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Addis Ababa University

Department of Economics

MSc/MA PROGRAM (2023/2024)

Course Advance Macroeconomics I & II (Econ 592, 1 st Semester
and Econ 692 2nd Semester)
Time A Two Semester Course
Instructor Alemayehu Geda, Professor, Dept of Economics, AAU)
E-mail: [email protected] /
Web Page www.Ressearchget.net/Profile/Alemayeh_Geda

Main Text Book

**Alemayehu Geda (2023). Advanced Macroeconomic for Africa: The Short-
run (Dept of Economics, AAU, Unpublished)
Additional Text Book (for both semesters):
**Heijdra, Ben J. and Frederick van der Ploeg (2002). Foundation of Modern
Macroeconomics. Oxford: Oxford University Press.
**Romer, David (2001) Advanced Macroeconomics, 2nd edition. London:
McGraw-Hill.
Snowdon, Brain & Howard R. Vane (2005). Modern Macroeconomics: Its
Origins, Development and Current State. London: Edward Elgar.
Mainly for Semester II:
**Agenor, Prre-Richard (2000). The Economic of Adjustment and Growth..
San Diego: Academic Press. OR Agenor and Montiel (2008).
Development Macroeconomics. New York: (Mainly for Semester II)
**Valdes, Benigono (1999). Economic Growth: Theory, Empirics and
Policy. London: Edward Elgar (Mainly for Semester II)

Additional Readings
Alemayehu Geda (2002). Finance and Trade in Africa: Macroeconomic
Response in the World Economy Context. Basingstoke/New York:
Palgrave-Macmillan.
Alemayehu Geda (2011). Readings on Ethiopian Economy. Addis Ababa:
Addis Ababa University Press.
Branson, William H. (1989). Macroeconomics: Theory and Policy, 3rd edition.
New York: Harper & Row.
Davidons, P. (1994). Post Keynesian Macroeconomics Theory: A Foundation
for Successful Economic Policies for the Twenty-first Century.
Aldershot: Edward Elgar.
Minford, Patrick and David Peel (2002). Advanced Macroeconomics: A
Primer. Cheltenham: Edward Elgar.
Murshed, S.M. (1977). Macroeconomics for the Open Economy. London:
Dryden Press.
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Palley, Thomas I. (1996). Post Keynesian Economics: Debt, Distribution and

the Macro Economy. Basingstoke: Macmillan.
Romer, David (2001) Advanced Macroeconomics, 2nd edition. London:
McGraw-Hill.
Scarth, William M. (1988). Macroeconomics: An Introduction to Advance
Methods. Toronto: Harcourt Brace.
Snowdon, Brain & Howard R. Vane, eds. (1997) A Macroeconomics Reader.
Londn: Routledge.
Snowdon, Brain & Howard R. Vane (2005). Modern Macroeconomics: Its
Origins, Development and Current State. London: Edward Elgar.
Taylor, Lance (2004) Reconstructing Macroeconomics: structuralist
Proposals and Critiques of the Mainstream. Cambridge: Harvard
University Press.
Ugur, Mehmet , ed (2002). An Open Economy Macroeconomic Reader.
London: Routledge.

