Snowdon & Vane Modern Macroeconomics

802	Modern macroeconomics
Weinstein, D. 648		Woodford, M. 4, 85, 220, 380, 413, 416,
Weintraub, E.R. 57, 170		697, 698
Weiss, A. 385, 388, 429		Woolley, J.T. 535, 551
Weiss, L. 323		Wright, G. 584, 637
Weitzman, M.L. 423		Wrigley, E. 594
Wells, J. 586		Wynarczyk, P. 25, 75, 221, 229, 295, 701
Wheeler, M. 76
White, E.N. 76, 77		Yang, X. 652
White, H. 601		Yellen, J.L. 372, 374, 384, 385, 388,
White, L.H. 516		391, 393, 441
Wickens, M. 322, 338, 341		Yergin, D. 523
Wicksell, K. 6		Ying, L.G. 649
Wilkinson, F. 193		Young, A. 679
Willet, T.D. 517, 537		Young, A. 613, 614, 622, 655
Williams, D. 586		Young, D. 452
Williams, J.C. 631		Young, W. 113
Williamson, J.G. 647
Williamson, S.D. 296, 297, 343		Zak, P.J. 637, 646
Wilson, T. 122		Zarnowitz, V. 305, 307, 327, 537
Winters, A. 647		Zhang, T. 404
Wittman, D.A. 539		Zijp, R. 223, 224, 238, 241
Wolfe, E.N. 587, 597		Zilberfarb, B.Z. 113
Wolfers, J. 401, 408		Zoega, G. 364, 401, 404, 407, 408

Subject index

accelerationist hypothesis 62 adaptive expectations 227, 528, 535 aggregate demand externality 374 aggregate supply

models of 53, 67, 78, 233, 243, 315–19, 397, 400

aggregate supply hypothesis 233–5 agreement/disagreement in

macroeconomics 3–6, 695–707 AK growth model 626–7

animal spirits 102, 225, 463, 468, 512 asymmetric information 388, 537 augmented Solow growth model 625,

632–3

Austrian approach 15, 28, 89, 238, 298, 474–516

balance of payments 124–35 automatic adjustment of 189 monetary approach to 187–92

Bank of England 414–17, 549, 553, 706 bonds and net wealth 110–12, 121–2 Bretton Woods 84, 187, 191, 638 business cycle 1, 3, 9–13, 16, 33, 76–82,

170, 236–42, 300–320, 396–401, 503–9, 525–46

business cycle stylised facts 304–7

capital accumulation 606–9 capital deepening 607, 626

capital fundamentalism 556–7, 601 capital widening 607

calibration 320–22

capital market imperfections 382, 398–400

catch-up hypothesis 88, 614, 620–21, 630, 650, 659

central bank independence 257–62, 532, 549–54, 592, 705

classical approach 7, 8, 13, 14, 22, 37–54

classical model

output and employment determination in 38–45

Say’s law and the 45–50 quantity theory of money and the

50–54

Cobb–Douglas production function 609, 613, 623

comparative advantage 648 constant returns to scale 604, 625 consumption function 59, 62, 265,

510–12, 606 convergence

conditional 617, 631, 648 unconditional 617, 649

convergence club 617, 619 convergence debate 614–22, 659 coordination failure 73, 74, 230, 336,

359, 398

corruption 523, 558, 643–6

Council of Economic Advisers 23, 146 Cowles Commission 22

credibility 248–9, 262, 546, 548–9 credit rationing 400

crowding out 61, 69, 107, 110, 132 customer markets 381

deflation 77, 120, 416, 513–15 demand for money 51, 62, 104

and the modern quantity theory 166–74

empirical evidence 168–73 Keynesian approach 70, 104–6

democracy 10, 636, 640–43, 658–9 dictatorship 10, 562–3, 641–3 disinflation 247–9, 267, 334, 421, 705 Dornbusch’s overshooting model

376–8

economic growth 1, 18, 32–4, 479–83, 556–64, 579–659, 706

803

804	Modern macroeconomics

economic history and 580–82, 593–5, 654–7

fundamental causes 596–8, 633–54 geography and 652–4

ideal conditions for 657–9 importance of 589–93 inequality and 556–62, 637 institutions and 562–4, 635–47,

651–2, 658 intensive 593–4

natural experiments and 638–40 political barriers and 642 Promethean 594

proximate causes 596–8, 603, 612 renaissance of research in 585–8 Smithian 594

stylized facts and 595–6 trade and 647–52

effective demand 14, 58, 63, 69, 70, 102, 410, 453–5

efficiency wage theories

and adverse selection 388–9 and fairness 391–3

and labour turnover 389 and shirking 389–91, 423 generalized 384–8

endogeneity of money 190, 298, 323 Employment Act, US 15 entrepreneur economy 461–3, 644 ethnic diversity 563–5, 635, 642, 646 exchange rates 123–35

fixed 187–91 flexible 191–2, 416

expectations

adaptive 180–81, 227 rational 29, 181, 225–30

expenditure switching policies 189–90

Federal Reserve 79, 81–2, 170, 415, 505, 515

First World War 80, 81 fiscal policy 17, 106–14, 705

power of 107, 109–10, 118, 130, 132, 194–5

Fisher effect 54 Fisher equation 52 foreign aid 601–2, 642

Friedman, Milton 7, 25, 163, 175, 194, 222

interview with 198–218

Friedman–Meiselman debate 171–3 functional finance 519 fundamentalist Keynesianism 71

