Microeconometrics Using Stata. A. COLIN CAMERON. Department of Economics. University of California. Davis, CA. PRAVIN K. TRIVEDI. Department of Economics. Indiana University. Bloomington, IN. A Stata Press Publication. StataCorp LP. College Station,
The focus will be on substantive issues, and applications of basic principles. The workhorses of macroeconomics will be developed and applied to analyse economy-wide topics of current interest. Familiarity with the material covered in undergraduate t
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ADVANCED MACROECONOMICS Third Edition
David Romer University of California, Berkeley
McGraw-Hill Irwin Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
CONTENTS
Preface to the Third Edition Introduction Chapter 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
Part A 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Part B 2.8 2.9 2.10
1 THE SOLOW GROWTH MODEL
Some Basic Facts about Economic Growth Assumptions The Dynamics of the Model The Impact of a Change in the Saving Rate Quantitative Implications The Solow Model and the Central Questions of Growth Theory Empirical Applications The Environment and Economic Growth Problems
Chapter 2
xvii
INFINITE-HORIZON AND OVERLAPPING-GENERATIONS MODELS
5 5 9 14 17 22 26 29 37 44
48
THE RAMSEY-CASS-KOOPMANS MODEL
48
Assumptions The Behavior of Households and Firms The Dynamics of the Economy Welfare The Balanced Growth Path The Effects of a Fall in the Discount Rate The Effects of Government Purchases
48 50 56 62 63 65 70
THE DIAMOND MODEL
76
Assumptions Household Behavior The Dynamics of the Economy
76 77 80
ix
CONTENTS
2.11 The Possibility of Dynamic Inefficiency 2.12 Government in the Diamond Model Problems
Chapter 3 Part A 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Part B
87 91 92
NEW GROWTH THEORY
100
RESEARCH AND DEVELOPMENT MODELS
101
Framework and Assumptions The Model without Capital The General Case The Nature of Knowledge and the Determinants of the Allocation of Resources to R&D Endogenous Saving in Models of Knowledge Accumulation: An Example Models of Knowledge Accumulation and the Central Questions of Growth Theory Empirical Application: Population Growth and Technological Change since 1 Million B.C.
101 103 108
CROSS-COUNTRY INCOME DIFFERENCES
Extending the Solow Model to Include Human Capital 3.9 Empirical Application: Accounting for Cross-Country Income Differences 3.10 Social Infrastructure 3.11 A Model of Production, Protection, and Predation 3.12 Differences in Growth Rates Problems
115 122 125 127 132
3.8
Chapter 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8
REAL-BUSINESS-CYCLE THEORY
Introduction: Some Facts about Economic Fluctuations Theories of Fluctuations A Baseline Real-Business-Cycle Model Household Behavior A Special Case of the Model Solving the Model in the General Case Implications Empirical Application: The Persistence of Output Fluctuations
133 138 144 154 161 166
174 174 178 180 183 187 192 197 203
CONTENTS
4.9
Empirical Application: Calibrating a Real-BusinessCycle Model Extensions and Limitations Problems
4.10
Chapter 5 5.1 5.2 5.3 5.4 5.5 5.6
TRADITIONAL KEYNESIAN THEORIES OF FLUCTUATIONS Aggregate Demand The Open Economy Alternative Assumptions about Wage and Price Rigidity Output-Inflation Tradeoffs Empirical Application: Money and Output Empirical Application: The Cyclical Behavior of the Real Wage Problems
Chapter 6
Part A 6.1 6.2 6.3 Part B 6.4 6.5 6.6 6.7
Part C 6.8 6.9 6.10 6.11
MICROECONOMIC FOUNDATIONS OF INCOMPLETE NOMINAL ADJUSTMENT
Xi
208 210 216
222 223 231 242 251 258 264 266
271
THE LUCAS IMPERFECT-INFORMATION MODEL
272
The Case of Perfect Information The Case of Imperfect Information Implications and Limitations
273 276 280
NEW KEYNESIAN ECONOMICS
285
A Model of Imperfect Competition and Price-Setting Are Small Frictions Enough? Real Rigidity Coordination-Failure Models and Real Non-Walrasian Theories
286 290 294 303
DYNAMIC NEW KEYNESIAN MODELS AND STAGGERED PRICE ADJUSTMENT
309
Building Blocks of Dynamic New Keynesian Models Predetermined Prices Fixed Prices The Caplin-Spulber Model
310 316 319 326
xii
CONTENTS
6.12 Empirical Applications 6.13 The Mankiw-Reis Model Problems
Chapter 7 7.1 7.2 7.3 7.4 7.5 7.6
Consumption under Certainty: The PermanentIncome Hypothesis Consumption under Uncertainty: The Random-Walk Hypothesis Empirical Application: Two Tests of the RandomWalk Hypothesis The Interest Rate and Saving Consumption and Risky Assets Beyond the Permanent-Income Hypothesis Problems
Investment and the Cost of Capital A Model of Investment with Adjustment Costs Tobin's q Analyzing the Model Implications Empirical Application: q and Investment The Effects of Uncertainty Kinked and Fixed Adjustment Costs Financial-Market Imperfections Empirical Application: Cash Flow and Investment Problems
Chapter 9 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9
CONSUMPTION
UNEMPLOYMENT
Introduction: Theories of Unemployment A Generic Efficiency-Wage Model A More General Version The Shapiro-Stiglitz Model Implicit Contracts Insider-Outsider Models Hysteresis Search and Matching Models Empirical Applications Problems
328 333 339
346 347 353 356 361 366 3 70 380
386 386 389 395 396 400 406 409 413 417 428 433
437 437 439 444 448 460 464 467 472 481 489
CONTENTS
Chapter 10
INFLATION AND MONETARY POLICY
10.1 Inflation, Money Growth, and Interest Rates 10.2 Monetary Policy and the Term Structure of Interest Rates 10.3 The Dynamic Inconsistency of Low-Inflation Monetary Policy 10.4 Addressing the Dynamic-Inconsistency Problem 10.5 What Can Policy Accomplish? 10.6 Interest-Rate Rules and the Conduct of Policy 10.7 A Model for Analyzing Interest-Rate Rules 10.8 Seignorage and Inflation 10.9 The Costs of Inflation Problems
The Government Budget Constraint The Ricardian Equivalence Result Ricardian Equivalence in Practice Tax-Smoothing Political-Economy Theories of Budget Deficits Strategic Debt Accumulation Delayed Stabilization Empirical Application: Politics and Deficits in Industrialized Countries 11.9 The Costs of Deficits 11.10 A Model of Debt Crises Problems