PART I SEMESTER I
A. SHORT RUN MACROECONOMIC ANALYSIS

Chapter 1 Who is Who in Macroeconomics

Heijdra and van der Plog (2002), Ch 1
Snowdon et al (1994)
Snowdon and Vane (2002) Ch 1
Minford and Peel (2002), Ch 1
Chapter 2 Dynamics in the Aggregate Supply and Demand Model
Heijdra and van der Plog (2002), Ch 2
Scarth (1988) Ch 2
Taylor (2004) Ch 4
Branson (1989) Ch 4
Chapter 3 Rational Expectation in Macroeconomics
Heijdra and van der Plog (2002), Ch 3
Scarth (1988) Chs 4 to 6
Branson (1989) Ch 11
Snowdon and Vane (2002), Part III (Chs 11-14)
Chaper 4 Open Economy Macroeconomics
Heijdra and van der Plog (2002), Ch 11
Branson (1989) Ch 17
Scarth (1988) Chs 9&10
Murshed (1997) Chs 1 to 7
Ugur (2002) (part I to IV)
Alemayehu Geda (2002) Chs 6&7
B. SECTORAL FUNCTIONS & (An Overview of) Heterodox Macro
Chapter 5 Consumption and Saving
Branson (1989) Ch 13
Agneor (2002) Ch 1
Romer (2001) Ch 7
Sargent (1987) Ch 12
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Chapter 6 Investment
Branson (1989) Ch 12
Agneor (2002) Ch 2
Romer (2001) Ch 8
Sargent (1987) Ch 14
Chapter 7 Labour Market (& Unemployment)/Optional & depends on time
Heijdra and van der Plog (2002), Ch 8
Branson (1989) Ch 6 & 10
Scarth (1988) Ch 1
Agneor (2002) Ch 14
Romer (2001) Ch 9
Ugur (2002) Chs 25 &26
Macro Policy Chapters
Chapter 8 Macroeconomic Policies and the African Context
Chapter 9 Tools for Short-run Macroeconomic Management: A Macro Model for
African Central Banks
Chapter 10 Macroeconomic Policies in Practice: The ‘Developmental State” Policy of
the Ethiopian Government and Its Macroeconomic Effect, 2000-2020 (in
Amharic)
References for the Policy Chapters 8, 9 and 10 is:
Alemayehu Geda (2023).
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PART II SEMESTER II

A. LONG RUN MACROECONMIC ISSUES

Main Text for the Course
**Agenor, Prre-Richard (2000). The Economic of Adjustment and Growth..
San Diego: Academic Press. OR Agenor and Montiel (2008).
Development Macroeconomics. New York:
**Valdes, Benigono (1999). Economic Growth: Theory, Empirics and
Policy. London: Edward Elgar
Advanced Text and Applied Book for the Course
**Romer, David (2001) Advanced Macroeconomics, 2nd edition. London:
McGraw-Hill.
**Benno Ndulu, Stephen A.O’connell, Jean_Paul Azam, Rober H.Bates,
Augustin K. Fosu, Jan Willem Gunning and Dominique Njinkeu (eds). The
Political Economy of Growth in Africa: 1960-2000 (in 2 volumes). Cambridge:
Cambridge University Press).

Chapter 9 Theories of Growth (Part I, Basic Theories)

-The Harrod-Domar Model
-Solow-Swan Model
- Infinite Horizon and Overlapping Generation Models:
The Ramsey-Cass- Koopmans Model;
The Diamond model (If time allows with an Intro of OLG model)

References:

*Romer Ch. 1-3.

*Handbook of Macroeconomics Vol 1ABC, Ch. 5,6,and 7
*Barro, R and X. Sala-i-Martin (1995) Economic Growth , New York: McGraw Hill.
*Brock, W.A. and S. N. Durlauf (2001) “Growth Empirics and Reality,” The World
Bank Economic Review Volume 15, Number 2.
Corden, M.W. (1990) “Macroeconomic Policy and Growth: Some Lessons of
Experience,” Proceedings of the World Bank Annual Conference on
Development Economics Washington: The World Bank.
*Easterly, W. and Ross L. (2001) “It’s Not Factor Accumulation: Stylized facts and
growth Models,” The World Bank Economic Review Vol. 15 No. 2 pp.177-
227.
.Mankiw,G., D. Romer, and D. Well (1992), “A Contribution to the Empirics of
Economic Growth,” Quarterly Journal of Economics May, pp. 407-437.
Mohammed, N.A.L. (1993), “Economic Growth and Defence Spending in Sub-
Saharan Africa: Benoit and Joerding Revisited,” Journal of Africam
Economies, vol. 2(2), October.
*Journal of Economic Perspectives (1994) Special Issue
Khan, M. S, and D. Villanueva (1991) “Macroeconomic Policies and Growth: A
Conceptual and Empirical Review” AERC Special Paper No. 13,
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*Sala-i-Martin, X, (1997) “I Just Ran Two Million Regressions,” American

Economic Review, vol. 87, No.2, pp.178-83.
Sachs, J. and A.M. Warner (1997), “Sources of Slow Growth in African Economies,”
Journal of African Economies 6(3).
Schmidt-Hebbel, K. (1996) “Fiscal Adjustment and growth: In and Out of Africa,”
Journal of African Economies Supplement to Volume 5 Number 3.
*Solow, Robert M. (2001) “Applying Growth Theory across Countries,” The World
Bank Economic Review Vol.15, Number 2
Solow, Robert M. (1957), “Technical changes and the Aggregate Production
Function,” Review of Economics and Statistics; August.
Domar, D. (1947), “Expansion and Employment,” American Economic Review;
March.
Harrod, R.F. (1959), “Domar and Dynamic Economics,” Economic Journal;
September.
*Kaldor, Nicholas (1961), “Economic Growth and Capital Accumulation,” in F. Lutz
and D.C. Hagne, eds (1961), The Theory of Capital. London: Macmillan.
Solow, Robert M. (1956), “A Contribution to the Theory of Economic Growth, ”
Quarterly Journal of Economics; February.
Solow, Robert M. (1970), Growth Theory. Oxford: Oxford University Press.
Kaldor, Nicholas (1955-56), “Alternative Theories of Distribution,” Review of
Economic studies; No.61.
*Maddison, A. (2000), Monitoring the World Economy: 1820-1992. Paris: OECD
*Pritchett, Lant (2000), “Understanding Patterns of Economic Growth: Searching for
Hills among Plateaus, Mountains, and Plains,” The World Bank Economic
Review. Vol. 14(2), pp. 221-50.
*Tobin, James (1965), “Money and Economic Growth,” Econometrica; Vol. 33,
October.
Phelps, Edmund S. (1961), “The Golden Rule of Accumulation: A Fable for Growth
men,” American Economic Review; September.
Phelps, Edmund S. (1965), “Second Essay on the Golden Rule of Accumulation,”
American Economic Review; September.
* Valdes, Benigono (1999). Economic Growth: Theory, Empirics and Policy.
London: Edward Elgar

Chapter 10 Theories of Growth (Part II: New Growth

Theories & The Political Economy of Growth –
with case Study of Ethiopia)
- Endogenous growth models (The AK Model)
- The Political Economy of Growth
 Institutions; Governance; Interest Groups
 Rent Seeking; Corruption
- The Political Economy of Growth in Ethiopia

References:

*Bates and Krueger (1983), Political Economy of Reforms

* Snowdon, Brain & Howard R. Vane (2005), Ch. 10
*Barrow and Sala-i-Martin (2004), Ch 4, 5 and 6
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Romer (1995), Ch 3.
*Heijdra and Van Der Ploge, Chs 14.
*Drazen (2001). Political Economy in Macroeconomics. New Jersey: Princeton
Univ Press
*Papers and Proceedings of the Annual Bank Conference on Development
Economics 19??
*Alemayehu Geda (2008) ‘The Political Economy of Growth in Ethiopian’ in B.
Ndulu et al ‘The Political Economy of Growth in Africa: Cambridge:
Cambridge Unversity Press..
*Acemoglu, D., S. Johnson, and J. Robinson (2001), “The Colonial Origin of
Comparative Development: An Empirical Investigation,” American
Economic Review 91 (December).
*Galbis, Vincente (1977), “Financial Intermediation and Economic Growth in Less
Developed Countries: A Theoretical Approach,” Journal of Development
Studies, Vol. 13(2), pp. 58-72.
*Galbis, Vincente (1979), “Money, Investment and Growth in Latin America, 1961 –
73,” Economic Development and Cultural Change 27(3).
Bardham, P. (1993). “Survey on Corruption” JEL

Case Study of Ethiopia

The Political Economy of Growth in Ethiopia ( 2008) in Benno Ndulu, Stephen

A.O’connell, Jean_Paul Azam, Rober H.Bates, Augustin K. Fosu, Jan Willem
Gunning and Dominique Njinkeu (eds). The Political Economy of Growth in Africa:
1960-2000 (in 2 volumes). Cambridge: Cambridge University Press).

(Ch 11 is Optional)
Chapter 11 An Introduction to Real Business Cycle
Theories and Overlapping Generation (OLG)
Models
 The basics of Generational Economics and its application in Growth Models
 Facts about economic fluctuations
 Real Business Cycle models
- Traditional Keynesian theories of fluctuations
- Relevance to Africa

References:

*Romer Ch. 4 & 2

*Heijdra and Van Der Ploge, Chs 15 to 17
*Fischer, Stanley (1977) “Long term Contracts, Rational Expectations, and the
Optimal Money Supply Rule” Journal of Political Economy, Feb., P. 191 –
206.
*Kydland, Finn C. and Edward C. Prescott (1994), “Business Cycles: Real Facts and
a Monetary Myth,” in Preston J. Miller, ed. (1994), The Rational
Expectations Revolution: Readings from the Front Line. Cambridge,
Mass.: MIT Press.
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*Agenor, P-R, C. John McDermott, and E.S Prasad (2000), Macroeconomic

Fluctuations in Developing Countries: Some Stylized Facts,” The World
Bank Economic Review, Vol. 14(2), pp. 251-85.
* Valdes, Benigono (1999). Economic Growth: Theory, Empirics and Policy.
London: Edward Elgar
Long, J. and C. Plosser (1983). “Real Business Cycles,” Journal of Political
Economy 91: 39-69
Lucas, R. Jr. (1975). “An equilibrium model of business cycle,” JPE
Lucas, R. Jr. (1987). Models of Business Cycles. Oxford: Basil Blackwell
Corden, W.M (1987) “The Relevance for Developing Countries of Recent
Developments in Macroeconomic Theory” The World Bank Research
Observer, Vol. 2, No. 2
Gordon, R. (1981) “Output Fluctuations and Gradual Price Adjustment” Journal of
Economic Literature. June 1981.
Easterly, William, Romeen Islam, and Joseph E. Stiglitz (2001), “Shaken and Stirred:
Explaining Growth Volatility,” Annual World Bank Conference on
Development Economics, 2000, pp. 191-211.

B. MACROECONOMIC POLICY

Chapter 12 Government Budget Deficit and Fiscal Policy

a) The Role of the State in the Macroeconomic
b) The Government Budget Constraint
c) Alternative explanation of Budget deficits
d) Ricardian equivalence and its failures
e) Tax smoothing
f) Political-Economy Theories of Budget Deficits
g) Financing of Budget Deficits
h) Seigniorage and Inflationary Finance
i) Strategic Debt Accumulation
j) Delayed Stabilization
k) Empirical Application: Politics and deficits in Developing countries
l) Debt Crises

References:
*Agenor (2006) ch 3
*Barro, R. (1974) “Are Government Bonds Net Wealth?”Journal of Political
Economy p. 1095.
*Blinder A. and R. Solow, (1973) “Does Fiscal Policy Matter?” Journal of Public
Economics, , pp. 319-38.
*Fischer, S. and W. Easterly (1990) “The Economics of the Government Budget
Constraint,” World Bank Research Observer, Vol. 5(2).
*Handbook Ch. 22 and 25
*Lindauer, D. L. and D. Velenchik (1992) “Government Spending in Developing
Countries: Trends, Causes, and Consequences,” World Bank Research
Observer vol. 7, No.1.
*Romer Ch.11
*Walsh (1998), Monetary Theory and Policy, Cambridge MA: MIT Press, Ch. 4
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Christ, C. (1968) “A Simple Macroeconomic Model with a Government Budget

Constraint” Journal of Political Economy, pp. 53-67.
Friedman and Hahn, Handbook of Monetary Economics ch 17
Gallagher, M. (1994) “Government Spending in Africa: A Retrospective of the
1980s,” Journal of African Economies, Vol. 3 Number 1, April, pp. 62-92.
Stiglitz, J. (1983) “On the Relevance or Irrelevance of the Government Financial
Policy” NBER Working Paper

Chapter 13 Money, Inflation, Monetary Policy and

Dynamic Inconsistency Issues (with the case
study of ‘Inflation in Ethiopia)

a) Financial Innovations and Demand and Supply of Money

b) inside and outside money
c) the money supply process
d) Inflation and Monetary Policy
e) Dynamic Inconsistency and Credablity issues
f) Inflation in Africa and Other Developing Regions

References
*Agenor (2006) Ch4, 6 and 8.
*Aryeetey, E. and M. Hyuha (1991), "The Informal Financial Sector and Markets in
Africa" in A. Chhibber and Stanley Fischer, eds. Economic Reform in
Sub-Saharan Africa. Washington, DC: The World Bank.
*Cagan, P. (1956). “Monetary Dynamics of Hyperinflation” In Studies in the
Quantity Theory of Money. Ed. M. Friedman.
*Fischer, S. (1977) “Long term Contracts, Rational Expectations, and the Optimal
Money Supply Rule” Journal of Political Economy, Feb., P. 191 – 206.
*Friedman, M. (1968), “The Role of Monetary Policy,” American Economic
Review. Vol. 68, pp. 1-17
*Gali, J. and M. Gertler (1999), “Inflation Dynamics: A Structural Econometric
Analysis,” Journal of Monetary Economics October: 195 – 222.
*Hahn, F., and B. Friedman (??) Handbook of Monetary Economics. North
Holland. Ch 17
*Obstfeld, Maurice (2002), “Inflation Targeting, Exchange-Rate Pass-Through, and
Volatility,” The American Economic Review: Papers and Proceedings.
Vol. 92(2), pp. 102-107.
*Romer, ch 10
*Stiglitz and Weiss (1991). Credit Rationing in Markets with Imperfect Information,
AER 71(3): 153-171
*Walsh (1998), Monetary Theory and Policy, Boston: MIT Press, Chs.1, 2, 7 and 8
*Alemayehu Geda and Kibrom Tafere (2009) ‘The Galloping Inflation and Financing
Development in Ethiopia;, in Alemayehu Geda (2011). Reading on
Ethiopian Economy. Addis Ababa: AAU Press.
Agenor (2006) Chs 4 and 6
Chhibber, A. and N. Shafiq (1992), “The Inflationary Consequences of Devaluation
with Parallel Markets: The Case of Ghana,” In V. Carbo, Stanley Fischer,
and S. Webb, eds. (1992), Adjustment Lending Revisited. Washington,
D.C.: The World Bank.
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Dhliwayo, Rogers (1996), “The Balance of Payments as a Monetary Phenomenon:

An Econometric Study of Zimbabwe’s Experience,” AERC Reaearch
Paper No. 46.
Friedman, M. (1969), The Optimum Quantity of Money and Other Essays.
Wheatsheaf
Fry, Maxwell J. (1988), Money, Interest and Banking in Developing Countries
2ed
Hyuha, M. (1997), “Reflections on Forex Bureau/Parallel and Official Exchange
Rates and Inflation in Uganda,” Chapter 12 in F.M. Mwega and V.
Seshamani, eds. (1997), Economic Management in Sub-Saharan Africa:
Lessons from the 1970s and 1980s and Prospects for the 1990s and
Beyond. Nairobi: East African Publishers.
Nissanke, M. and E. Aryeetey (1998), Financial Integration and Development:
Liberalization and Reform in Sub-Saharan Africa. London and New
York: Routledge.
Oxford Economic Policy Review, Special Issue on Financial Repression, 1989
Senbet and Ncube/ Aryeetey (??) AERC plenary paper on Financial Markets in
Africa
Tobin, J. (1956) “The Interest-Elasticity of Transactions Demand for Cash” Review
of Economics and Statistics,

Chapter 14 Hetrodox Macroeconomics and Applied

Macroeconomic policy models in Africa

a) Introduction to Hetrodox Macroeconomics (Structural

Macroeconomics)
i. Basic Assumptions of Structuralist Macroeconomics
ii. The implications for Macro Models
b. Types of macroeconomic models: a review
c. Three gap models
d. Bank-fund modes
i. The IMF financial programming model
ii. The World Bank RMSM-X model
e. Economy wide models and forecasting techniques
i. CGE
ii. Macro-econometric models
iii. Applied African Econometric Models and their Policy
use
f. Heterodox Approach to Growth

References:
*Agenor and Montiel (1996), Development Macroeconomics, Ch. 8
*Agenor (2006), Ch 9
*Ndulu, B. J. (1990) “Growth and Adjustment in Sub-Saharan Africa” in A. Chhibber
and Stanley Fischer, eds. Economic Reform in Sub-Saharan Africa.
Washington, DC: The World Bank.
*Taylor L.(1983) Structuralist Macroeconomics. Basic Books. .
*Taylor, L. (ed) (1990) Social Relevant Policy Analysis. Cambridge, MA: MIT
Press
Additional Readings
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Alemayehu Geda and Free Huzina (2004) ‘ The Theory of the Ethiopian
Macroeconometric Model’ MOFED, Addis Ababa. (in A. Geda, 2011,
“Readings ….”
Alemayehu Geda (2002), Ch 3
Davidons, P. (1994). Post Keynesian Macroeconomics Theory: A Foundation
for Successful Economic Policies for the Twenty-first Century.
Aldershot: Edward Elgar
de Melo, J. and Robinson, S. (1982), General Equilibrium Models for
Development Policy. Cambridge: Cambridge University Press.
Edwards S. and Van Wijnbergen (1989) “Structural Adjustment” in Chenery and
Srinivasan, Handbook of Development Economics, Vol. 2, North Holland
Elbadawi, Ibrahin A. (1996)< “Consolidating Macroeconomic Stabilization and
Restoring Growth in Africa,” in Benno Ndulu, et al. (1996), Agenda for
Africa’s Economic Renewal. Oxford: Transaction Publishers.
Helleiner, G. (1983) “The IMF and Africa in the 1980s” Essays in International
Finance No. 152
Jhon Weeks (1991). Critique of Neoclassical Macroeconomics. London: Pallgrave
Macmillan
Khan, M. S. and M. Knight (1981) “Stabilization Programs in Developing Countries:
A formal framework” IMF Staff Papers, Vol. 28, No. 1
Khan, M. S. and Montiel P.(1989) “Growth Oriented Adjustment Programs: A
Conceptual Framework” IMF Staff Papers Vol. 36, p. 279.
Lipumba N. H. I., Ndulu B.J. et al. ”Supply constrained Macroeconomic Model of
Tanzania” Journal of Economic Modelling, No. 3, 1989.
Pallely (1996)
Snowdon and Vane (2005), Ch 7,8 and 10
Taylor (2004). Reconstructing Macroeconomics. MIT Press.
Taylor, J. B (1993) “The Use of the New Macroeconometrics For Policy
Formulation” American Economic Association Papers and Proceedings,
pp. 294-299.
Taylor, L (1979). Macro Models for Developing Countries, New York, McGraw
Hill
Taylor, L. (1981) “IS-LM in the Tropics: Diagrammatics of the New Structuralist
Macro Critique” in Cline and Weintraub (eds), Economic Stabilization in
Developing Countries.

Grading Weights

Exam 55-60%- (50% of this may be done with mid-term exam)

Term paper 25-30%
Class Article Presentation 15%

Term Paper Suggested topics for this term (2010/2011).

The term paper should be done by 2 students. 10-15 pages, single or 1.5 line spacing
and 12 font (submitted in electronic/typed form on the deadline).

SEMESTER I (Suggested areas)

 Inflation Challenges in Ethiopia
 Foreign Exchange Problems nd Policies
 The Macro Policy of Ethiopia and Poverty
 Investment and Macroeconomic Stability
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 Public and Private Investment in Ethiopia/Africa

 Consumption /Consumption and Poverty in Ethiopia/Africa
 The Labour Market in Ethiopia/Africa
 The History of Macroeconomics in Ethiopia/Gebre-Hiwot etc
 Saving and Domestic Resource Mobilization
 Open Economy Issues in Ethiopia/Africa
o Exports, Imports, Balance of Trade/Payment & Macro Implications
o Debt, FDI, Remittance, Aid and the Macro Economy in Ethiopia
o Exchange rate and Exchange rate policy
o Parallel Market Exchange Rate, Remittance and Capital flight

SEMESTER II (suggested areas)

 Determinants of Growth in Ethiopian (or the Political Economy of Growth
in Ethiopia)
 Growth, Poverty and Inequality in Ethiopia
 Inflation in Ethiopia
 The Financial Sector and Macro Policy
 Fiscal Policy and Debt Problems
 The Political Economy of Macro Policy Making
 The Logic of Price Control and Its Problems in Ethiopia
 Growth strategy, Agriculture and Industrialization in Ethiopian
 The Role of the State in the Economy/Macro Economy
 The Developmental State and Ethiopia
 Or any other topic related to the course that interests you