IntroductionThe domain of graduate macroeconomics texts in the market today is relatively small. Even so, the choice of a particular text tends to vary from department to department, even from instructor to instructor. Several texts have established themselves as standards, and even when not used as a primary text, are often cited as supplementary ones on instructors’ reading lists. This review will provide a graduate student’s perspective on eight key texts, so as to assist the beginning student with comparison-shopping. At the same time, the review provides the unique perspective of a graduate student in the evaluation of these texts, a viewpoint that may be lost on battle-hardened professors and researchers. The PageantAs alluded to earlier, the texts are reviewed from the viewpoint of a graduate student starting out in an economics doctoral program; as such, the assessments are naturally biased towards the value of the book to a potential user. Reviews therefore (intentionally) either completely ignore, or relegate to a secondary consideration, each book’s value to the instructor, appropriateness for pure self-study, or relevance to trained economists working in other fields. Nonetheless, many considerations of readers in these categories intersect with those of graduate students, and so this review might well be of value to this wider audience.
In terms of prerequisites,[1] this text is truly introductory. It eases the reader into most chapters, and even readers who have no macroeconomics background will not encounter major problems (save for the exception of the chapter on Keynesian macro, and clearly some exposure to micro would be desirable). The text does expect some basic calculus and employs a liberal amount of algebra, but most chapters do not require mathematical sophistication beyond this level (some basic dynamic programming at the level of Chiang (1984) is expected for the chapter on real business cycles and the chapter on investment introduces a little calculus of variations). Particular strengths of the book are the three chapters on growth theory - especially endogenous growth theory - and the chapters on consumption and investment, which, although at a somewhat introductory level, are excellent for building the reader's intuition. The book is also very strong on comparative statics analyses - in fact, in this respect, the book does a better job than the competition. The book also strikes a good balance between the presentation of theory and presenting empirical evidence that supports the theory being discussed. For example, most chapters terminate with a section on empirical applications. This allows the reader to evaluate the validity of the theory, since at graduate level, one needs to be discerning about proposed theories, and not be swept away by elegant math with little empirical support. Perhaps the main complaint one might hold against this book stems from what some might regard as its strength - its relative simplicity. Hence, students from more rigorous doctoral programs might find Advanced Macroeconomics insufficiently advanced; the book would thus make for good background reading, but in these cases, is inadequate as a primary text. This, however, does not disqualify the book from being used at the advanced undergraduate or masters level.
The clear strength of the book is the well-organized exposition of all facets of growth theory in a way that gradually builds on the material covered in earlier chapters. Consequently, most first-year courses will (conceivably) only progress through till chapter five of the book (possibly leaving out the proposition-proving appendices along the way), leaving the chapters on technological change and diffusion, labor changes, and empirics to later courses. Throughout, the authority of two leading figures in the field shines through, but despite these credentials, the book is not inaccessible. Another nice feature of the text is the store of excellent figures. Each is liberally annotated, allowing a student to move from the more abstract equations to the geometric presentation - which is clearly an advantage when seeking to build intuition as well as helping readers internalize the models. The appendices are also useful not just for those intending to specialize in macro but also for those who simply have an intellectual interest in exploring various minutiae associated with the models. By way of mathematical preparation, the book assumes familiarity with multivariable calculus, differential equations, and some optimal control (an appendix covers these topics in the usual, lecture-note style). As such, readers whose prior preparation was mainly built on Chiang (1984) or Simon & Blume (1994) will find the going slightly rougher in certain parts - hence, exposure to some dynamic programming in continuous time - á là Dixit (1991) or Chiang (1999) - would definitely assist in teething problems.
