samlet årgang - Økonomisk Institut - Københavns Universitet

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tations. An understanding of this latter could
be helpful when it comes to studying the fixed
exchange rate regime. Like a fixed moneysupply
regime but unlike a Taylor-rule regime,
a pegged exchange rate regime implies
a long-run price level which is independent of
the initial price level. Under such conditions
the AD curve shifts over time, since its location
now turns out to depend on a lagged variable
(output or the real exchange rate). In
SWJ’s open-economy models, in fact, the
source of dynamics is sharply different from
that in their closed-economy models. In the
latter, as noted, the »static« inflation expectations
assumption drives all the dynamics;
whereas in the former, this source of dynamics
is removed by using the assumption that expected
inflation equals the (exogenous) foreign
inflation rate, and instead the presence of
the lagged real exchange rate in the AD curve
drives all the dynamics. This contrast does
not of course reflect a general difference
between closed- and open-economy models.
However, since the reason for it is not discussed
by SWJ, there is a risk that students might
obtain the contrary impression.
The quality of exposition throughout »Introducing
Advanced Macroeconomics« is
uniformly high. The clarity of the verbal
argument and of the English is excellent, and
there is a pleasing lack of typos. Above all,
there are no »fudges« in the reasoning when
the argument becomes difficult, unlike in
many undergraduate macro texts. Once the
assumptions are in place, their implications
are pursued rigorously and fully – one might
almost say »relentlessly«. The book has full
respect for the intelligence and maturity of
the reader – there is no irritating »chattiness«
or resort to hyperbole in an attempt to provide
entertainment or artificial excitement. Mathematics
is used freely, but the techniques
needed are modest: algebra and differentiation,
»yes«; expectations operators, »yes«;
solution of a first-order linear difference equation,
»yes«; but »forward-looking« solution
of rational expectations models, »no«; and
dynamic optimisation, »no«.
NATIONALØKONOMISK TIDSSKRIFT 2005. NR. 2
The overall flavour of SWJ’s book is
distinctly »European« rather than »American«.
This is manifested, first, in the attention
paid to market imperfections when dealing
with the microeconomic foundations of aggregate
supply. Firms are generally treated as
monopolistic competitors faced by constantelasticity
demand curves, so that prices are a
fixed markup over marginal costs. As regards
wage setting, two alternative stories are given
roughly equal prominence. They are first introduced
in Book 1 (»The Long Run«), without
expectations errors, before being taken up
again in Book 2, with expectations errors.
One is a model of efficiency wages, and the
other is a model of optimising trade unions.
By contrast the »classical« story of aggregate
supply, based on a competitive and (by implication)
symmetric-information model of the
labour market, makes only the briefest of appearances,
in Chapter 18. Second, the book
contains numerous discussions of empirical
evidence, several being so up-to-date that
they are taken from yet-to-be-published sources
such as working papers. While these are
by no means confined to European examples,
such examples do tend to dominate. For both
these reasons, and also because, as previously
noted, the analytical level of the book is intentionally
pitched above the typical American
»intermediate macroeconomics« level, it
is a book which one would expect to be more
attractive to European rather than American
students and their teachers.
Finally, even in 800 pages, some things
still have to be left out. One such topic is political
economy questions, such as political business
cycles. Chapter 22 deals with the timeconsistency,
inflation-bias problem in monetary
policy, but it is not extended to cover political
economy more broadly. Another topic
not included is staggered prices or wages,
of the Taylor or Calvo variety. It is necessary
to teach »forward-looking« solutions of rational
expectations models in order to treat this
properly, so the decision not to introduce this
more advanced technique presumably lies
behind their exclusion. The idea of staggered