ECONOMICS 601: MACROECONOMICS
PROFESSOR KELTON
WINTER 2006

                                   

Class Meets: Thur, 5:30-8:15 pm, Haag 310

Office Hours: Thur. 4:00-5:30, or by appointment

Office: Manheim 202F, 235-5700

Best way to reach me: keltons@umkc.edu

Books:

J.M. Keynes, The General Theory (JMK-GT)

John King, A History of Post Keynesian Economics (King)

Snowden and Vane, Modern  Macroeconomics: Its Origins, Development and Current State (SV)

L.R. Wray, Understanding Modern Money (LRW-UMM)

Most readings will come from JMK-GT, King, and journal articles; I will supply one copy of each required reading, which each student can copy (at her/his own expense). Xeroxes are kept in a file drawer in the department office. Note: due to budget cuts, please do not use the department’s copy machine! Many articles are posted on my website (http://k.faculty.umkc.edu/keltons), and many are available from www.jstor.org. Alternatively, you can find these readings at the library.

Grading: there will be a midterm and a final project.*** The midterm will be “take-home”; it will cover material through the seventh meeting (inclusive).  It will be handed-out by Feb 24 and is due by 5 pm March 16. It must be submitted electronically. The final paper will be submitted for publication to an appropriate journal. There will also be numerous in-class presentations. Your course grade will be composed of the following: participation and presentations (25%) +  midterm (35%) + final paper (40%).  Note that no excuses will be accepted for a late midterm—you will have three weeks to complete the exam!  If you cannot get the midterm in on time, you will need to drop the class. 

Be advised: The outline below is preliminary, but the final schedule of topics and readings will be very close to this. Most communication will be done via email, which is also the best way to reach me.

1.        Jan 14:  Introduction, Pre-Keynes Neoclassical thought

JMK-GT Ch 1-2; SV Ch 1-2

2.       Jan 21: Definitions, Ideas, Propensity to consume, Investment

JMK-GT Ch 3-14

3.        Jan 28: Investment, Money, Interest, Money-Wages, Prices, Conclusion

JMK-GT Ch 15-24

4.        Feb 4:  ISLM, Neoclassical Synthesis,  “Extensions” of Keynes, Growth Theory

SV Ch 3
King Ch 1-3

Hicks: "Mr. Keynes and the Classics" (Econometrica 1937), "Some Questions of Time in Economics" (in Tang 1976), and "IS-LM: an explanation" (JPKE 1980-1)

Solow, "A contribution to the theory of economic growth", QJE, 1956.

Domar, "Capital Expansion, rate of growth, and employment" Essays in the Theory of Economic Growth, 1957.

Felipe and McCombie: The Tyranny of the Identity: Growth accounting revisited.

5.        Feb 11: Disequilibrium Approach Monetarism, Mark I and Mark II

SV Ch 4-5

Poole: "Optimal choice of monetary policy instruments in a simple stochastic macro model" (QJE 1970)

Leijonhufvud: "Keynes and the Keynesians: a suggested interpretation"; "Keynes and the classics: two lectures", On Keynesian Economics and the Economics of Keynes (1966)

Brunner: “The role of money and monetary policy” (FRB-St. Louis Review 1968)

Balbach: “How controllable is Money Growth?” (FRB-St. Louis Review 1981)

Friedman: "A monetary and fiscal framework for economic stability" (in Essays in Positive Economics, 1953), "The quantity theory of money—a restatement" (in Studies in the Quantity theory of Money, ed. by Friedman, 1956), "The role of monetary policy" (AER 1968), and "Quantity theory of money" (in The New Palgrave, 1987)

Tobin: “Friedman’s Theoretical Framework” (in Milton Friedman’s Monetary Framework, ed. by Gordon, 1970)

Cooley and LeRoy, "Identification and estimation of money demand" (AER, 1981)

Sims: "Comparison of interwar and postwar business cycles: monetarism reconsidered" (AER 1980)

Lucas: "Expectations and the Neutrality of money" (JET 1972), "Econometric Policy Evaluation: a critique" (JME 1976)

Muth: "Rational Expectations and the Theory of Price Movements" (Econometrica 1961)

Sargent and Wallace: "Rational expectations, the optimal monetary instrument, and the optimal money supply rule" (JPE 1975)

6.        Feb 18: Real Business Cycle, New Keynesian, Summary of Orthodoxy

SV Ch 6, 7

King and Plosser: "Money, credit, and prices in a real business cycle" (AER 1984)

Plosser: "Understanding real business cycles" (JEP 1989)

Mankiw: "Real business cycles: a new Keynesian perspective" (JEP 1989)

Bernanke: "Nonmonetary effects of the financial collapse in the propagation of the Great Depression" (AER 1983)

Greenwald and Stiglitz: “Keynesian, new Keynesian and new Classical Economics”, Oxford Econ Papers 39, 1987.

