University of Pittsburgh Economics 2713Spring 2007 CRN: 20280Prof. DuffyTopics in Macroeconomics:Behavioral MacroeconomicsCourse Description: This course will introduce y ou to some current topics in macroeconomics. Thefocus will be on recent beha vioral approaches to understanding macroeconomic phenomena and theempirical evidence that supports those behavioral approac hes. A list of the topics I plan to cover isgiven on the reading list.Requirements: 1) Attendance and active participation in weekly class meetings. I will announce thetopic we will cover in the following w eek’s class and will expect that you have read the papers on thereading list in advance of that class. 2) Presentation/submission of a preliminary research project.Submission of research project is due on or before the last class meeting Tuesday, April 24, 2007;no late submissions will be accepted. You may choose to work on a research project by yourself or withanother person. A brief oral presentation of the project is also required and will be scheduled for thelast two weeks of the semester. Grades for this course will be determined on the basis of both the oralpresentation and the project write-up. In the case of group efforts, all members of a group will receivethe same grade. You should meet with me to discuss your project by March 2, 2007.Readings: We will read a number of papers for this course. References are given below. Please comeprepared to critically discuss the papers assigned for each class meeting.Class Schedule The course meets Tuesdays, 2:30-5:00pm in 4940 W.W. Posvar Hall. A list of topicsand readings follows. The list of topics and readings is subject to c h ange.1. Introduction• Akerlof, G.A. (2002) “Behavioral Macroeconomics and Macroeconomic Behavior, “AmericanEconomic Review,” 92. 411—433.• Barberis, N. and Thaler, R. (2002) “A Survey of Behavioral Finance,” NBER working paper9222.2. Efficiency Wages and Employme nt• Akerlof, G.A. (1982), “Labor Contracts as Partial Gift Exchange,” Quarterly Journal ofEconomics, 97, p543-69• Akerlof, G.A. and Yellen, J., (1986), ’Efficiency Wage Models of the Labor Market’, Cam-bridge: Cambridge University Press.1• Akerlof, G.A., and Yellen, J., (1988), “Fairness and Unemployment,” American EconomicReview 78, 44-49.• Fehr E., Kirchsteiger G., and Riedl A., (1993), Quarterly Journal of Economics 108, 437460.• Fehr E., G¨achter S., and Kirchsteiger G., (1997) Econometrica 65, 833860.• Shapiro, C. and Stiglitz, J. (1984), “Equilibrium Unemployment as a Worker DisciplineDevice,” American Economic Review 74, 433—44.3. New Keynesian Phillips Curve• Taylor, J.B. (1980), “Aggregate Dynamics and Staggered Contracts,” Journal of PoliticalEconomy 88, 1-24.• Calvo, G. (1983) “Staggered Prices in a Utility—Maximizing Framework, Journal of MonetaryEconomics 12, 383-98.• Gali and Gertler (1999), “Inflation Dynamics: A Structural Econometric Model,” Journalof Monetary Economics 44, 195-222.• Ball, L.S., (1994), “Credible Disinflation with Staggered Price-Setting, American EconomicReview 84, 282-89.• Mankiw, N.G. (2001), “The Inexorable and Mysterious Tradeoff Between Inflation and Un-employment,” Economic Journal 111, C45—61.• Bils, M. and Klenow, P.J., (2004) “Some Evidence on the Importance of Sticky Prices,”Journal of P olitical Economy 112, 947-85.4. New Keynesian Model• Clarida, R. Gali, J. and Gertler, M. (1999), “The Science of Monetary Policy: A NewKeynesian Perspective,” Journal of Economic Literature 37, 1661—1707.• Walsh, C.E., (2003), Monetary Theory and Policy Second edition. Camb ridge: MIT Press.5. Monetary Policy Rules• Taylor, J.B. (1993), “Discretion versus policy rules in practice,” Carnegie-Rochester Con-ference Series on Public Policy 39, 195-214.• Taylor, J.B. (1999), Ed., Monetary Policy Rules, Chicago: University of Chicago Press &NBER.• Clarida, R. Gali, J. and Gertler, M. (1999), “The Science of Monetary Policy: A NewKeynesian Perspective,” Journal of Economic Literature 37, 1661—1707.• Woodford, M. (2003), In terest and Prices: Foundations of a Theory of Monetary Policy,Princeton: Princeton Universit y Press.6. Habit/Status Concerns and the Equit y Premium Puzzle• Fuherer, J. and Moore, G., (1995), “Inflation Persistence,” Quarterly Journal of Economics110,127-59.• Fuherer, J. (2000), “Habit Formation in Consumption and its Implications for MonetaryPolicy Mo dels,” American Economic Review 90, 367—390.2• Holden and Driscoll (2003), “Inflation Persistence and Relative Contracting,” AmericanEconomic Review 93, 1369—1372.7. Sticky Information and Inattentiveness• Mankiw, N.G., and Reis, R. (2002) “Sticky Information versus Sticky Prices: A Proposal toReplace the New Keynesian Phillips Curve,” Quarterly Journal of Economics 117, 1295-1328.• Mankiw, N.G. and Reis, R. (2006), “Pervasive Stickiness” NBER Working Paper 12024.• Reis, R. (2006) “Inattentive Consumers,” Journal of Monetary Economics 53, 1761-1800.8. Money Illusion• Fisher, I. (1928), The Money Illusion, New York: Adelphi• Shafir, E., Diamond, P.A., and Tversky, A. (1997) “On Money Illusion,” Quarterly Journalof Economics 112, 341-74.• Fehr, E and Tyran, J. R. (2001) “Does Money Illusion Matter?” American Economic Review91, 1239-1262.9. Adaptive Learning Dynamics• Sargent, T.J. (1993), Bounded Rationaltiy in Macroeconomics,Oxford: OxfordUniversityPress.• Brock, W.A. and C. Hommes, (1997) “A Rational Route to Randomness,” Econometrica65, 1059-95.• Evans, G.W. and S. Honkapohjs (2001) Learning and Expectations in Macroeconomics,Princeton: Princeton Universit y Press.10. Adaptive Learning and Monetary Policy• Bullard, J. (2006), “The Learnability Criterion and Monetary Policy,” Federal Reserve Bankof St. Louis Review May/June 2006, 203—218.• Bullard, J. and K. Mitra (2002), “Learning about Monetary Policy Rules,” Journal of Mon-etary Economics 49, 1105-29.• Evans, G.W. and S. Honkapohja (2003), “Expectations and the Stability Problem for Opti-mal Monetary Policies,” Review of Economic Studies 70, 807-24.11. Hyperbolic Discounting and Undersaving• Ainslie, G. and Haslam, N. (1992), “Hyperbolic Discounting,” in Loewenst ein, G. and Elster,J., Eds., Choice Over Time, New York: Russell Sage, 57-92.• Laibson, D. (1997) “Golden Eggs and Hyperbolic Discounting,” Quarterly Journal of