ECO250: Advanced Macroeconomics, Sections A and B
Class schedule: Section A: M, W , F 8:30-9:20; Section B: M, W, F 1:30-2:20.
Class website: www.j-k.ca/teaching.php
Class e-mail: eco250ab@gmail.com
NEW OFFICE HOURS: Mondays 11:30-1:00, Wednesdays 2:30-4:00, in P3134.
Here are the university - wide procedures if you feel you are getting a flu Refer to the course outline about what happens if you miss a mid-term.
Course Outline
Practice Questions Set #1 - covers chapters 1-6
Answers to the practice questions set 1
First Mid term answers
Practice Questions Set #2 - covers chapters 7-11
Answers to the practice questions set 2
Second Mid term answers
Practice Questions Set #3
Answers to the practice questions set 3
Instructions for the final exam
Slides:
Ch 1
Ch 2
Ch 3
Ch 4
Ch 5
Ch 5a
Ch 6
Ch 7
Ch 8
Ch 10
Ch 11
Ch 12 and finally, last topic:
Monetary Policy and Inflation
Week 11
November 23-November 27:
1. Last week I told you about the sweet deal banks got when AIG was going bankrupt and was saved with $182billion!!!!! of government money. Hey, I beat the Nobel Laureate: wrote about it the next day.
Another article provides more details.
2. Thomas Friedman is an excellent and perceptive writer. He wrote The World is Flat, a book about how globalization will equalize chances in the world economy (the first chapter of the book gives sufficient idea of what it is about). In yesterday's New York Times he stresses that the US advantage over other countries is imagination ; a problem is the quality of the government.
Unlike Americans, we have good government. On the other hand, our businesses have demonstrated little imagination. Your role in the future is to cultivate talent in the companies you will (hopefully) ran.
3. In local news we do have good banks.
But to evaluate the banking sector one needs to look at its performance not only in a crisi, but throughout the business cycle.
Week 10
November 16-November 20:
1. Well, this is not macro but it is interesting: Dow at 10000 again.
2. Mr. Obama went to China. One f the things he is going for sure to discuss is the so gold "global imbalances", and the effect on them of Chinese exchange rate policy.
Global imbalances has become a popular term used to refer to an imbalance between the US and China. The US has a huge current account and trade deficit; China has the reverse. A lot of people blame it on the Chinese exchange rate policy. Essentially the Chinese government has fixed the exchange rate with the US dollar. Results:
- the world is flooded with cheap Chinese products;
- Chinese foreign exchange reserves have reached an astonishing level.
Recently the problem became global as the US dollar has been falling against other currencies. This means that the Chinese yuan has been falling as well.
Paul Krugman writes about the imbalances in his NYT column that you can find here
The exchange rate against the euro is here. You can clearly see the recent appreciation.
3. Here is a story which shows that regulating financial firms is not practical. They will always end up winners.
4. You have heard about the housing problems. This article shows the extent of the problem.
5. Banking problems are not over, either.
6. Newest economic forecast
7. On Wednesday I promissed you the excellent presentation of Don Drummond from TD. Here it is
8. In Wednesday class I mentioned we have very high tariffs on some farm products. In Thursday's National Post they talk about tariffs on eggs.
Week 9
November 9-November 13:
1. The British Prime Minister (who was an excellent Finance Minister) has written an interesting piece on
How we can restore trust in financial institutions. copied here from the Financial Times. Below are the four rules he stressed [which I put in bold in the article]:
First, in a global economy and with a global financial sector, any such measures could work only if applied globally.
Second, any measures must not create distortions or incentivise avoidance.
Third, any measures must complement regulatory measures already being adopted or discussed.
And fourth, any costs to the financial sector must be fair and measured to enable institutions to do their job for our economy.
2. At the G20 meeting there was
no support for British plan, also from the Financial Times today.
And the banking system is in a much more dangerous shape than it was before the crisis, especially in the US. Why? Because
- big banks now know they are going to be bailed out if they run into trouble
- the US system, as I mentioned before, got much mroe concentrated.
3. A pessimistic note from TD
Week 8
November 2-November 6:
1. Interesiting information on US unemployment.
In our measure of unemployment we ignored the underemployed. The article points out that the rate of unemployment plus underemployment is really high.
What is also interesting is that wages did not fall. As inflation is near zero, this means that real wages increased, even as the economy goes through a deep recession.
Week 7
October 26-October 30:
1. Bank of Canada is reluctant to intervene in the currency markets. Good. It simply does not have enough money.
The danger of currency intervention is that once you start, when do you stop?
2. You should follow the developments in the pension area.
Why? Because any additional money for retirees will come out of your pockets.
Week 6
October 19-October 23:
1. Many people, including me, start worrying that governments turned to their usual course of action in times of crisis: do nothing but hope for the best.
By far the most serious issue is the lack of reform of the banking system. In the absence of serious changes, there will be another crisis, just bigger.
Why? One of the main reasons of the current crisis is the fact that large banks had perverse incentives. If they did well, they got all the reward; if they did poorly, they expected the government, using the taxpayer money, will bail them out.
In such situation a reasonable thing to do is to take big risks. If you win, you cash the prize; if you lose, the downside is limited. This is one form of moral hazard.
Why a bigger crisis next time? Because two things have changed:
First, big banks now know that they will be saved by the government. They did not know it before (and Lehman Brothers was allowed to fail) but past government actions established that the big banks are too big to fail.
