This course deals with macroeconomic theory at an advanced level. Modern macroeconomic theory is characterised by two features: firstly, it has attempted to bridge the traditional gap between micro and macroeconomic theory. Secondly, it puts the emphasis on the analysis of market failure: in other words, it concentrates on finding out the reasons why there are suboptimal outcomes in the marketplace. In relation to this, we will deal with market failure in product markets, labour markets and financial markets as well as interaction between these markets. This will enable us to understand why fluctuations in market economies, unemployment and problematic behaviour by financial institutions (including banking crises and speculative bubbles) can arise. We will also examine the effects of monetary and fiscal policy in such a context. Finally, we will follow the discussion about the impacts of the current financial crisis on the development of macro-economic theory.
Synopsis of the history of macroeconomic theory, intertemporal budget restrictions and transversality conditions, modern macroeconomic theory of consumption, modern investment theory, the Ramsey model and real business cycle theory, micro-foundations of the new Keynesian macro-economic theory, imperfections on product markets, labour markets, and financial markets; DSGE models in the light of the recent financial crisis; contrasting modern macroeconomic theory with traditional Keynesian and post-Keynesian theory; the effect of monetary and fiscal policy in closed and open
economies; balance of payments restrictions and and exchange rate dynamics in the intertemporal context. Debating the state of macro-economics in the light of the recent financial and economic crisis.
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