DIETER GERDESMEIER A GUIDED TOUR THROUGH EURO AREA ECONOMICS BASICS – METHODS – APPLICATIONS Download free eBooks at bookboon.com A Guided Tour through Euro Area Economics: Basics – Methods – Applications 2nd edition © 2016 Dieter Gerdesmeier & bookboon.com ISBN 978-87-403-1513-4 Peer review Prof Dr Horst Löchel, Programm Direktor MBA, Professor für Volkswirtschaftslehre, FrankfurtSchool of Finance & Management Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS CONTENTS Introduction and Motivation 11 Part I 12 Understanding Economics 13 2.1 Learning Objectives 13 2.2 Basic Concepts 13 2.3 Microeconomics and Macroeconomics 14 2.4 Ex Ante and Ex Post Analysis 14 2.5 A Short History of Economics 15 2.6 Some Key Macroeconomic Variables 17 2.7 Some Key Macroeconomic Issues 18 2.8 Summary 19 A Look into the Tool Box 21 3.1 Learning Objectives 21 3.2 Models 21 3.3 Types of Analysis 21 www.sylvania.com We not reinvent the wheel we reinvent light Fascinating 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Function 50 5.4 The Investment Function 56 5.5 Equilibrium in the Market for Goods 64 5.6 The Investment Multiplier 70 5.7 The Government Multiplier 73 5.8 The IS Curve 76 5.9 Unravelling the Secrets of the Twin Deicits 81 5.10 Summary 83 The Money Market 85 6.1 Learning Objectives 85 6.2 Basic Considerations 85 6.3 Institutional Background of Euro Area Monetary Policy 86 6.4 Money Supply 89 6.5 Money Demand 90 6.6 Equilibrium in the Money Market 98 6.7 Summary 107 The IS-LM-Model 109 7.1 Learning Objectives 109 7.2 Equilibrium in the Goods and the Money Market 109 7.3 Disequilibria 111 7.4 Some Comparative-Static Analysis 112 7.5 Summary 117 Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS The Labour Market 120 8.1 Learning Objectives 120 8.2 Basic Considerations 120 8.3 The Labour Market – the Classical View 120 8.4 The Labour Market – the Keynesian View 125 8.5 Summary 129 Aggregate Supply and Demand 132 9.1 Learning Objectives 132 9.2 Aggregate Demand 132 9.3 Aggregate Supply 134 9.4 Equilibrium in the Short Run 135 9.5 Equilibrium in the Long Run 137 9.6 Summary 139 Part II 141 10 The European Union and the Euro Area 142 10.1 Learning Objectives 142 10.2 The European Union 143 10.3 The European Central Bank 144 10.4 The Roadmap to EMU 145 10.5 Key Characteristics of the Euro Area Economy 149 10.6 Convergence Criteria 150 10.7 Nominal and Real Convergence 152 10.8 The Future of EMU 154 10.9 Summary 155 11 Business Cycle Fluctuations 157 11.1 Learning Objectives 157 11.2 Fluctuations in Real GDP 157 11.3 Various Types of Cycles 159 11.4 Business Cycle Indicators 162 11.5 Output Gaps 163 11.6 A First Look at the Data 164 11.7 A Second Look at the Data 165 11.8 Summary 165 12 Unemployment 167 12.1 Learning Objectives 167 12.2 Basic considerations 167 12.4 Summary 170 Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS 13 Prices and Inlation 171 13.1 Learning Objectives 171 13.2 Goods and Baskets 171 13.3 Inlation and the Price Level 173 13.4 Effects of Inlation 173 13.5 Inlation Indices 176 13.6 The Harmonised Index of Consumer Prices 176 13.7 Core and Non-Core Inlation 179 13.8 Measurement Problems 180 13.9 Hyperinlation 180 13.10 A First Look at the Data 183 13.11 A Second Look at the Data 185 13.12 A Third Look at the Data 186 13.13 Summary 190 14 Exchange Rates 193 14.1 Learning Objectives 193 14.2 Basic Concepts 193 14.3 Exchange Rates Regimes 195 14.4 Exchange Rates in the Long Run 196 14.5 Exchange Rates in the Short to Medium Run 201 14.6 ERM II 205 14.7 A First Look at the Data 206 14.8 Summary 207 Part III 210 15 Monetary Theory 211 15.1 Learning Objectives 211 15.2 The Quantity Theory of Money 211 15.3 The Phillips Curve 214 15.4 The Scandinavian Model of Inlation 217 15.5 The P-Star Approach 219 15.6 The Two-Pillar Phillips Curve 220 15.7 The Role of Expectations 221 15.8 A First Look at the Data 223 15.9 A Second Look at the Data 225 15.10 A Third Look at the Data 227 15.11 Summary 227 Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS 16 Monetary Policy 229 16.1 Learning Objectives 229 16.2 Money – History, Forms and Functions 229 16.3 The Monetary Policy Transmission Process 234 16.4 Time-Lags of Monetary Policy 239 16.5 Rules and Discretion in Monetary Policy 241 16.6 The Conduct of Monetary Policy 243 16.7 Monetary Policy Strategies 246 16.8 Instabilities in Money Demand 251 16.9 A First Look at the Data 253 16.10 A Second Look at the Data 254 16.11 Summary 257 17 Fiscal Policy 259 17.1 Learning Objectives 259 17.2 Automatic Stabilizers 259 17.3 Cyclical and Structural Deicits 260 17.4 The Laffer Curve 261 17.5 Ricardian Equivalence 263 17.6 Summary 263 18 Conventional and Unconventioanl Monetary Policy 265 18.1 Learning Objectives 265 18.2 The Money Multiplier 265 18.3 Taylor Rules 270 18.4 Shadow Rates 275 18.5 Monetary policy and the zero lower bound 276 18.6 The ECB´s monetary policy in times of inancial crisis 281 18.7 A First Look at the Data 289 18.8 A Second Look at the Data 292 18.9 Summary 294 Part IV 297 19 Open Economy Issues 298 19.1 Learning Objectives 298 19.2 The Balance of Payments 298 19.3 Some International Monetary Organisations 300 19.4 Some International Currency Regimes 303 19.5 A First Look at the Data 305 19.6 Summary 306 Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS 20 Growth Theory 307 20.1 Learning Objectives 307 20.2 Some Basic Considerations 308 20.3 Growth of Capital Per Person 310 20.4 Growth in the Autonomous Factor 314 20.5 A First Look at the Data 315 20.6 Summary 315 21 Multiple Choice Test 317 22 List of Symbols and Abbreviataions 329 23 Glossary 330 24 Annexes 341 24.1 Stocks and Flows 341 24.2 Some Large Numbers 341 24.3 Levels and Growth Rates 342 24.4 Some Useful Graphical Measures 342 24.5 Some Useful Statistical Measures 343 24.6 The Correlation Coeficient 344 24.7 Linear Regression 345 25 List of Figures and Boxes 346 26 References 349 Endnotes 370 Download free eBooks at bookboon.com To the memory of my father, Hermann Gerdesmeier and for my family (D.G.) Download free eBooks at bookboon.com 10 ... GERDESMEIER A GUIDED TOUR THROUGH EURO AREA ECONOMICS BASICS – METHODS – APPLICATIONS Download free eBooks at bookboon.com A Guided Tour through Euro Area Economics: Basics – Methods – Applications... ad to read more A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS 3.4 Analysis of Supply and Demand 26 3.5 Complementary and Substitute Goods 32 3.6 Slope and Elasticity 33 3.7 Summary 38 National... Comparative-Static Analysis 112 7.5 Summary 117 Download free eBooks at bookboon.com A GUIDED TOUR THROUGH EURO AREA ECONOMICS CONTENTS The Labour Market 120 8.1 Learning Objectives 120 8.2 Basic