The style of each chapter is such that the authors begin with a quick review of the motivation for the particular study, followed by presentations of the formal models, a detailed discussion of the intricacies of each model, before closing with a cursory glance at the empirical literature. Clearly, then, the emphasis is on macroeconomic theory - the reader would therefore need a certain level of discipline and maturity to carry these models into the context of real-world cases. Some readers might find the writing style excessively dry; in a sense, then, Lectures is an acquired taste. Still, the conscientious reader will glean from this book a thorough grounding in (somewhat dated) modern macroeconomics, one that is careful to instill a sense of appreciation for the train of intellectual development of each idea. For example, in the chapter on money, Blanchard and Fisher begin with the Samuelson OLG model with money, move on to Clower's cash-in-advance constraint model, before a long discussion of the Baumol-Tobin GE model with money.[2] The book unabashedly applies elements of mathematical statistics (such as Bayes' rule and distribution theory) as well as calculus of variations, and in certain sections, students will appreciate having completed a course in undergraduate time-series econometrics. Most chapters are not excessively technical, although chapter five (on multiple equilibria and stability) does require a fair amount of patience (and persistence) on the part of the student to plough through. Ostensibly, what would really benefit this text is a second edition. However, in personal communication with on eof the authors, it appears that the esteemed professors have no plans to offer an updated version of the book. Nonetheless, the superb presentation, careful rigor, and significant coverage clearly earn the book the title of the best introductory macro text at the graduate level.
One feature of the text is that the material covered is not what one might expect in a conventional first-year macro sequence (except perhaps at Stanford). The chapter on search models, for example, deals with McCall's and Jovanic's models, as opposed to the more standard Pissarides treatment. Similarly, topics such as competitive equilibrium with complete markets, models of incomplete markets, and optimal social insurance command extensive coverage. Even the chapter on OLG models adopts the graphical apparatus from authors such as Gale and Brock in introducing the model, rather than the more common Samuelson style. That being said, patient readers, with appropriate guidance from instructors, will benefit from the richness of the topics in dynamic macroeconomics, and will become more than competent in the tools and techniques of modern macro done in this tradition. Clearly, readers will have to believe (as the authors do) in the universality of the recursive approach, and be willing to invest their intellectual capital in it. The book develops and subsequently requires a relatively sophisticated level of mathematical ability. Equation density is high, and although the opening chapters purportedly build the mathematical foundations used in the rest of the book, unless these topics are specifically addressed in lectures, it can be rather opaque to the reader. In addition, it assumes some familiarity with time series analysis, since topics such as Markov chains and stochastic linear difference equations are introduced with little elaboration. Finally, the book is not ashamed of introducing numerical techniques, and hence those without some background in this area (not quite to the level of Judd (1998) but certainly more than the average graduate student) might be uncomfortable with the techniques used. In sum, this is an important book, whose value to the macroeconomics literature is indisputable. However, it is not recommended for those engaging in self-study, or for students who are more inclined towards a less mathematical treatment. Like the Blanchard & Fisher text, it is very much of an acquired taste.
An interesting (and unconventional, for a graduate text) feature of the book is the use of boxes that provide non-essential digressions as well as empirical applications. Most students will find these boxes a breath of fresh air, since they often link the theoretical material to real-world applications. The boxes also serve to update the reader on the state of empirical work in these respective areas. The approach that forms the core of the book is that of the representative agent (although chapter 3 necessarily introduces the overlapping generations model in order to provide a role for fiscal policy). Optimization is dynamic, but the authors have taken the effort to gradually build up the student's abilities (and confidence) by starting with a simple two-period, real model, before extending the analysis to multiple periods and flexible prices, culminating in the sticky price, monetary model of chapter 10. Although it is unlikely that the book can be appreciably covered in a semester, a selection of topics would render the text an excellent, micro-founded introduction to (open-economy) macroeconomics. In terms of mathematical presentation, the authors have attempted to simplify the methodologies introduced as much as possible. Most of the models are in discrete time, and are solved via substitution of constraints into the objective function to render an unconstrained maximization/minimization problem. They deviate from this only in certain cases, such as in the section dealing with the Tobin model of capital adjustment costs (where the Langrangian is employed).[4] In order to aid students unfamiliar with the slightly more advanced mathematical techniques that they use, Obstfeld & Rogoff also provide two very useful mathematical supplements (one on dynamic programming and the other on continuous time maximization), both of which display the expositional quality of the main text. Two aspects of the book merit further discussion. The first is how well the authors have managed to synthesize the traditional macroeconomics literature with the work on international finance, thus providing a smooth and coherent treatment of open-economy issues, such as the current account and exchange rate, early on in the graduate student's career. Second, the chapters on sticky-price models (chapters 8-10) provide an overview of the most influential New Keynesian models. In particular, chapter 10 places all this in a micro-founded, representative agent framework, and the earlier parts of this chapter are actually accessible to first-year students.[5] Given its voluminous size, there is little that the text has failed to cover, and together with its clarity, currency, and authority, it is likely that this book will continue to be a mainstay on the student's shelf, long after he or she has graduated.
