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Crassus


Total Posts: 1194
Joined: May 2004
 
Posted: 2005-10-31 15:19

Looking for macro kung fu in terms of understanding events and being able to formulate a view based on sound logic.

can someone suggest a structured and efficient way to learn macro principles, cutting through the b.s. ?

maybe you have a book to suggest or articles that you subscribe to or whatever.

 


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IAmEric
Phorgy Phynance
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Posted: 2005-10-31 15:42
Hi,

I was going to ask this same question, so I'll just attach myself to your request.

Here is an initial list that I've constructed so far. Comments on these are obviously welcome:

1.) "Lectures on Macroeconomics", Blanchard & Fischer

Apparently, the above is somewhat more technical, but covers things from first principles. The most highly recommended to me so far.

2.) "Macroeconomics", Mankiw

This is apparently a standard textbook.

3.) "Macroeconomics", Dornbusch et al.

This was apparently the standard text before Mankiw.

I don't have personal experience with these texts, but they were recently recommended to me.

Last, but not least, I grabbed a bunch of e-texts from here.

Cheers,
Eric

Henrik


Total Posts: 803
Joined: Nov 2004
 
Posted: 2005-10-31 15:53

I haven't read the Dornbusch book but a couple of articles of his while at uni. He was the king of exchange rates.

A very basic but good macro book is the one by Jeffrey Sachs/Felipe Larraine. Larraine is an expert in hyperinflation economies and other emerging markets crisises.


Friendly ghost

Crassus


Total Posts: 1194
Joined: May 2004
 
Posted: 2005-10-31 15:54

Thanks, IAE.  I have read Mankiw (was the text here), but I put that in the b.s. basket, although it is the standard and reads well.


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tristanreid


Total Posts: 1677
Joined: Aug 2005
 
Posted: 2005-10-31 16:02

I hope an enormous post doesn't bother anyone.  If you're new to macro, give the CFA guidelines a look.  The textbooks aren't great, but the requirements are a good laundry list of concepts that you can just look up.  This is the list for the first level, although it's a couple of years old.  Added benefit, if you decide to take the test you'll know some of the stuff on it. Smiley

-t.

P1. Economics: Private and Public Choice, 9th edition, James D. Gwartney, Richard L. Stroup, and Russell S. Sobel (Dryden, 2000)

A. "Taking the Nation’s Economic Pulse," Ch. 7

B. "Economic Fluctuations, Unemployment, and Inflation," Ch. 8

C. "Working with Our Basic Aggregate Demand/Aggregate Supply Model," Ch. 10

D. "Keynesian Foundations of Modern Macroeconomics," Ch. 11

Preliminary Reading Learning Outcomes

P1. A. "Taking the Nation’s Economic Pulse"

The candidate should be able to

    1. a) explain the two approaches to measuring gross domestic product (GDP) and calculate GDP using each approach;
    2. b) distinguish between GDP and gross national product (GNP);
    3. c) explain the difference between real and nominal GDP;
    4. d) distinguish between the GDP deflator and the consumer price index;
    5. e) calculate real GDP, using nominal GDP and the GDP deflator;
    6. f) discuss the major limitations of GDP;
    7. g) describe alternative measures of domestic output and income, including GDP, GNP, national income, personal income, and disposable income.
    8. B. "Economic Fluctuations, Unemployment, and Inflation"

      The candidate should be able to

        1. a) explain the phases of the business cycle;

          b) describe unemployment statistics and discuss the problems in measuring unemployment;
        2. c) describe the three types of unemployment;
        3. d) define and explain full employment;
        4. e) define inflation and calculate the inflation rate;
        5. f) discuss the effects of inflation;
        6. g) describe stagflation.
        7. C. "Working with Our Basic Aggregate Demand/Aggregate Supply Model"

          The candidate should be able to

            1. a) discuss the factors that shift aggregate demand and aggregate supply;
            2. b) discuss the short- and long-run effects of unanticipated changes in aggregate demand and aggregate supply;
            3. c) discuss three self-correcting mechanisms that may help stabilize a market economy.
            4. D. "Keynesian Foundations of Modern Macroeconomics"

