modern principles: macroeconomics see the invisible hand: understand your world tyler cowen and alex...
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Modern Principles: MacroeconomicsSee the Invisible Hand: Understand Your World
Tyler Cowen and Alex Tabarrok
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Shi
ller I
ndex
YearS ourc e: R ober t S hi l ler 's Ir ra tional E x uberanc e, updated http ://w w w .i r rationalex uberanc e.c om /
Index of Real House Prices, 1950-2010The H ous ing Bubble
Housing Starts and Vacancies
Vacancy Rate
Starts
56
78
91
0H
ou
sin
g V
aca
ncy
Ra
te
500
100
01
50
02
00
02
50
0H
ou
sin
g S
tart
s (1
000
s)
yearNote: Vacancy rate defined as year round vacant (non-seasonal) housing unit for sale, rent orheld off market as a fraction of all housing units.Source: U.S. Census Bureau, Housing and Household Economic Statistics Division.
1965-2010Housing Starts and Housing Vacancy Rate
Real GDPgrowth rate
InflationRate (p)
Solow growthcurve
3%
AD (M 4%)v
SRAS
4%
��������������M
C
I
AD (M 7%)v
The Great Recession and the Great Fall in AD
-1%
-3%
Growth of Shadow Banking
New Solow growth curve
Old Solow growth curve
New SRAS Old SRAS
a
b
c
Real shock
16%
8%
-3% -1% 3%
Inflation rate
(π)
Real GDP growth rate
AD (M + v = 15%)→ →
AD (M + v = 5%)→ →
M →
The Negative Real Shock Dilemma
Modern Principles: MacroeconomicsSee the Invisible Hand: Understand Your World
Tyler Cowen and Alex Tabarrok