Greenwald, Stiglitz, and Weiss: "Informational imperfections in the capital market and macroeconomic fluctuations", AEA papers and proceedings, May 1984.

Stiglitz and Weiss: "Credit rationing in markets with imperfect information" (AER 1981)

Caskey and Fazzari: “Macroeconomics and Credit Markets” (JEI 1986)

Gordon: "What is New-Keynesian Economics?" (JEL 1990)

Gertler: Financial Structure and Aggregate Economic Activity: An Overview (Journal of Money, Banking, and Credit 1988)

Taylor: "Staggered wage setting in a macro model" (AER 1979)

Yellen: "Efficiency wage models of unemployment" (AER 1984)

Fischer: "Long-term contracts, rational expectations, and the optimal money supply rule" (JPE 1977)

Mankiw: "A quick refresher course in macroeconomics", JEL 28, Dec 1990.

7.        Feb 25:  Intro to a Critique of Orthodoxy

SV Ch 8-9
King Ch 2

Foley: "On two specifications of asset equilibrium in macroeconomic models" (JPE 1975)

Ben Friedman: "Lessons on monetary policy from the 1980s", JEP 1988.

Chick: “Keynesians, Monetarists and Keynes: the end of the debate—or a beginning?” (in Post Keynesian Economic Theory, ed. by Arestis and Skouras)

Harcourt: “Post-Keynesianism: quite wrong and/or nothing new?” (in Post Keynesian Economic Theory, ed. by Arestis and Skouras),

Sawyer “The political economy of the Phillips curve”, (Thames Papers in Political Economy Summer 1987)

Davidson: “The demand and supply of labour” (in Post Keynesian Macroeconomic Theory 1994)

Davidson: “A Keynesian view of Friedman’s theoretical framework for monetary analysis” (in Milton Friedman’s Monetary Framework, ed. by Gordon, 1970)

Kregel: The Reconstruction of Political Economy (1973) (Especially Part Two)

Eichner and Kregel: "An essay on Post-Keynesian theory: a new paradigm in economics" (JEL 1975)

8.        Mar 3: Intro to Heterodoxy; Monetary theory of production; Essential properties of money

King Ch 5,6
Keynes: "The process of capital formation" (EJ 1939); “A monetary theory of production” (CW vol XIII, p. 408)

Dillard: “A monetary theory of production: Keynes and the Institutionalists” (JEI 1980), the Economics of John Maynard Keynes: the theory of a monetary economy (1948)

Boulding: A Reconstruction of Economics, 1950. (Read especially Ch 2)

Wray: “Boulding’s Balloons”, JEI, 1990; “The monetary macroeconomics of Dudley Dillard” (JEI 1993); “Saving, profits and speculation in capitalist economies" (JEI 1991);

Peterson: “Macroeconomics and the theory of a monetary economy” (in Political Economy for the 21^st Century (ed by Whalen 1996)

Fan-Hung: “Keynes and Marx on the theory of capital accumulation, money and interest” (RES 1939)

Cramp: “Two Views on Money” (Lloyd’s Bank Review 1962)

Davidson: Money and the Real World (1978), Post Keynesian Macroeconomic Theory (1994); "Money and the Real World" (EJ 1972)

Samuels: “The present state of institutional economics” (CJE 1995)

Arestis: “Post-Keynesian economics: towards coherence” (CJE 1996)

9.        Mar 17: Liquidity Preference and Heterodox Approaches to Interest Rates

        Wray: “Money, interest rates, and monetarist policy” (JPKE 1993)

       Keynes: "Alternative Theories of the rate of interest" (EJ 1937)

       Townshend: "Liquidity premium and the theory of value" (EJ 1937)

Tsiang: "Liquidity preference and loanable funds theories, multiplier and velocity analysis: a synthesis" (AER 1956)

Kregel: “The multiplier and liquidity preference: two sides of the theory of effective demand” in The Fundation of Keynesian Analysis (Barrere ed.) 1988

Wray: “Alternative theories of the rate of interest” (CJE 1992)