As one might expect from a book on dynamics, the style is technical, and equation density is fairly high. Most models are presented in continuous time, which can be a hurdle for students without an adequate background in differential equations. In addition, Turnovsky's style of introducing models involves a presentation of key equations, followed by a discussion of each. This means that the text is structured more as expanded lecture notes, rather than a traditional textbook. The result is that the text will be very valuable in the hands of a competent instructor, but is less useful for self-study purposes. Within the subfield of macroeconomic dynamics, the coverage of the book is extensive. Instructors might relish the increased flexibility offered by this, but readers will need to carefully work through the text in order to glean key models. Again, the guidance of an experienced professor will make a difference in this regard. Note, however, that some of the material in sections I and II (corresponding to parts (a) and (b) above) are somewhat dated, and not all the techniques introduced are in widespread common usage (students wishing to specialize in the field will nonetheless find the background provided here helpful). Furthermore, the text does not cover dynamic New Keynesian models of sticky prices and wages. Hence, students inclined toward that school of thought might feel that the treatment leaves out an arguably important constituency. While much of the material is probably suitable for a second (or third) course in macro, a careful selection of topics from the earlier chapters render the text an option for first-year classes. For example, a quick review of the dynamic portfolio balance model, a selection of rational expectations models, and the representative agent model with applications (chapters 2, 3-6, and 8,9 & 12) might be a possible framework for such an audience. Overall, the book is wide and fairly self-contained. But its strong mathematical emphasis rules it out of most masters' programs, and even doctoral students might find the going tough in certain places. The toolbox provided is invaluable, though, and those willing to invest the time and energy into the book will reap substantial benefit. For others, however, the book is probably better off when used as a supplement to a less technical text.
One feature of the book that will appeal to potential readers is its use of the simulation approach to evaluate the effect of various shocks in the model being discussed. This puts the reader into the forefront of the research methodology currently being employed in the field, rather than leave such a treatment for more advanced courses. The author has also gone to great length to develop the reader's intuition for derived equations. For example, in the discussion on the cash-in-advance model, each first-order condition is described in detail, as substitutions of the marginal value of one variable against another along the optimal path. The appendices to a few of the chapters present another gold mine: they provide step-by-step derivations of linear approximations of the necessary conditions as discussed in the main text. Although often found in professors' lecture notes, this feature tends to be left out in most of the other texts. Providing these can be refreshing for students stuck with a particular linearization or derivation. Overall, the text does not require any high-powered math. It does, however, require a working knowledge of dynamic programming in discrete time, and for linearizations, a good deal of algebraic gymnastics. In order to practically implement the simulations, some knowledge of MATLAB programming will also be handy. The main limitation of the book is that, given its scope, it cannot be used as a primary text in the macro course. However, it remains a very good secondary text, and (as discussed above) is a viable alternative for a good part of the macro sequence.
The book adopts Minnesota-Chicago-Northwestern approach to modern macroeconomics; its methodologies are heavily influenced by, for example, Stokey & Lucas (with Prescott) (1989). Due to its nature as a volume of collected papers, it assumes some knowledge on the part of the reader, although this is not something that a diligent instructor will not fill in. As a further consequence of this, there are no chapter-end exercises, which might be a drawback for some (and hence the Sargent (1987) text might be more appropriate in these cases). However, it is this very organizational structure that allows the student to read only selected chapters and hence cover topics that are more relevant to their particular course. Examples of these for a first year program would include the chapters on recursive methods for dynamic stochastic general equilibrium models, growth and business cycles, and the labor market. With the research agenda proceeding at a rapid pace, the book definitely exhibits a slightly dated feel. Still, it is a useful - although perhaps not essential - collection to include in a personal library, if for nothing more than the fact that it is still widely regarded as a landmark publication.