General Agreement on Tariffs and Trade 84

game theory 250, 252–6, 297, 546, 705 non-cooperative 254–5

repeated 256 globalization 647, 651–2

Golden Age 17, 18, 21, 88, 535, 638 Gold Standard 79–82, 258, 337 government budget constraint 110–11 government failure 27, 55, 300, 522–3 government, role of 7–8, 55, 65, 77,

473, 521–3

gradualism versus cold turkey 183 Great Depression 2, 8–16, 33, 76–82,

88, 170–71, 334, 336–8, 421, 515, 518, 586, 703

Great Divergence 34, 580–83, 655 Great Inflation 3, 142, 219 growth accounting 612–14

Harrod–Domar model 33, 557, 598–603, 627

human capital 597, 620–21, 625, 632–3, 650

hysteresis effects 247, 335, 405–8, 544, 704

imperfect/monopolistic competition 362, 364, 371–6, 382, 411

imperfect information 224, 238, 308, 331

implicit contract models 384 incomes policy 247–8, 423 indexation 184, 382

Industrial Revolution 34, 580, 589, 594, 609, 619, 620–21, 629, 655–7

inflation 3, 83, 513–14, 549–54

and unemployment 135–44, 175–85 causes of 181–2, 191

costs of 411–13

costs of reducing 182–5 cure for 413–22

in the G7 economies 20 in the UK economy 3, 182

in the US economy 3, 182, 191 targeting 257, 411, 413–19, 703

Subject index

805

inside money 323 insider–outsider theories 394–6 International Monetary Fund 84 intertemporal capital restructuring

475–9

intertemporal labour substitution 233, 308, 311–13, 328, 332

intertemporal structure of production 475–83

investment trap 118–20 invisible-hand theorem 22, 55

IS–LM model 23, 61, 70, 171–4, 423–4, 431, 696, 698

closed economy 102–23, open economy 85, 123–35

with flexible prices 116–22, 315

Keynes effect 115–16, 118 Keynes’s

analysis of the labour market 65–9 analysis of the quantity theory of

money 69–71

legacy and the classical revival 85–90 main propositions 59–65, 144–7 paradox of thrift 49, 485, 501–3 rejection of Say’s law 69

Keynes’s General Theory 8, 13, 29, 54–76, 696

and the ‘new scholarship’ 75–6 interpretations of 57, 70–75, 101–46

Keynesian approach 7–8, 24–5, 101–47, 324, 484, 501–13

Keynesian consensus 15–24 Keynesian model

underemployment equilibrium in the 68, 114–22

labour hoarding 333 learning by doing 336, 625

liquidity preference 62, 64, 104, 468–70, 491

liquidity trap 68, 74, 104, 106–8, 116–18, 120, 147, 410

loanable funds market 47–8, 489–92, 498, 512

Lucas critique 26, 264–7, 297, 340, 699 Lucas, Robert E. Jr. 25, 220–23, 707

interview with 272–93

Lucas ‘surprise’ supply function 224, 234, 340

macroeconometric models 26, 195, 264–6

Mankiw, N. Gregory 27 interview with 433–50

market clearing 224, 230–32, 238, 367 mark-up pricing 379–80 Marshall–Lerner condition 124 Marshall Plan 637–8

menu costs 371–5, 428, 430 microfoundations of macroeconomics

27, 71, 72, 223, 299, 340, 360, 371, 403, 431, 700

monetarist approach 25, 50, 89, 163–97, 324, 483, 515

monetary policy 25, 26, 106–14, 705 power of 107–9, 133, 190, 244–7 role and conduct of 185–7, 196,

413–22

monetary rule 196, 246, 420 money and business cycles 25, 170,

236–42, 322–4, 503–9

empirical evidence on 170, 246, 268 money illusion 38, 66, 175, 177, 223,

236, 412, 460–61

multiplier 58, 60–62, 73, 103, 298 Mundell–Fleming model 123–35, 377

fiscal expansion within 128, 131 monetary expansion within 129, 134

NAIRU 27, 187, 401–8 Nash equilibrium 254

natural rate of unemployment 25, 44, 401, 403–7, 494

natural resource curse 642, 654 near rationality 374–5

neoclassical growth theory 313, 321, 602–12

neoclassical synthesis 21–4, 70, 74, 101,122, 146, 698

neutrality of money 38, 63, 70, 308, 315, 322–4, 335, 398, 454, 458, 469

long-run 236, 696 short-run 223–4, 235, 696

new classical approach 25–6, 89, 219–71, 294–7

New Deal 337

new Keynesian approach 21, 27, 268, 340, 357–432

new neoclassical synthesis 29, 410–11, 427, 701, 703

806	Modern macroeconomics

new political macroeconomics 29–32, 517–66

Nobel Memorial Prize in Economics 24, 148, 165, 198, 272, 344, 660, 697

nominal anchor 413, 416, 703

nominal rigidity 361, 363, 365, 419, 428 of prices 371–6

of wages 65–7, 121, 366–71 non-neutrality of money 238–9, 247,

330, 363, 369, 419, 459–61, 463, 468, 472, 550

OPEC 299, 401, 407, 543, 703 open economy policy trilemma 414 optimal control theory 250

