Berkeley Econ 101b Spring 2008

Revised Schedule for Econ 101b: Post-Spring Break

March 31: Markets for "Lemons"

Notes: Lecture Audio. Adverse Selection in Lending Markets.

Readings:

• George A. Akerlof (Aug. 1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics 84 (3): 488–500 http://links.jstor.org/sici?sici=0033-5533%28197008%2984%3A3%3C488%3ATMF%22QU%3E2.0.CO%3B2-6
• J. Bradford DeLong, "Dealing with Adverse Selection in the Mortgage Market"
• Mark Thoma, "Adverse Selection, Loan Defaults, and Credit Rationing"
• J. Bradford DeLong, Comment on Lawrence Summers, "Safeguarding America's Economy from Adverse Consequences of Financial Crisis"
  • Hoisted from Comments: Bank Capitalization

April 2: Models of Financial Crises

Notes: Lecture Audio
Readings: David Greenlaw (Morgan Stanley), Jan Hatzius (Goldman Sachs), Anil Kashyap (Chicago GSB) and Hyun Shin (2008), "Leveraged Losses Lessons from the Mortgage Market Meltdown" http://www.chicagogsb.edu/usmpf/docs/usmpf2008confdraft.pdf

April 4: Ways of Dealing with Financial Crises

Lecture Audio
Readings:

• "Fedspeak": Janet Yellen, "The U.S. Economy: Prospects and Puzzles"
• Ben S. Bernanke, "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" http://links.jstor.org/sici?sici=0002-8282%28198306%2973%3A3%3C257%3ANEOTFC%3E2.0.CO%3B2-0

Problem set: Adverse selection and financial markets. Clean Version

Memo: Midterm 2 Grading Scale

April 7: How Are We Dealing with This Financial Crisis?

Notes: Lecture Audio http://delong.typepad.com/berkeley_econ_101b_spring/2008/04/what-we-are-doi.html

April 9: What Should We Be Doing in This Financial Crisis that We Are Not?

Notes: Lecture Audio: http://www.j-bradford-delong.net/2008_MOV/20080409_123925.mp3

Readings:

• Arguments Against Lender-of-Last-Resort Operations http://delong.typepad.com/delongslides/2008/04/arguments-again.html
• Paul Krugman's "Cartoon Model" http://krugman.blogs.nytimes.com/2008/03/10/a-cartoon-model-of-the-crisis-more-serious-wonkery/
• A Subprime Primer http://gregmankiw.blogspot.com/2008/03/subprime-primer.html

April 11: International Finance and "Global Imbalances": Introduction

Notes: Lecture Audio http://www.j-bradford-delong.net/2008_mov/20080411_091301.mp3

Readings:

• Raghuram Rajan, "Global Current Account Imbalances: Hard Landing or Soft Landing?" http://www.imf.org/external/np/speeches/2005/031505.htm
• Maurice Obstfeld, "Global Imbalances" http://www.econ.berkeley.edu/~obstfeld/280c_sp07/adjustment.pdf
• Hamid Faruqee, "Narrowing Global Imbalances?" http://www.imf.org/external/pubs/ft/survey/so/2008/RES021908A.htm

April 14: Risks of International Financial Crisis

Notes:

• Global Imbalances: http://delong.typepad.com/delongslides/2008/04/global-imbalanc.html
• Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080414_091122.mp3
• International Financial Crises: http://delong.typepad.com/delongslides/2008/04/foreign-exchang.html

Readings:

• "The International Financial Crises of the 1990s" http://j-bradford-delong.net/macro_online/ifc.pdf
• "Simple Analytics for a Hard Dollar Landing" http://www.j-bradford-delong.net/movable_type/pdf/hard_landing.pdf
• DeLong and Olney, chapter 15.

April 16: Why Is Asia Gambling on Bretton Woods II?

Notes:

Readings: Barry Eichengreen,"China's Exchange Rate Regime: The Long and Short of It" http://www.econ.berkeley.edu/~eichengr/research/short.pdf

• Problem Set Out: Managing Global Imbalances

April 18: Long-Run Growth Revisited: Endogenous Growth I

Notes:

Readings:

• Paul Krugman, "Review of David Warsh, 'Knowledge and the Wealth of Nations'" http://www.nytimes.com/2006/05/07/books/review/07krugman.html
• US Economic Development Administration, "New Growth Theory, Technology and Learning: A Practitioner’s Guide" http://www.eda.gov/ImageCache/EDAPublic/documents/pdfdocs/1g3lr_5f7_5fcortright_2epdf/v1/1g3lr_5f7_5fcortright.pdf
• Paul Romer, "Economic Growth" http://www.stanford.edu/~promer/EconomicGrowth.pdf

April 21: Long-Run Growth Revisited: Endogenous Growth II

Notes:

Readings:

Problem Set Out

April 23: Long-Run Growth Revisited: Endogenous Growth III

April 25: Current Situation Update

Problem Set Out

April 28: "Conservative" Central Bankers

Notes:

Readings:

• Macroeconomics, review 10.3, review 12.4, 13, 14, 16.1-16.4.