              The candidate should be able to

                1. a) distinguish between classical economics and Keynesian economics;
                2. b) explain the major components of the Keynesian model;
                3. c) explain Keynesian macroequilibrium;
                4. d) define and calculate the marginal propensity to consume and the expenditure multiplier;
                5. e) explain the importance of the expenditure multiplier within the framework of the Keynesian model;
                6. f) discuss the Keynesian view of the business cycle.
                7. Reading Assignments

                  1. Economics: Private and Public Choice, 9th edition, James D. Gwartney, Richard L. Stroup, and Russell S. Sobel (Dryden, 2000)

                  A. "Fiscal Policy," Ch. 12

                  B. "Money and the Banking System," Ch. 13

                  C. "Modern Macroeconomics: Monetary Policy," Ch. 14

                  D. "Stabilization Policy, Output, and Employment," Ch. 15, pp. 384–399

                  E. "The Phillips Curve: Is There a Trade-off between Inflation and Unemployment?" Application 3, pp. 765–776

                  Learning Outcomes

                  1. A. "Fiscal Policy"

                  The candidate should be able to

                    1. a) explain the process by which fiscal policy affects aggregate demand and aggregate supply;
                    2. b) explain the importance of the timing of changes in fiscal policy and the difficulties in achieving proper timing;

                      c) discuss the impact of expansionary and restrictive fiscal policies based on the basic Keynesian model, the crowding-out model, the new classical model, and supply-side model;
                    3. d) explain how and why budget deficits and trade deficits tend to be linked;
                    4. e) identify automatic stabilizers and explain how such stabilizers work;
                    5. f) discuss the supply-side effects of fiscal policy;
                    6. g) explain the relationship among budget deficits, inflation, and real interest rates.
                    7. B. "Money and the Banking System"

                      The candidate should be able to

                        1. a) identify and explain the basic functions of money;
                        2. b) define the money supply;
                        3. c) describe the fractional reserve banking system;
                        4. d) explain the relationship among the required reserve ratio, potential deposit expansion multiplier, and actual deposit expansion multiplier;
                        5. e) describe the tools that a central bank can use to control the money supply and explain how a central bank can use monetary tools to implement monetary policy;
                        6. f) discuss potential problems in measuring an economy’s money supply.
                        7. C. "Modern Macroeconomics: Monetary Policy"

                          The candidate should be able to

                            1. a) discuss the determinants of the demand for and supply of money;
                            2. b) explain how monetary policy affects interest rates, output, and employment;
                            3. c) discuss how anticipations of the effects of monetary policy can influence the policy’s effectiveness;
                            4. d) identify the components of the equation of exchange and discuss the implications of the equation for monetary policy;
                            5. e) describe the quantity theory of money and its implications for the determination of inflation;
                            6. f) compare and contrast the impact of monetary policy on major economic variables in the short run and long run, when the effects are anticipated or unanticipated.
                            7. D. "Stabilization Policy, Output, and Employment"

                              The candidate should be able to

                                1. a) describe the composition and use of the index of leading economic indicators;
                                2. b) discuss the time lags that may influence the performance of discretionary monetary and fiscal policy;
                                3. c) explain the role expectations play in determining the effectiveness of fiscal and monetary policy;
                                4. d) contrast the adaptive expectations hypothesis and the rational expectations hypothesis;
                                5. e) explain a non-activist strategy for monetary policy and fiscal policy.
                                6. E. "The Phillips Curve: Is There a Trade-off between Inflation and Unemployment?

                                  The candidate should be able to

                                    1. a) describe the Phillips curve;
                                    2. b) discuss the trade-off between unemployment and inflation in the context of expectations.


the only reason it would be easier to program in C is that you can't easily express complex problems in C, so you don't. -comp.lang.lisp

Crassus


Total Posts: 1194
Joined: May 2004
 
Posted: 2005-10-31 16:04
maybe it's but a pipe dream, the applied macro kung fu...

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IAmEric
Phorgy Phynance
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Total Posts: 2961
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Posted: 2005-10-31 16:09
maybe it's but a pipe dream, the applied macro kung fu...


Big Smile

I have seen applied macro kung fu experts, so I know they exist, but I am also beginning to think there may not be a real good applied macro kung fu textbook. Maybe it is a secret art that only gets passed down from master to apprentice.

Crassus


Total Posts: 1194
Joined: May 2004
 
Posted: 2005-10-31 16:15

where is the dojo? 

Someone should phuking write a guide, because I'm sick of all those phuked-up Macro texts.  I think that there must be a newsletter or website that deals the kung-fu.


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jungle
Chief Rhythm Officer
CSD LLC
Total Posts: 3169
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Posted: 2005-10-31 16:49
roubini's notes are online (here), though i'm not sure they're really what you're after.  still, they have the advantage of being free, at least for now. 

'don't tell me you're actually unconscious.'

M1kz


Total Posts: 121
Joined: Sep 2004
 
Posted: 2005-10-31 17:53
If you want a quick-n-dirty-multiple-choice-kung-fu-refresher Peter Kennedy Understanding macro in the news could be interesting.  On a sidenote, Kennedy is a favourite of NN Taleb Taleb Review.

Forget your personal tragedy. We are all bitched from the start and you especially have to be hurt like hell before you can write seriously. But when you get the damned hurt, use it-don't cheat with it.

Crassus


Total Posts: 1194
Joined: May 2004
 
Posted: 2005-10-31 20:02
good. i may check that book out.

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apine


Total Posts: 1009
Joined: Jun 2004
 
Posted: 2005-11-01 02:42
one book that i thought was good, at least when i read it, is "The US Economy Demystified" by Sommers & Blau. the whole thing is about 150 pages but i think is a great intro. we used it in the jpm training course. my version is old so it refers to gnp, but i think there is a 93 edition. i think this may be what you had in mind. and about $5+shipping used.

us econ demystified

Too many people make decisions based on outcomes rather than process. -- Paul DePodesta

IAmEric
Phorgy Phynance
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Posted: 2005-11-17 23:21
Hello,

I spent the last 5 minutes thumbing through "Advanced Macroeconomics" by Romer. In it, I found some macroeconomic models and some subsequent assumptions for the dynamics of the inputs to these models. The inputs were assumed to be perfectly deterministic. Right away, I'm thinking, "What if these inputs were highly volatile?" Then the DEs that follow would pick up significant volatility terms from Ito (or something similar if it is not exactly Brownian motion).

Now I'm googling for an even more "advanced" macro book. Does there exist a heavy duty macro book that would make most quants' noses bleed (Edit: Something like Shreve that definitely makes my nose bleed)? Not that I would hold much conviction for such a book, but it might be interesting to thumb through it.

Am I just being stupid thinking that the models are sufficently valid that the stochastic terms would be significant? Is Newton really sufficient for macro modeling?

Cheers,
Eric


tabris


Total Posts: 1284
Joined: Feb 2005
 
Posted: 2005-11-18 00:32

From my understanding, Macro models are used to predict direction and are notorious in getting the exact number wrong.  So using stochastic models might be overkill.


Dilbert: Why does it seem as though I am the only honest guy on earth? Dogbert: Your type tends not to reproduce.

ball_lightning


Total Posts: 295
Joined: Dec 2004
 
Posted: 2005-11-18 02:04
I agree. Most macro variables are typically quite sticky.
As far as I know Inflation, interest rates are the obvious macro variables traded via some instrument. Are there any other instruments/macro variables being traded?
GDP, Current acct deficit, unemployment, investment...

uNclearPhynance: Illegitimi Non Carborundum

apine


Total Posts: 1009
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Posted: 2005-11-18 02:25
not in the same way. but there are economic derivatives. i think goldman has something, but i don't know the details. at the nymex, they have options on energy related data releases. they trade otc.

Too many people make decisions based on outcomes rather than process. -- Paul DePodesta

nzrd


Total Posts: 36
Joined: Dec 2004
 
Posted: 2005-11-18 14:57
hi Eric,
maybe you would like to try Sargent's Recursive Macro theory. Most of Sargent's text are quite technical (as compared to Romer's Advanced macro). I'm not sure whether he still has his book online. I can send you the draft he put up online sometime ago if you want.





doctorwes


Total Posts: 577
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Posted: 2005-11-18 16:38

Here's a fairly long interview with Sargent. I like it. It gets more interesting as you read on. But, who (outside academia and central banking) has time to learn all this stuff, much less implement it?

For what it's worth, here's my recommended study plan:

  1. Learn about IS-LM. The IS-LM framework is to macro as the basic Black-Scholes formula is to option pricing theory. So start here.
  2. Stay on top of the data. Get to know it, and learn to love it.
  3. Hang out at the Central Bank Research Hub. These guys are actually trying to use more sophisticated models to do something useful.

Step 1 should take you a couple of hours. Step 2 takes a few minutes a day. I probably won't have time for Step 3 until I retire.




jungle
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Posted: 2005-11-18 16:53
or check out the IJCB

"see what it's like being me? fucking frustrating!" (risk manager)

IAmEric
Phorgy Phynance
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Posted: 2005-11-19 00:01
Thank you doctorwes Worship

The Central Bank Research Hub is awesome. Here is a bunch of stochastic models.

IAmEric
Phorgy Phynance
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Posted: 2005-11-19 01:06
Sargent rulez. Thanks for the references. He's got some cool stuff on his web page including some Matlab code.

I particularly like Chapter 19 of Recursive Models of Dynamic Linear Economies, i.e. Economies as Matlab Objects. Smiley

gilgamesh


Total Posts: 24
Joined: Nov 2005
 
Posted: 2005-11-19 11:39

Hi!

In my opinion, macro is about grasping concepts. A few books that will be helpful in this perspective:

Obstfeld, Maurice and Kenneth Rogoff.. 1996. Foundations of international macroeconomics. Cambridge, MA: MIT Press.  Rumour has it that a new edition is coming soon. If you only want one book, take this.

Walsh, Carl E.. 2003. Monetary Theory and Policy. 2nd ed. Cambridge, Mass., MIT Pres. This one is my personal favourite. An extensive treatment of the role of central banks, and newer developments in monetary economics.

Weil, David N.. 2005. Economic growth. Boston: Person Addison Wesley. Quite basic, only relevant if you are interested in the long run perspectives of macro

Read the first two books and you will have covered 95 % of "useful" macro (IMHO).

Any article on the "news effect" on economic variables will give a more realistic approach on how changes affects the state of the economy.

 

 

 


Omnis determinatio est negatio

IAmEric
Phorgy Phynance
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Posted: 2005-11-19 20:45
Thanks gilgamesh and welcome to NP! Beer

Anthis
It's all Greek to me

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Posted: 2005-11-20 12:47

Now I'm googling for an even more "advanced" macro book.

Eric, most standard macroeconomics books, are rather normative than positive. Their purpose is to help you understand how an economy functions. The conditions necessary to make a variable change towards one direction but not necessarily the change in magnitude. For example less unemployment and more stability are always desirable, what can we do to get there?
If you need something more "quanty" probably you should search some other keywords.
Here are some: Macroeconometrics, Quantitative/Computational/Mathematical Economics, Economic Systems Dynamics. Also you may find papers published in the Journal of Economic Dynamics and Control as quite interesting.

HTH


Αίεν Υψικράτειν/Τύχη μη πίστευε/Άνδρα Αρχή Δείκνυσι/Νόησις Αρχή Επιστήμης //Σε ενα κλουβί γραφείο σαν αγρίμι παίζω ατέλειωτο βουβό ταξίμι

doctorwes


Total Posts: 577
Joined: May 2005
 
Posted: 2005-11-20 22:35
"Current analysis is not taught in graduate school." - Ben Bernanke.


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