Akerlof and Shiller, Animal Spirits Confidence – Keynes-Minsky Hopes, Exuberance, Fears Waves of optimism and pessimism Corruption - Bad Faith  Loss of.

Slides:



Advertisements
Similar presentations
27 CHAPTER Aggregate Supply and Aggregate Demand.
Advertisements

Copyright 2008 The McGraw-Hill Companies 17-1 Classical Economics and Keynes Causes of Macro Instability Does the Economy Self- Correct? Rules or Discretion.
The Central Bank and the money market equilibrium
Supply and Demand graphs- The Basics
Equilibrium in the goods and money markets Understanding public policy
Chapter 16 The Conduct of Monetary Policy: Strategy and Tactics.
Animal Spirits: Human Nature and the Economy George A. Akerlof The European Colloquia Venice November 25, 2008.
Aggregate demand and aggregate supply model A model that explains short-run fluctuations in real GDP and the price level.
Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. financial asset; 2. New Keynesian Economics; 3. transaction costs; 4. velocity of money; _____the.
Chapter 10 Aggregate Demand I: Building the IS-LM Model
EC102: Class 4 LT Christina Ammon.
AP Economics Dictionary
Macroeconomic Problems, Microeconomic Solutions Peter J. Boettke Econ 881/Spring 2005 February 28.
Viewpoints & Models Classical Economics
New Keynesian economics Modern macroeconomic modeling.
10. The Relationship between Unemployment and Inflation
Economic Instability: A Critique Of The Self Regulating Economy.
GDP = C + I + G + NX MV = P Q (= $GDP)
Autocatalytic process: the outcome of the process is itself a catalyst for the process  Chain Reaction! Viking success propelled Viking success. … but.
Why was the Great Depression so deep? Why did it last so long? Friedman and Schwartz: M-contraction. Bernanke: true, but there’s more. Financial crisis.
Classical Economics: Laissez - Faire
Real Business Cycles and New Keynesian Economics: Chapter 13 Professor Steve Cunningham Intermediate Macroeconomics ECON 219.
27-1 Keynes and the Great Depression
The Great Depression: “Holy Grail of Macroeconomics” J.K. Galbraith (1955) The Great Crash: 1929 Friedman and Schwartz (1963) The Great ContractionFriedman.
GDP = C + I + G + NX MV = P Q (= $GDP)
GDP: Spending Y = C + I + G + NX
Ch. 14. The Business Cycle. Different theories of the business cycle
Chapter Ten The IS-LM Model.
Chapter 13 Business Cycle Models with Flexible Prices and Wages Copyright © 2014 Pearson Education, Inc.
Chapter 17: Stabilization in an Integrated World Economy
Aggregate demand and supply. Aggregate supply is the quantity of output firms are willing to supply, for each given price level. Aggregate supply is the.
© 2013 Pearson. Why do Americans earn more and produce more than Europeans?
NUIG Macro 1 Lecture 19: The IS/LM Model (continued) Based Primarily on Mankiw Chapters 11.
Mr. Sloan Riverside Brookfield High school.  2 Hours and 10 Minutes Long  Section 1-Multiple Choice ◦ 70 Minutes Long ◦ Worth 2/3 of the Score  Section.
1. Most economists agree that monetary policy is usually preferred to discretionary fiscal policy to reverse the effects of a recession. Wide gaps in.
Ch. 9: Economic Instability: A Critique of the Self-Regulating Economy
Module 35 May  According to the classical model of the price level, the aggregate supply curve is vertical even in the short run.  Business cycle.
Unit 5 - Models of Output Determination n Two Primary Schools of Economic Thought are: 1. Classical Economics (Smith, Ricardo, Von Mises, Say, Hayek, Hazlitt,
The subject of Microeconomics Theoretical relationship between prices, wages, interest Theory of the consumer behaviour Theory of the firm (costs, prices,
The Roots of Modern Macroeconomics.
Keynesianism v Monetarism MK, Unit 23. Reading p. 117 Read the text and underline the main ideas connected with classical economic theory, Keynesianism,
1 A Student’s Guide to the Current Economic Crisis Dave Colander Middlebury College.
Schools of Macroeconomic Thought Modules 35 & 36.
Created: Jan 2013 by Jim Luke. Current Challenges & Research If something cannot go on forever, it will stop. -- Stein's Law (Herbert Stein) ‏ We have.
Figure 12.1 The Fed Reaction Rule. Figure 12.2 Changing AD Equilibrium due to the Fed Reaction.
1 The full dynamic short-run model. 2 The Dynamic Model A nice new addition to Mankiw. Combines - IS - LM (changed to reflect central bank targeting)
© 2008 Pearson Addison-Wesley. All rights reserved 11-1 Chapter Outline Real-Wage Rigidity Price Stickiness Monetary and Fiscal Policy in the Keynesian.
MODERN ECONOMICS A Survey of Contemporary Thought Based on Schools Briefs in the Economist, 03 November 1990 to 09 March 1991 and 12 February to 02 April.
The AD-AS Model MACRO Created: Sept 2007 by Jim Luke. The Keynesian Theory Using AD-AS Model The Classical Theory says the economy corrects itself in the.
XVII. New Keynesian Economics. XVII.1 AD – AS model once again Agregate demand : both in long and short term decreasing function of price Agregate supply.
Chapter 7 Aggregate demand and supply: an introduction.
Macroeconomics. Chapter One Introduction Macroeconomics : 1. Definition - macroeconomics is concerned with the behavior of the economy as a whole-----booms.
Ch 10.  Analyze the impact of unanticipated changes in aggregate demand and short run aggregate supply  Evaluate the economy’s self-correcting mechanism.
NS3040 Fall Term 2014 Keynesian/Monetarist Debates.
Unit 3: Monetary Policy Other Macro Models 4/19/2011.
NEO-KEYNESIANISM Keynesian, Monetarism (Friedman) and Rational Expectations (Sargent)
Eco 200 – Principles of Macroeconomics Chapter 15: Macroeconomic Policy.
15 Modern Macroeconomics: From the Short-Run to the Long- Run.
Modules 35 & 36: Historical & Modern Macroeconomics.
Aggregate demand and aggregate supply. Lecture 6 1.
ASHESI UNIVERSITY MACROECONOMICS LECTURE B, DAY ONE. FALL, 2010.
Lecture Notes on Macroeconomics ECo306 Spring 2014 Ghassan DIBEH
Monetary Theory: The AD/AS Model – Pt. II
Monetary and Fiscal Policy in the Keynesian Model
12 Part 1 GOVERNMENT POLICY INFLATION, AND DEFLATION
Week 11 Monetary and fiscal policy
What is a liquidity trap?
Disputes Over Macro Theory and Policy
Ways to address Unemployment
Why was the Great Depression so deep? Why did it last so long?
Presentation transcript:

Akerlof and Shiller, Animal Spirits Confidence – Keynes-Minsky Hopes, Exuberance, Fears Waves of optimism and pessimism Corruption - Bad Faith  Loss of Trust S&Ls – Enron – Sub-prime Fairness Punish cheaters, even at own expense Relative position Money illusion “Illusion” is real in view of nominal contracts/accounts Stories New eras – Irrational exuberance  Downward wage rigidity

Akerlof and Shiller: A brief history of macroeconomics Pre – Keynes: Say’s Law  Automatic adjustment to full employment Keynes: Animal spirits  Excesses  Inherent instability Minsky, JMK, Stabilizing an Unstable Economy, Can “It” Happen Again? Hicks: IS – LM  Keynes without animal spirits Consumption function – Liquidity preference function Hydraulic Keynesians Original Phillips Curve  Policy Menu Friedman: Monetarist counter-revolution Dispense with money illusion/enter expectations/natural rate  Wage Setting: W = P e F(u,z) New Classical Economics Rational expectations Real business cycles (dynamic stochastic general equilibrium) New Keynesian Economics Rational expectations – but sticky adaptation

Akerlof and Shiller: Prescription for Today A Second Target – A Credit Target “It is fairly easy now to project the fiscal and monetary stimulus necessary for aggregate demand to be at full employment—if financial markets are freely flowing…But, with the loss of confidence in the financial sector, macroeconomic planners must have a second target…—the amount of credit that would normally be given [to qualified borrowers] if the economy were at full employment.” Methods: Discount window (TALF)/Capital injections/GSEs Gotta replace the fallen Humpty-Dumpty (Securitization) A Credit Target—Whom to credit? Bernanke and Blinder (1988) Credit, Money and Aggregate Demand, AER, May. – In liquidity trap, expansion of credit is effective stimulus Aside: Also in AER, May Akerlof and Yellen, Fairness and Unemployment “…where it is advantageous to pay some employees highly, it is also … fair to pay other employees well.” Unfair pay  shirking