Expectations in Asset Markets.” Review of Financial Studies 19 (2003): 719–52. Amador, M., and P. O. Weil. “Learning from Private and Public Observations of Others’ Actions.” Journal of Economic Theory 147, no. 3 (2012): 910–40. ———. “Learning from Prices: Public Communication and Welfare.” Journal of Political Economy 118, no. 5 (2011): 866–907. Angeletos, G. M., and A. Pavan. “Policy with Dispersed Information.” Journal of the European Economic Association, no. 1 (2009): 11–60. Angeletos, George-Marios, Luigi Iovino, et al. “Cycles, Gaps, and the Social Value of Information.” Mimeo, MIT/Chicago Booth (2011). Bacchetta, Philippe, and Eric van Wincoop. “Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?” (PDF) American Economic Review 96, no. 3 (2006): 552–76. Barlevy, G., and P. Veronesi. “Rational Panics and Stock Market Crashes” Journal of Economic Theory 110, no. 2 (2003): 234–63. Golosov, M., G. Lorenzoni, et al. “Decentralized Trading with Private Information.” Mimeo (2011). Grossman, Sanford. “An Introduction to the Theory of Rational Expectations under Asymmetric Information.” Review of Economic Studies 48, no. 4 (1981): 541–59. Hellwig, C., and L. Veldkamp. “Knowing What Others Know: Coordination Motives in Information Acquisition.” Review of Economic Studies 76, no. 1 (2009): 223–51. Hellwig, Martin. “On the Aggregation of Information in Competitive Markets.” Journal of Economic Theory 22, no. 3 (1980): 477–98. Kyle, Albert. “Informed Speculation with Imperfect Competition.” Review of Economic Studies 56, no. 3 (1989): 317–55. Morris, Stephen, and Hyun Song Shin. “Central Bank Transparency and the Signal Value of Prices.” Brookings Papers on Economic Activity 36, no. 2 (2005): 1–66. Rondina, Giacomo, and Todd Walker. “Information Equilibria in Dynamic Environments.” (PDF) Mimeo, UCSD/Indiana (2011). Townsend, Robert. “Forecasting the Forecasts of Others.” Journal of Political Economy 91, no. 4 (1983): 546–88. Veldkamp, Laura. “Media Frenzies in Markets for Financial Information.” American Economic Review 96, no. 3 (2006): 577–601. Vives, Xavier. Chapter 3–5 in Information and Learning in Markets: The Impact of Market Microstructure. Princeton University Press, 2008. ISBN: 9780691127439.
14	Expectations and the business cycle	Angeletos, George-Marios, and Jennifer La’O. “Sentiments.” Econometrica 81, no. 2 (2013): 739–79. (conditionally accepted) Beaudry, Paul, and Franck Portier. “Stock Prices, News, and Economic Fluctuations.” American Economic Review 96, no. 4 (2006): 1293–307. Ilut, Cosmin, and Martin Schneider. “Ambiguous Business Cycles.” Mimeo (2011). Additional Readings Angeletos, George-Marios, and Jennifer La’O. “Noisy Business Cycles.” In NBER Macroeconomics Annual 2009. University of Chicago Press Journals, 2010. ISBN: 9780226002101. Barsky, Robert, and Eric Sims. “Information Shocks, Animal Spirits, and the Meaning of Innovations in Consumer Confidence.” American Economic Review, forthcoming 102, no. 4 (2012): 1343–77. Christiano, Lawrence, Cosmin Ilut, et al. “Monetary Policy and Stock Market Boom-Bust Cycles.” ECB Working Paper No. 955 (2008). Collard, F., H. Dellas, et al. “Imperfect Information and the Business Cycle.” Journal of Monetary Economics 56 (2011). Hellwig, Christian, and Venky Venkateswara. “Setting the Right Prices for the Wrong Reasons.” Journal of Monetary Economics 56 (2009): S57–77. Jaimovich, Nir, and Sergio Rebelo. “Can News about the Future Drive the Business Cycle?” American Economic Review 99, no. 4 (2009): 1097–118.
15	Informational frictions and monetary policy	Angeletos, George-Marios, and Jennifer La’O. “Optimal Monetary Policy with Informational Frictions.” (PDF) Mimeo, MIT/Chicago Booth (2012). Coibion, Olivier, and Yuriy Gorodnichenko. “What can Survey Forecasts Tell us About Informational Rigidities?"Journal of Political Economy 120, no. 1 (2012): 116–59 . Lucas, Robert E. Jr. “Expectations and the Neutrality of Money.” Journal of Economic Theory 4, no. 2 (1972): 103–24. Mackowiak, Bartosz, and Mirko Wiederholt. “Optimal Sticky Prices under Rational Inattention.” American Economic Review 99, no. 3 (2009): 769–803. Mankiw, N. Gregory, and Ricardo Reis. “Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve.” Quarterly Journal of Economics 117, no. 4 (2002): 1295–328. Sims, Christopher. “Implications of Rational Inattention.” Journal of Monetary Economics 50, no. 3 (2003): 665–90. Additional Readings Adam, Klaus. “Optimal Monetary Policy with Imperfect Common Knowledge.” Journal of Monetary Economics 54, no. 2 (2007): 276–301. Alvarez, Fernando, Francesco Lippi, et al. “Optimal Price Setting with Observation and Menu Costs.” Quarterly Journal of Economics 126, no. 4 (2011): 1909–60. Angeletos, George-Marios, and Jennifer La’O. “Incomplete Information, Higher-Order Beliefs, and Price Inertia.” Journal of Monetary Economics 56 (2009): S19–S37. Collard, F., and H. Dellas. “Monetary Misperceptions, Output and Inflation Dynamics.” Journal of Money, Credit and Banking 42, no. 2–3 (2010): 483–502. Hellwig, Christian, and Venky Venkateswara. “Setting the Right Prices for the Wrong Reasons.” Journal of Monetary Economics 56 (2009): S57–77. Mankiw, N. G., and R. Reis. “Imperfect Information and Aggregate Supply.” Handbook of Monetary Economics. 2009. Mankiw, N. Gregory, Ricardo Reis, and Justin Wolfers. “Disagreement about Inflation Expectations.” In NBER Macroeconomics Annual 2003. MIT Press, 2004. ISBN: 9780262572217. [Preview with Google Books] Matejka, Filip. “Rationally Inattentive Seller: Sales and Discrete Pricing.” Mimeo (2011). Melosi, L. “Estimating Models with Information Frictions.” Mimeo, LBS (2011). Nimark, Kristoffer. “Dynamic Pricing and Imperfect Common Knowledge.” Journal of Monetary Economics 55, no. 2 (2008): 365–82. Paciello, Luigi, and Mirko Wiederholt. “Exogenous Information, Endogenous Information, and Optimal Monetary Policy.” Mimeo, Northwestern/EIEF (2011). Reis, Ricardo. “Inattentive Producers.” Review of Economic Studies 73 (2006): 793–821. Sims, Christopher. “Rational Inattention and Monetary Economics.” In Handbook of Monetary Economics, Volume 3B. North Holland, 2010. ISBN: 9780444534545. Stevens, Luminita. “Price Adjustment in a Model with Multiple-Price Policies.” (PDF) Mimeo, Columbia University (2012).