• "Central Bank Consistency and Credibility: The Analytics"

April 30: The Monetary Transmission Mechanism

Notes:
Readings: Macroeconomics, 16.3, 16.5. "Notes on the Great Depression." "Notes on Liquidity Traps"

Problem Set out: credit and other channels

May 2: Permanent Income and Barrovian Equvalence

May 5: Social Security

Notes:
Readings: The "Golden Rule" and National Savings. Macroeconomics, 14.2, 14.3

Problem Set out: the aging of america

May 7: The Long-Run Fiscal Situation

Readings:

• CBO, The Long-Run Fiscal Situation http://www.cbo.gov/doc.cfm?index=3521&type=0 http://delong.typepad.com/delongslides/2008/04/the-projected-r.html

May 9: "Applications" Exam

May 12: Final Review

May 16: FINAL EXAM 8-11

Review for Second Midterm

Lecture Audio

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• The flexible-price model http://j-bradford-delong.net/Teaching_Folder/Econ_101b_f2001/flexprice_model.pdf
• The flexible-price monetary side http://www.j-bradford-delong.net/2008_pdf/20080228_mvpy.pdf
• The IS curve and aggregate demand http://delong.typepad.com/delongslides/2008/03/the-algebra-of.html

• From the short run to the medium run http://www.j-bradford-delong.net/movable_type/pdf/Lec_Notes_Stabilization.pdf

• Mock exam

March 14 Econ 101b Lecture: From the Short Run to the Medium Run

Lecture Audio

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• Review: Understanding the IS Curve; Investment and the Real Interest Rate; The Task of the Federal Reserve; Okun's Law and the Phillips Curve
• Federal Reserve Behavior:
  • The Taylor Rule and the MPRF
  • Equilibrium: The Phillips Curve and the MPRF
  • Understanding Fluctuations
• Expectations:
  • Static Expectations: π^e is constant...
  • Adaptive Expectations: π^e_t+1 = π_t
  • Rational Expectations: π^e_t+1 = E[π_t+1]
  • Expectations Spreadsheet: http://www.j-bradford-delong.net/2008_xls/20080306_101b_dynpcurve.xls
• From the Short Run to the Medium Run

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• Paul Krugman on the Current Macro Situation
  • Whats Ben doing?
  • A cartoon model of the crisis
  • Sterilized intervention, big time
  • Non-standard Ben
  • Mission not accomplished not yet, anyway
  • Carlyle Capital on verge of collapse as talks break down

Practice Midterm 2

Practice Midtertm 2

March 7: Special Current Macro Situation Lecture

Lecture Audio

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• Last Week: Growing Risk Premiums...
• This Morning: 1/100 of a Great Depression Arrives on Our Doorstep--and the Federal Reserve Reacts
  • Today: Payroll Employment Report
    • Brad DeLong's Slides: Employment Report Details
    • Brad DeLong's Slides: Meaning for the Economy: Rex Nutting
  • Financial Market Reaction: Gurk!!
  • And the Federal Reserve Response...

Dynamic Phillips Curve Spreadsheet

http://www.j-bradford-delong.net/2008_xls/20080306_101b_dynpcurve.xls

Econ 101b: March 12 Lecture: Inflation and Unemployment

Lecture Audio

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• Review:
  • Understanding the IS Curve
  • Investment and the Real Interest Rate
  • The Task of the Federal Reserve
• Background:
  • Okun's Law and the Phillips Curve
• Federal Reserve Behavior:
  • The Taylor Rule and the MPRF
  • Equilibrium: The Phillips Curve and the MPRF
  • Understanding Fluctuations
• Expectations:
  • Static Expectations: π^e is constant...
  • Adaptive Expectations: π^e_t+1 = π_t
  • Rational Expectations: π^e_t+1 = E[π_t+1]
    • Expectations Spreadsheet: http://www.j-bradford-delong.net/2008_xls/20080306_101b_dynpcurve.xls

March 5 Lecture: Investment, Exports, and Aggregate Demand

Lecture Audio

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• "Animal Spirits": Every Recession Has Been Triggered by a Fall in Private Investment
• The Algebra of the IS Curve:
• Investment and the Real Interest Rate
• Understanding the IS Curve
• The Task of the Federal Reserve

Problem Set 5

• Problem Set 5 out (due March 12)

Problem Set 4

• Problem Set 4 out (due Mar 7)

March 3 Lecture: Introduction to Aggregate Demand

Lecture Audio

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We have three types of models, dealing with three types of questions:

• The Long Run: decade-to-decade and generation-to-generation trends in living standards and productivity levels: Real GDP
• The Medium Run: triennial or longer fluctuations in the balance of resources between investment and consumption, production and exports and imports; prices and inflation: The Price Level
• The Short Run: year-to-year scale fluctuations in capacity utilization, unemployment, and other measures of idled resources: Unemployment

Each of the models works relatively well, in its place and for its principal issues. The big problems in macroeconomics, and the big research questions, come where the models overlap or fail to overlap and have to be welded together--a process that does not work very well.

Today we start on the short run--the year-to-year scale fluctuations in capacity utilization, unemployment, and other measures of idled resources. And we start by making the sticky price assumption: prices in the relevant markets don't change fast enough to be much use as an equilibrating mechanism; other things take over...

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• The Circular Flow of Economic Activity
  • The Expenditure Side of the Circular Flow
  • Flows: Incomes, Expenditures, Factors, and Goods
• Inventories and Equilibrium
• The Arithmetic of Aggregate Demand
• Income-Expenditure Equilibrium
• How Quickly Does National Product Adjust to Aggregate Demand?
• The Multiplier
• "Animal Spirits": Every Recession Has Been Triggered by a Fall in Private Investment
• The Algebra of the IS Curve: