Posted: September 18th, 2017

Project: IS/LM and the recession of 2001

The US economy experienced a recession between March and December of 2001. Your task is to critically assess monetary and fiscal policies instituted in its wake. To guide your thinking, you might consider the following questions: Did monetary and fiscal policy improve economic conditions? With the benefit of hindsight, did these policies have unintended consequences? In your opinion, what would have been a preferable policy mix?

Instructions
•Post a slideshow with at least 5 and at most 8 slides that presents your analysis.
•Base your analysis explicitly on the IS/LM model as developed in chapters 3-5 of the textbook, and selected complementary readings from the list below.
•Include at least one data chart – i.e. from FRED, BEA, FED, BLS or another source of official data – that you have created in a spreadsheet program. (Do not use the chart ��produced’ by FRED!)
•Pay attention to structure and clarity of your argument; pay attention to grammar and style!
•Carefully format the slideshow, and save it as a PDF – file upload is restricted to PDF files. (With standard slideshow programs such as Powerpoint you can “save as” PDF; if you are using TeX, for example, PDF is standard output format.)

Motivation

Imagine that you work in a research institute, think tank or consulting firm that has been asked to produce a report on the above question, that you are the lead economist to write the report, and that you will have to report your findings (summarized in the slideshow) to the general public in a news conference. Further, to mimic the ensuing “public debate,” every report will be peer-reviewed (discussed online by fellow classmates) during the week after the due date. These “peer reviews” provide critical feedback for your own work. See this thread for further information on the process!

Background reading
•On monetary & fiscal policy — Blanchard, Macroeconomics, 5th ed, Chapter 5 Focus Box on “The US Recession of 2001;” Economic report of the President, 2005, chapter 2: “Expansions past and present;” Wikipedia on “Causes of the housing crisis.”
•On the jobless recovery — Calculated Risk’s (2012) chart on “Percent job losses in post-WWII recessions;” St. Louis Fed (2011) report; Ben Bernanke (2003) speech and EPI’s (2003) issue brief.
•A number of these readings are available here in a zip file.

Skill development
•Critical thinking Skills — You deepen your understanding of the material, and based on that critically assess, summarize and apply it. You learn to argue within the framework of an economic model. (See as well our course objectives on the syllabus.)
•Computer Skills — You learn to produce a “professional” report that includes graphics that you have produced. You practice to download data series and create a chart and learn to integrate these in the slideshow