Macroeconomic Fluctuations and Policies

by Challe

ISBN: 9780262039550 | Copyright 0

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The basic tools for analyzing macroeconomic fluctuations and policies, applied to concrete issues and presented within an integrated New Keynesian framework.

This textbook presents the basic tools for analyzing macroeconomic fluctuations and policies and applies them to contemporary issues. It employs a unified New Keynesian framework for understanding business cycles, major crises, and macroeconomic policies, introducing students to the approach most often used in academic macroeconomic analysis and by central banks and international institutions. The book addresses such topics as how recessions and crises spread; what instruments central banks and governments have to stimulate activity when private demand is weak; and what “unconventional” macroeconomic policies might work when conventional monetary policy loses its effectiveness (as has happened in many countries in the aftermath of the Great Recession.).

The text introduces the foundations of modern business cycle theory through the notions of aggregate demand and aggregate supply, and then applies the theory to the study of regular business-cycle fluctuations in output, inflation, and employment. It considers conventional monetary and fiscal policies aimed at stabilizing the business cycle, and examines unconventional macroeconomic policies, including forward guidance and quantitative easing, in situations of “liquidity trap”deep crises in which conventional policies are either ineffective or have very different effects than in normal time.

This book is the first to use the New Keynesian framework at the advanced undergraduate level, connecting undergraduate learning not only with the more advanced tools taught at the graduate level but also with the large body of policy-oriented research in academic journals. End-of-chapter problems help students master the materials presented.

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Contents (pg. v)
Preface (pg. ix)
Chapter 1. Introduction: From Business-Cycle Measurement to Macroeconomic Theory (pg. 1)
1.1 The Gross Domestic Product and Its Breakdown (pg. 2)
1.2 Measuring Business-Cycle Fluctuations (pg. 5)
1.3 Business Cycle Theory (pg. 11)
Part I. Foundations: Aggregate Demand and Supply (pg. 17)
Chapter 2. Aggregate Demand (pg. 19)
2.1 The Real Interest Rates and the Macroeconomic Equilibrium (pg. 20)
2.2 Private Consumption (pg. 22)
2.3 Investment (pg. 32)
2.4 Net Exports (pg. 34)
2.5 Aggregation of Expenditures (pg. 42)
2.6 Monetary Policy and Aggregate Demand (pg. 45)
2.7 Exercises (pg. 48)
2.8 Appendix: The Log-Linear IS Curve (pg. 50)
Chapter 3. Aggregate Supply (pg. 51)
3.1 Firm Behavior (pg. 53)
3.2 Labor Market Equilibrium (pg. 58)
3.3 The Natural Equilibrium (pg. 61)
3.4 Equilibrium with Nominal Price Rigidities (pg. 63)
3.5 Empirical Evaluation of the AS Curve (pg. 71)
3.6 Alternative Formulations of the AS Curve (pg. 73)
3.7 Exercises (pg. 79)
3.8 Appendix: Optimal Labor Supply (pg. 85)
Part II. Business Cycles (pg. 87)
Chapter 4. AS-AD Equilibrium and the Propagation of Macroeconomic Shocks (pg. 89)
4.1 Macroeconomic Equilibrium (pg. 90)
4.2 Effect of an Aggregate Demand Shock (pg. 93)
4.3 Effect of an Aggregate Supply Shock (pg. 98)
4.4 Nominal Rigidities and the Nature of Business-Cycle Fluctuations (pg. 101)
4.5 Exercises (pg. 104)
Chapter 5. Unemployment Fluctuations (pg. 109)
5.1 The Dynamics of Unemployment and Worker Flows: Empirical Aspects (pg. 111)
5.2 Search, Matching, and Equilibrium Unemployment (pg. 118)
5.3 Macroeconomic Equilibrium (pg. 130)
5.4 Exercises (pg. 134)
Part III. Conventional Macroeconomic Policies (pg. 141)
Chapter 6. Monetary Policy (pg. 143)
6.1 Monetary Policy Implementation (pg. 145)
6.2 Optimal Monetary Policy (pg. 158)
6.3 Expectations and the Credibility and Effectiveness of Monetary Policy (pg. 178)
6.4 Exercises (pg. 198)
Chapter 7. Fiscal Policy (pg. 203)
7.1 Ricardian Equivalence (pg. 205)
7.2 Fiscal Policy in General Equilibrium (pg. 216)
7.3 The Government-Spending Multiplier (pg. 229)
7.4 The Tax Multipliers (pg. 235)
7.5 Exercises (pg. 242)
Part IV. The Liquidity Trap and Unconventional Policies (pg. 247)
Chapter 8. The Liquidity Trap (pg. 249)
8.1 The Financial Crisis and Aggregate Demand (pg. 250)
8.2 The Zero Lower Bound on the Short-Term Nominal Interest Rate (pg. 257)
8.3 The Liquidity Trap Paradoxes (pg. 268)
8.4 Exercises (pg. 274)
Chapter 9. Unconventional Monetary Policies (pg. 277)
9.1 Forward Guidance (pg. 278)
9.2 Large-Scale Asset Purchases (pg. 288)
9.3 Iconoclastic Monetary Policies (pg. 298)
9.4 Exercises (pg. 304)
Chapter 10. Fiscal Policy and Structural Reforms in a Liquidity Trap (pg. 307)
10.1 The General-Equilibrium AS-AD Model at the Zero Lower Bound (pg. 308)
10.2 Fiscal Policy in a Liquidity Trap (pg. 311)
10.3 Structural Reforms in a Liquidity Trap (pg. 323)
10.4 Exercises (pg. 326)
10.5 Appendix: Derivation of the General-Equilibrium AS-AD Model in a Liquidity Trap (pg. 328)
References (pg. 331)
Index (pg. 337)

Edouard Challe

Edouard Challe is Professor of Economics at Ecole Polytechnique and Director of Research at CNRS (the French National Center for Scientific Research).

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