Learning Modern Macroeconomics

Modern macroeconomics, as practiced in academic research and central banks, rests on microfoundations that explain aggregate outcomes through the optimizing behavior of households and firms. Yet students often face a sharp divide between intuitive demand‑side models and the full technical apparatus of infinite‑horizon DSGE frameworks. This book closes this gap.

The book is built around a deliberately compact and transparent laboratory: two‑period dynamic general‑equilibrium models with closed‑form solutions. By keeping every assumption, constraint, shadow price, and first‑order condition explicitly on the page, it allows readers to derive the transmission mechanisms of monetary and fiscal policy themselves rather than treating them as black boxes. Heavy dynamic programming and numerical methods are avoided so that the core economic logic remains fully visible throughout.

The exposition develops systematically from microeconomic foundations—consumption and saving, labor supply, investment, and general equilibrium—to a sequence of cumulative policy applications. A flexible‑price RBC benchmark establishes monetary neutrality, followed by cash‑in‑advance and New Keynesian environments that introduce nominal rigidities, the zero lower bound, and monetary–fiscal interactions. Fiscal policy, heterogeneity through a Two‑Agent New Keynesian (TANK) model, and international macroeconomics in open‑economy and two‑country settings are all treated analytically within the same unified framework.

The final part bridges the two‑period approach to infinite‑horizon DSGE models, deriving the canonical three‑equation New Keynesian model in full and providing ready‑to‑run Dynare files for immediate simulation. Designed as a self‑contained one‑semester textbook, the volume is modular, exercise‑based, and analytically rigorous, equipping readers with a clear and reliable pathway into contemporary macroeconomic research and policy analysis.