Implications of expectations

Macroeconomics - Macroeconomics. First edition - Macroeconomics

May 31, 2002

These textbooks have a number of innovative features: adoption of an open economy macroeconomics perspective; insights into the role of institutions and expectations; and "real-world" data combined with analytical tools. They reflect an attempt to move beyond the previous generation of entry-level macroeconomics textbooks that tended to have a closed economy focus and follow a highly predictable path of building the components of aggregate demand, introducing the monetary sector, developing the aggregate demand-supply framework and finishing with stabilisation policy.

Michael Burda and Charles Wyplosz's book aims to anchor its analysis to the "European experience". This enables European students to relate their work to macroeconomic issues and evidence with which they are familiar, and gives non-European students some insight into the macroeconomic problems with which European policy-makers are grappling. The writers must also be credited for their innovative ordering of the material - starting with long-run growth issues and labour-market behaviour rather than short-run demand management issues. The book reflects a degree of maturity and confidence in the relevance of the market niche it caters for.

J. Bradford DeLong's presentation of the flexible and fixed-price models is much more innovative: the open-economy perspective is more explicit, the role of expectations is better accounted for, and the LM curve is cast in a new light that reflects the tendency to focus on the control of interest rates rather than the monetary base. DeLong is better placed to alert the student to the limits of the stabilisation policy in general and to take account of expectations in particular.

David Miles and Andrew Scott's book is the most sui generis of the three. The authors aim to provide a macroeconomics textbook for business students. They combine teaching the logical framework of macroeconomics with a wide range of contextual information that would appeal to students not majoring in economics. Standard topics in macroeconomics, such as consumption, investment, business cycles and stabilisation policy, are both preceded and followed by relevant macro and international economics topics, such as international trade, foreign-exchange markets and asset markets. Miles and Scott devote less space to formal modelling in order to be able to place the topic in historical/international context and interpret the relevant evidence in more detail.

In line with increased use of information technology in economics teaching, all three books promise CD-Rom or website facilities for students and teachers. All three books have a glossary section preceding the index.

Some of the innovations of these books, such as the open-economy outlook and the role of expectations, enable teachers to incorporate research findings into entry or intermediate-level macroeconomics courses. Others, such as the emphasis on asset markets, closer links between theory and evidence, and the more sophisticated treatment of the labour market, increase the relevance of macroeconomics for students. Nevertheless, one can still detect a number of areas in which improvement is desirable.

There is a common shortcoming in the inclusion of tables or figures with little interpretation or limited relevance to the analytical issues under consideration. This may exacerbate the tendency among some students to think that facts speak for themselves. There is a strong case for limiting the number of such tables and figures by making sure that they either highlight the stylised facts that the chapter is analysing or demonstrate the extent to which the analysis is supported by available evidence. In the latter case, it is also necessary to refer the reader to other research findings that may not be supportive of the derived conclusions.

Second, I have some reservations about the level of student that the books aim to serve. For example, the level is left unspecified in Burda and Wyplosz and specified incorrectly as intermediate in DeLong. In my view, both books are essentially entry-level texts. The book by Miles and Scott is compatible with the needs of students not majoring in economics, but extending the readership to MBA students prompts some doubts about the economics content of MBA programmes.

Finally, one would like to see more attention paid to the twin issues of progression and coherence. It may be clear to a teacher of the subject why a book is organised as it is and why a particular chapter contains the topics that it does. More often than not, however, the rationale for a given structure is not clear to the student. As a result, a sense of frustration or cynicism may develop. To avoid such problems, the authors could have provided more developed chapter overviews and conclusions, minimised digressions and drawn the reader's attention to the way in which analysis is building towards a fuller understanding of macroeconomics.

I would recommend Burda and Wyplosz as a key entry-level textbook; use DeLong as a supplementary text to flesh out the implications of expectations; and Miles and Scott's as a rich source that contextualises the study of macroeconomics.

Mehmet Ugur is senior lecturer in economics, University of Greenwich.

Macroeconomics: Understanding the Wealth of Nations. First edition

Author - David Miles and Andrew Scott
ISBN - 0 470 84288 1
Publisher - Wiley
Price - £.95
Pages - 684

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