ConclusionThis quick review of the main competing texts that are used for the first-year sequence in graduate macro has sought to evaluate – and to a lesser extent, rank – eight of the more prominent books in the market. Naturally, any evaluation and assessment of a book is subject to the reviewer’s individual preferences and biases. Contingent on this constraint, the review has found that Blanchard & Fisher’s Lectures on Macroeconomics remains, despite its relative age, one of the best texts to learn graduate macroeconomics from. The other text of note is Obstfeld & Rogoff’s Foundations of International Macroeconomics, which would be the natural choice for those who wish for a more recent treatment. These choices are premised mainly on the ability of both books to balance the various aspects that economists look for in a textbook: a fair, but not excessive, amount of formality, a respectable coverage of the literature, an expositional style that makes learning a pleasure, and a concern for the economics that underlies the models. It should also be noted that this review suffers from another limitations: it has not covered every possible text available in the market. Part of this is due to the capacity constraint of the reviewer. In this regard, books that deal with slightly more specialized areas of macroeconomics, such as Farmer (1999) and Grossman & Helpman (1997), have (regrettably) been excluded; similarly, many other excellent texts on open economy macroeconomics such as Rødseth (2000) and Turnovsky (1997) have also been inadvertently left out. This task, perhaps, will be left for a future endeavor. ReferencesChiang, Alpha (1984). Fundamental Methods of Mathematical Economics, 3rd edition. Singapore: McGraw-Hill Chiang, Alpha (1999). Elements of Dynamic Optimization. Prospect Heights, IL: Waveland Press Dixit, Avinash (1991). Optimization in Economic Theory, 2nd edition. Oxford: Oxford University Press Farmer, Roger (1999). Macroeconomics of Self-fulfilling Prophecies, 2nd edition. Cambridge, MA: MIT Press Grossman, Gene. & Elhanan Helpman (1993). Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press Judd, Kenneth (1998). Numerical Methods in Economics. Cambridge, MA: MIT Press Rødseth, Asbjørn (2000). Open Economy Macroeconomics. Cambridge: Cambridge University Press Sargent, Thomas (1987). Dynamic Macroeconomic Theory. Cambridge, MA: Harvard University Press Simon, Carl & Lawrence Blume (1994). Mathematics for Economists. New York, NY: W.W. Norton Stokey, Nancy & Robert E. Lucas (with Edward Prescott) (1989). Recursive Methods in Economic Dynamics. Cambridge, MA: Harvard University Press Turnovsky, Stephen (1997). International Macroeconomic Dynamics. Cambridge, MA: MIT Press Endnotes1. When addressing prerequisites, for the remainder of this article, it will be assumed that the student would have had some exposure to undergraduate calculus and linear algebra at the level often required for entry into doctoral programs. Those with richer mathematical backgrounds will obviously find the assessment somewhat shallow. 2. The Sidrauski money-in-the-utility function model is also covered, somewhat out of order, at the end. 3. For this reason, therefore, the older Sargent (1987) text is not reviewed here. 4. Continous time models are employed for the discussion of the target zone model and Krguman-style currency crises, but these are inconsequential, since these are more international finance rather than international macro topics. 5. A note of caution, though. Since this chapter was written as much as a treatise as it is an exposition, it suffers from some choppiness, and certain parts may be somewhat difficult to follow. 6. Contributors to the volume include David Backus, Lawrence Christiano, Gary Hansen, Patrick Kehoe, Finn Kydland, Ed Prescott, Julio Rotemberg, and Michael Woodford.
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Advanced Macroeconomics, 2nd edition
Economic Growth
Lectures on Macroeconomics
Recursive Macroeconomic Theory
Foundations of International Macroeconomics
Methods of Macroeconomic Dynamics, 2nd edition
Monetary Theory and Policy
Frontiers of Business Cycle Research