Okun’s law 235, 540, 703 outside money 121

patents 628–9

Phillips curve 23, 25, 30, 113, 235–8, 254, 266, 358, 419, 424, 426, 514, 527–36, 550, 703, 706

expectations-augmented 174–87, 697 original 135–44

Pigou effect 120–22

policy ineffectiveness proposition 242–7, 268, 699

political business cycle models 30, 195, 261–2, 517–54

Hibbs partisan model 532–5 Nordhaus opportunistic model 30,

526–32

rational opportunistic model 537–8 rational partisan model 259, 538–44 synthesis model 545–6

political economy

of debts and deficits 554–5

of economic growth 32, 556–64, 635–47

Post Keynesian approach 28, 228–9, 248, 324, 376, 451–73

Prescott, Edward C. 25, 26 interview with 344–56

principal agent problem 389, 411, 523, 552, 643

procyclical prices 328–30 production function 39–41, 309,

315–16, 325, 333–4, 603–6, 626, 632

production possibilities frontier 492–6

productivity slowdown 587 propagation mechanism 240, 308, 311 property rights 629, 636, 641–3, 656 Public Choice school 519

quantity theory of money 483, 696 Cambridge approach 51 modern version of 163–74 traditional 50–54

random walk 299–303, 309, 335 rational expectations 29, 219, 225–30,

252, 268, 270, 297, 365, 367, 411, 430, 464–5, 535, 539–41, 705

rationing models 362 Reaganomics 300

real business cycle approach 26–7, 267–9, 294–343, 588

real business cycle model 307–20 real rigidity 365, 378–96

of prices 378–83 of wages 383–96

real wages

countercyclical v. procyclical 327–8, 368, 371, 544

reinterpretation of Keynes 70–75

rent seeking 304, 523, 643–5, 654, 658 representative agent 309–11, 336 reputation 248, 256–7, 546

research and development 336, 625–6, 631, 650

Ricardian equivalence 111–12 Romer, Paul M. 587, 625–31

interview with 673–94

rules v. discretion 26, 196–7, 249–57, 546, 548–9, 700

sacrifice ratio 247–8, 257–8, 267, 406 Say’s law 13, 15, 23, 455–8, 471 schools of thought 6, 24–9

Second World War 1, 8, 10, 15, 16, 17, 22, 76, 83

secular stagnation 88 seigniorage 556

signal extraction problem 233, 239, 308 size of nations 564–5

Skidelsky, Robert interview with 91–100

social capability 597, 634–6 Solow growth model 602–12

Subject index

807

Solow residual 34, 325–8, 333–4, 612–13

Solow, Robert M. 23, 24, 598, 602 interview with 660–72

stagflation 23, 698–9 steady state 607–8

strategic complementarity 398 stylised facts 304–7, 309, 317, 321–2,

324, 326–30, 371, 408–9, 429, 544, 595–6

supply-side 15, 299 supply-side school 300

supply-side policies 33, 186–7, 263–4, 338

supply-side shocks 26, 303–4, 311

Taylor rule 196, 420, 700, 705 technological change 594, 603, 609–12,

625, 627–32, 649–51, 655–7 endogenous 625–31

shocks 304, 308, 309, 313–14, 317–18, 333

theory, role of 4

thick market externality 380

time inconsistency 26, 249–57, 546, 641, 699

Tobin, James 23, 24, 174 interview with 148–62

transitional dynamics 617–19, 620, 623 Treasury view 58, 69, 107

trend reverting 301 trend stationary 301 tunnel effect 559–60

uncertainty 463–72, 512 unemployment 2, 11, 78, 135–44,

176–87, 235, 244–5, 253, 260, 334, 383–96, 401–8, 527–42

frictional and structural 44, 140, 493–4

involuntary unemployment 8–9, 45, 58, 65, 66–7, 71, 73, 145, 232, 267, 328, 334, 365, 383, 387, 390–91, 393, 396, 398–9, 409, 432, 453, 457–8, 462, 493

in the G7 economies 19 in the UK economy 2, 408

in the US economy 2, 11, 408 unit root 303, 335

wage contracts implicit 384 staggering of 368–9

Wall Street crash 10 Walrasian auctioneer 38

Walrasian general equilibrium theory 21, 72–3, 222–3, 238

wealth effect 319 World Bank 84

World Trade Organisation 84