Prof. Francisco. Ruge-Murcia

MACROECONOMIC THEORY ECON 352D2 Course Description and Objectives ECON 352D is a two-term course in macroeconomics. This course is the second term of ECON 352D. The first term (ECON 352D1) is a prerequisite for this course. No credit will be given for this course unless both ECON 352D1 and ECON 352D2 are successfully completed in consecutive terms. The first term focused on the fundamentals of a macroeconomic model. In this term, we will build on those fundamentals to study business cycles, monetary and fiscal policy, and international finance. Although the focus will be on theory, we will attempt to connect the theory with macroeconomic data and recent events, with particular attention given to the Canadian economy.

Administrative Issues Classes: Two lectures per week on Mondays and Wednesdays from 8:35 a.m. to 9:55 a.m. in Macdonald Engineering Building 276. Office Hours: Mondays from 1 p.m. to 3 p.m. in Leacock 522. Content: The material for this course is primarily drawn from the textbook: Macroeconomics (Fifth Canadian Edition), by S. Williamson, Pearson Canada, 2017. There will be some readings supplementary to the textbook that are available from the class Web site: https://sites.google.com/site/frugemurcia/home/teaching. I will freely use algebra and calculus, and draw from material in the Mathematical Appendix (pp. 618644) as needed. Grading: The grade for the entire two-term course will be based on the performance in both terms. The grade for the second term will be calculated based on your performance in the midterm and final exams. The midterm will take place in class on the Wednesday of the week before the Spring break. The final exam is administered by the University and its time and location will be announced before the exam period. The midterm exam accounts for 40% of your grade for this term. The material for this exam is that covered in class (including readings assigned by the instructor) up to and including the class immediately preceding the exam date. The weight of the midterm will be shifted to the final only in case of absence at the midterm exam for medical reasons. The final exam accounts for 60% of your grade for this term. The material for this exam is that covered during the whole semester and all readings assigned by the instructor. In case of absence at the final exam for medical reasons, please refer to the University Regulations Concerning Final Examinations. Note that according to Senate regulations, instructors are not permitted to make special arrangements for final exams. Please consult the Calendar, section 4.7.2.1, General University Information and Regulations at www.mcgill.ca.

Prof. Francisco. Ruge-Murcia Note that in accord with McGill University's Charter of Students' Rights, students in this course have the right to submit in English or in French any written work that is to be graded. Finally, in the event of extraordinary circumstances beyond the University's control, the content and/or evaluation scheme in this course is subject to change. Conferences: The teaching assistant will review material covered in class and discuss reading assignments in conferences. Conference attendance is not required, but it is strongly encouraged. Academic Integrity: It is your responsibility to understand what is meant by “cheating” at McGill, and thus what behaviour is unacceptable. I am required to have the following statement in the syllabus, in both official languages: McGill University values academic integrity. Therefore all students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the code of student conduct and disciplinary procedures (see http://www.mcgill.ca/students/srr/honest/ for more information). L'université McGill attache une haute importance à l'honnêteté académique. Il incombe par conséquent a tous les étudiants de comprendre ce que l'on entend par tricherie, plagiat et autres infractions académiques, ainsi que les conséquences que peuvent avoir de telles actions, selon le Code de conduite de l'étudiant et des procédures disciplinaires (pour de plus amples renseignements, veuillez consulter le site http://www.mcgill.ca/students/srr/honest/).

Course Outline A broad sketch of the course contents is the following: 1. A Real Intertemporal Model with Investment. Revision of Chapter 11 of Macroeconomics, (2 classes). 2. Money and Business Cycles. A Monetary Intertemporal Model, Chapter 12 of Macroeconomics, (4 classes). Business Cycle Models with Flexible Prices and Wages, Chapter 13 of Macroeconomics (3 classes). New Keynesian Economics, Chapter 14 of Macroeconomics (3 classes). Inflation, Chapter 15 of Macroeconomics (3 classes). 3. International Macroeconomics. International Trade in Goods and Assets, Chapter 16 of Macroeconomics (3 classes). Money in the Open Economy, Chapter 17 of Macroeconomics (3 classes). 4. Money, Banking, and Inflation. Money, Inflation, and Banking, Chapter 18 of Macroeconomics (3 classes).

Reading List The following papers will be assigned in class throughout the semester and will be part of the mid-term and final exams. I may add (or exclude) material from this reading list if during the semester I find additional material of interest. The papers are available from the class Web site: https://sites.google.com/site/frugemurcia/home/teaching.

Prof. Francisco. Ruge-Murcia “Some International Evidence on Output-Inflation Trade-offs,” by R. E. Lucas, American Economic Review 63 (1973), pp. 326-334. “Inflation Targeting: A New Framework for Monetary Policy?” by B. S. Bernanke and F. Mishkin, Journal of Economic Perspectives 11 (1997), pp. 97-116. “Understanding Real Business Cycles,” by C. Plosser, Journal of Economic Perspectives 3 (1989), pp. 51-77. “Real Business Cycles: A New Keynesian Perspective,” by N. G. Mankiw, Journal of Economic Perspectives 3 (1989), pp. 79-90. “Some Evidence on the Importance of Sticky Prices,” by M. Bils and P. J. Klenow, Journal of Political Economy 112 (2004), pp. 947-985. “Mr Keynes and the ‘Classics’: A Suggested Interpretation,” by J. R. Hicks, Econometrica 5 (1937), pp. 147-159. “The Changing Effects of Energy Price Shocks on Economic Activity and Inflation,” by G. Stuber, Bank of Canada Review (Summer, 2001), pp. 3-14. “How Effective are Capital Controls?” by S. Edwards, Journal of Economic Perspectives 13 (1999), pp. 65-84. “The Role of Monetary Policy,” by M. Friedman, American Economics Review 58 (1968), pp. 1-17. “Iceland Lifts Capital Controls,” taken from The Economist, March 16, 2017. “The Ends of Four Big Inflations,” by T. Sargent, in Inflation: Causes and Effects, R. E. Hall (ed.), University of Chicago Press, 1982.