10.     Mar 24: Endogenous Money, Horizontalism, The theory of the monetary circuit

King Ch 8

Moore:  “Contemporaneous reserve accounting: can reserves be quantity constrainted?” (JPKE 1984); “Wages, bank lending, and the endogeneity of money" (in Money and Macro Policy, ed. by Jarsulic); and “Money supply endogeneity” (JPKE 1991)

Pollin: “Two theories of money supply endogeneity” (JPKE 1991)

Cottrell: “Post-keynesian monetary economics” (CJE 1994)

Schumpeter: The theory of economic development (1949) (Read especially Ch 3)

Minsky: “Schumpeter: Finance and Evolution” (in Evolving Technology and Market Structure, ed. by Heertje and Perlman, 1990)

Bellofiore: “Money and development in Schumpeter” (RRPE 1985)

Graziani: “The theory of the monetary circuit” (Economies et Societes 1990)

Wray: “Government deficits, liquidity preference and Schumpeterian innovation” (Economies et Societes 1994); 

Lavoie: “Credit and money: the dynamic circuit, overdraft economics, and Post Keynesian economics” (in Money and Macro Policy, ed. by Jarsulic 1985); “The endogenous flow of credit and the Post Keynesian theory of money” (JEI 1984)

Rousseas: “The spheres of industrial and financial circulation revisited” (Economies et Societes 1994)

11.     Mar 31: Chartalist Theories of Money

Wray: Understanding Modern Money (1998) (Read especially Ch 4-5)

        Bell: “The role of the state and the hierarchy of money” Cambridge Journal, Mar 2001; “Do taxes and bonds finance government spending?” JEI, Sept 2000.

        Innes: “What is money?” (Banking Law Jnl, 30(5), May 1913)

Knapp: The State Theory of Money 1924

Ingham: ‘Babylonian madness: on the historical and sociological origins of money’, in What is Money?, edited by John Smithin, 2000.

12.     Apr  7: Modern Money, Monetary and Fiscal Policy, Functional Finance, Crowding-Out, Government Debt

        Friedman, B.: (Part A, B) “Crowding out or crowding in? Economic consequences of financing government deficits”  (Brookings Papers 1978)

Bell: "Can Taxes and Bonds Finance Government Spending?" (Levy Working Paper 244 1998)

Lerner: "Money as a creature of the state" (AER 1947); “Functional finance and the federal debt” (Social Research, 1943)

Goodhart: “The two concepts of money: implications for the analysis of optimal currency areas” (European jnl of Political Economy 1998)

13.   Apr 14: Cambridge Economics, Capital Controversy, Long Run vs Short Run

King Ch 4, 9

Garegnani: (Part A, B) “Notes on consumption, investment and effective demand”  (CJE 1978), “On a change in the notion of equilibrium in recent work on value and distribution” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Eatwell: “Theories of value, output and employment”  (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Milgate and Eatwell: (Part A, B) “Unemployment and the market mechanism” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Kregel: “Economic methodology in the face of uncertainty: the modelling methods of Keynes and the Post Keyneisans” (EJ 1976)

Kregel: "Hamlet without the prince: Cambridge macroeconomics without money" (AER 1985)

14.     Apr 21: Heterodox Coherence?, Cycles, Crises, Stabilization Policy

King Ch 7, 10-12

Wray: “Deficits, Inflation and monetary policy” (JPKE 1997);  “A monetary and fiscal framework for stability” (manuscript)

Minsky: Stabilizing an Unstable Economy (1986); “The financial instability hypothesis: a restatement”, in Arestis and Skouras, Post Keynesian Economic Theory, 1985

Papadimitriou and Wray: “The economic contributions of Hyman Minsky: varieties of capitalism and institutional reform” Review of Political Economy 10(2) 1998

Wolfson: Financial Crises (1994) (Read especially Ch 2-3; Ch11)

Wojnilower: (Part A, B)“The central role of credit crunches in recent financial history” (Brookings Papers 1980)

15.     Apr 28: Marxian Critiques; International Macroeconomics; Review for Final

Gillman: Prosperity in Crisis (1965) (Read especially Part I and Part II)

Kenway: “Marx, Keynes and the possibility of crisis” (in Keynes’s Economics and the theory of value and distribution, ed. by          Eatwell and Milgate, 1983

Davidson: “Reforming the World’s Money” (JPKE 15(2) Winter 1992-3)

Wray “Seigniorage versus sovereignty” (manuscript))

*** May 5: In-Class Final Exam, 5:45-7:45

       (Note: You will probably have a final project rather than a final examination. If it is not feasible to assign paper topics, you will have an in-class final exam instead.)