Aligning basic to intermediate macroeconomics to current central bank practice - new suggestions and some unfinished business
AbstractThe present paper aims at providing a framework for teaching macroeconomics at the introductory to intermediate level. In doing this, my principal concern is to align current teaching models with the modern practice of central banking. In the spirit of Romer (1999), I introduce a simple monetary policy rule, which is shown to make the LM curve redundant. This approach is consistent with the more traditional ISLM, but provides a basis for addressing some important stylized facts very early in the course in a straightforward and much more natural way. Particular attention is devoted to issues such as liquidity traps and monetary policy in an open economy. Finally, directions for further improvements are pointed out. I think that the new family of teaching models I present should not crowd out ISLM but rather complement it.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2003 with number 2003-10.
Length: 42 pages
Date of creation: Apr 2003
Date of revision:
Teaching of macroeconomics; General aggregate macro models; Monetary policy rules; Monetary policy in an open economy;
Find related papers by JEL classification:
- A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- David H. Romer, 2000.
"Keynesian Macroeconomics without the LM Curve,"
Journal of Economic Perspectives,
American Economic Association, vol. 14(2), pages 149-169, Spring.
- Brunner, Karl & Meltzer, Allan H, 1972. "Money, Debt, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 951-77, Sept.-Oct.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Carl E. Walsh, 2002. "Teaching Inflation Targeting: An Analysis for Intermediate Macro," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(4), pages 333-346, January.
- John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
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