ECO 423 MACROECONOMICS III

4 Hours/week, 4 Credits

1. Controversies in Macroeconomics: Classical, Neo-classical and Keynesian schools.

2. Micro Foundations of Macroeconomics: Micro foundations of incomplete nominal
adjustment; Inter-temporal choice; Aggregation theory;
3. Economic Growth: Sources of economic growth, growth accounting, Solow model: the set-up
of Solow model, steady state, determinants of long-run living standards, concept of convergence,
Golden rule. Endogenous growth theory; concepts of other growth theories.
4. Rational Expectation Model: Rational expectations and its definitions; The Muth Model,
Monetarist model in rational expectation, Lucas critique, Sargent-Wallace propositions.
5. Consumption and Investment: Inter-temporal smoothing in consumption behavior, consumer
preferences, income and interest rates, modeling the permanent income hypothesis and impact of
interest rates and time preferences, optimal consumption path and permanent income hypothesis
consumption function; Random walk behavior of consumption. Investment in the theory of the
firm, a simple model of investment; desired capital stock, changes in desired capital sock, effect
of taxes on desired capital stock, capital and investment, saving-investment diagram and their
shifts.
6. Dynamics of Inflation and Unemployment: Inflation and Phillips curve: Inflation inertia,
deriving Phillips curves, expectation augmented Phillips curve, Phillips curves under adaptive and
rational expectations, Phillips curve and imperfect labor market equilibrium, equilibrium rate of
unemployment, NAIRU. Disinflation and central bank preferences, costless disinflation and
rational expectations.
Monetary rules and the 3-equation model: 3-equation model; Effect of inflation shock, temporary
demand shock and permanent demand shock; The Monetary Rule Line and real interest rate,
sacrifice ratios and disinflation strategies, cold turkey and gradualism; Interest rate rule and money
supply rule of controlling inflation.
7. Monetary and Fiscal Policy: Monetary policy paradigms, central bank’s utility function,
deriving monetary rule, interest rate rules and lags, deflation trap; rules vs discretion in monetary
policy, credibility of central bank. The automatic stabilizer and discretionary fiscal policy;
Government budget identity, balanced budget multiplier and sources of finance of government
expenditure; Deficit and debt, Debt dynamics, effect of real interest rates and growth rates on debt,
fiscal consolidation, Ricardian equivalence. Monetizing the debt, seignorage and inflation tax;
Prudent fiscal policy rules
8. Real Business Cycle and New Keynesian Models: RBC models, properties, NK Model, NKPC
curve, DSGE Models and its properties

Recommended Books:
1. Carlin, Wendy and Soskice, David (2006). Macroeconomics: Imperfections, Institutions and
Policies. Oxford University Press
2. Blanchard, Olivier (2014). Macroeconomics. Prentice Hall.
3. Abel, A.B and Bernanke, S. B (2010). Macroeconomics. Pearson
4. BBS (2014). National Income Accounts Statistics: Sources and Methods, Bangladesh Bureau
of Statistics.
5. Durlauf and Blume (2010). Macroeconometrics and Time Series Analysis. Palgrave
 6. Hoover, Kevin (2012). Applied Intermediate Macroeconomics, , Cambridge University Press

Course Outline:

Sl. Chapter Reference

No
1 Aggregate Demand, Aggregate Supply and Business Cycle Chapter 2 (Carlin and
Soskice, 2006); Chapter 2
(Carlin and Soskice, 2015)
2 Dynamics of Inflation and Unemployment Chapter 3 (Carlin and
Soskice, 2006)’ Chapter
2(Carlin and Soskice,
2015)
3 Monetary and Fiscal Policy Chapter 5 and 6 (Carlin
and Soskice, 2006)’
Chapter 13 and 14 (Carlin
and Soskice, 2015)
4 Rational Expectation Model Chapter 4 (Carlin and
Soskice, 2015); Provided
by Course Teacher
5 Economic Growth Chaper 13 (Carlin and
Soskice, 2015); Chapter 6
(Macroeconomics, Abel
and Bernanke, Ninth
Edition)
6 Micro Foundations of Macroeconomics Provided by Course
Teacher
7 Controversies in Macroeconomics Macroeconomics, William
Scarth; Macroeconomics,
Richard Froyen
8 Real Business Cycle and New Keynesian Models Chapter 16 (Carlin and
Soskice, 2015)
N.B: The colored chapter will be provided from another source. I will provide them later.

Google Drive Link:

https://drive.google.com/drive/folders/1PUGndmjNz92kpNxUDsjto86rokcmqp6G?usp=sharing

Instructions:
(1) Check regularly the google drive. You will get two folders: (a) Class Lectures (b) Video Lectures.

Class lectures and corresponding video lectures will be uploaded within regular interval.

Official E-mail Address for any query and papers:

eco42320162017@gmail.com