Second, the big banks got significantly bigger.
How much bigger? Look at this: How the US financial firms shrunk and grew.
Now even Alan Greenspan wants to break up the big banks. But chances of that happening are next to none.
2. We will be talking about economic growth this and next week. For facts and comparisons, see the CIA factbook
3. A change in policy at the Bank of Canada: it now wants to intervene in the currency markets
4, Moderate pay cuts at seven firms that received the largest amounts of government funds
Read news carefully. Stories about the cuts are a bit inaccurate.
- First, cuts are not at Wall Street: three of the 7 firms are financial (AIG, BoA and Citigroup); four are from the car sector (GM, Chrysler and their financing arms).
- Second, they are only for November and December.
This reminds me of an old joke. Radio Yerevan corrects a news item. "In our yesterday's news we said that in Moscow, in the Red square, they were giving away cars for free. The news were a bit inaccurate.
- First, it was not in Moscow but in Leningrad;
- Second it was not in the Red Square but in Smolny square;
- Third it was not cars but bicycles, and
- Forth, they were not given away, they were being stolen."
Now this was an old Soviet joke. Pity it seems to apply to our press now. At lease this journalist noted the second part.
5. But the prize for the most stupid business journalist sentence goes to this article about the falling dollar
What is wrong with this sentence: "A weak greenback also raises the cost of commodities such as oil, which are priced in the U.S. currency."
6. Read in today's Toronto Star about Ontario deficit The sidebar on the right has a lot of interesting articles on the topic. Here is the effect of the recession on Ontario finances as seen in the last budget; yesterday's announcement adds another $10bln to this.
Week 5
October 12-October 16:
No news, I was away.
In case you wondered, the world did not stop; I did.
Week 4
October 5-October 9:
1. Over he weekend Centre for International Governance Innovation (CIGI) organized a major conference Towards a Global New Deal. The underlying idea of the conference was that the current crisis calls for a thorough rethinking of how world economic relations are organized.
Your correspondent was there and was most impressed by the speech of Paul Martin. The former Prime Minister made a simple point. As capital moves seamlessly across borders, economic problems are worldwide and require global solutions. This means we have to abandon the current notion of sovereignty (where each country cares mostly about the well being of its citizens). Among other things, this means a common bank regulation standards should be established.
Another speaker, the 2008 Nobel laureate Paul Krugman
worried about the recovery.
2. In the last class we concluded that we do not know much about Burkina Faso. So here is the CIA factbook where every coutry under the sun is ranked.
3. Oh, it is fall, the time for Nobel prizes.
They are preceded by The Ig Nobel prizes.
This years winners. Unusually, the economics prize is serious. Let me cite:
ECONOMICS PRIZE: The directors, executives, and auditors of four Icelandic banks — Kaupthing Bank, Landsbanki, Glitnir Bank, and Central Bank of Iceland — for demonstrating that tiny banks can be rapidly transformed into huge banks, and vice versa — and for demonstrating that similar things can be done to an entire national economy.
There was another worthy recipient, who got the math prize:
MATHEMATICS PRIZE: Gideon Gono, governor of Zimbabwe’s Reserve Bank, for giving people a simple, everyday way to cope with a wide range of numbers — from very small to very big — by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000).
4. My favourite blogger, Simon Johnson, former chief economist at the IMF explains why
reforms of the banking system do not seem to be getting done
Week 3
September 28-October 2:
1. The cost of the crisis. As the world economy is recovering faster than expected, the cost of the crisis may end up being smaller than predicted, a mere $3 400 000 000 000.
2. Fears of deflation
3. The title says it all: IMF says global economic recovery has begun
4. Current recession is apparently more or less over. So, it is worth to listen to the following: Short discussions of what the government did in the previous recessions.
Week 2
September 21-25:
1. A French alternative to GDP
2.As we will discuss in a few weeks, the decision whether to work or stay unemployed is influenced by the difference in income when working and when unemployed. For this reason Sweden reduced income taxes . Sweden has traditionally had high levels of social assistance, which induced people to stay unemployed.
3. This, of course, will have the opposite effect.
4. Group 20 is meeting in Pittsburg right now. The first order of action: they got rid of Group of 7 and replaced it with the Group of 20. This makes sense: Group of 7 was not representative of the global economy.
The second order of action: financial reform. Simon Johnson, professor at MIT Sloan School asks:Should we care? from The Baseline Scenario
The answer is, I think, that the reforms are quite meaningless, for the reasons he explains in the above posting and, especially, in this one.
Week 1
September 14-18:
1. A year ago tomorrow the economic crisis exploded with the collapse of Lehman Brothers .
2. Here is a contemporaneous account of how it happened.
3. At least it the price was not too bad
In the following months there was a lot of talk about another great depression, great recession etc, But:
4. A year later the world economy started to rebound .
5. So no depression after all
6, Was Lehman bankruptcy a bad thing?
7. A brief chronology of the tumultuous week a year ago.
During the course we will look at both the current situation and on what happened in the past year
8. Canadian dollar exchange rate is determined mostly by resource prices.
9. Recession is over but problems will linger.
10. How the US financial firms shrunk and grew.
11. For you to ponder: strange things have been going on in the financial sector.
12. For you to ponder, chapter 2: has anything changed?
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