Modern macroeconomics conceived the economy as a general equilibrium system that reflects decisions made by rational agents on a set of variables that connect the present with the future. We will see how contemporary macroeconomics seeks to provide an integrated and coherent explanation of economic systems' long-term and short-term quantitative development. We will work with models in conjunction with data, discussing how to solve, calibrate, simulate and evaluate Dynamic Stochastic General Equilibrium (DSGE) models.
Curriculum
teacher profile teaching materials
Part II. This second part of the course will focus on several extensions of the canonical RBC model. We will keep adding more and more elements to the model to bring the results of simulations closer to empirical evidence. The main extensions that we will see are the indivisible labour model, habit in consumption and variable capital utilization.
Part III. The third part of the course will focus on fiscal policy in flexible price models. In particular, on the effects of increases in public spending financed by either lump-sum or distortionary taxation and debt accumulation, emphasizing the theoretical foundations of the so-called Ricardian equivalence and the match with the empirical evidence.
Part IV. The last part will focus on monetary policy issues. We will see that the introduction of money in a Walrasian model implies results that are at odds with the empirical evidence. Then, we will focus on the New-Keynesian approach, which shares the same methodological approach as the RBC theory. Still, the micro-foundation is based on monopolistic competitive markets and sticky prices. These two hypotheses make money non-neutral and give the monetary policy an active role. Finally, we will study the interaction between fiscal and monetary policy in the context of the Fiscal Theory of price level (FTPL
Textbooks:
Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle.
Romer, David. Advanced Macroeconomics
Walsh, Carl. Monetary Theory and Policy.
Marchetti, Enrico. Teorie del Ciclo Economico
Scientific papers:
King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
Programme
Part I. The first part of the course deals with the basic concepts needed to define and measure economic growth and the business cycle. To derive a set of short and long-term stylised facts, we will review essential notions about the trend-cycle decomposition of historical series, the filtering procedures and the theory of stochastic processes. Then, we will derive the neoclassical growth model (Solow model) and its micro-founded version with complete and perfectly competitive markets and perfect information (Ramsey-Cass Koopmans). We will see that, in the long run, the trend component in technological progress causes the growth of real variables, whereas, in the short run, random components in the technological progress trigger the cycle.Part II. This second part of the course will focus on several extensions of the canonical RBC model. We will keep adding more and more elements to the model to bring the results of simulations closer to empirical evidence. The main extensions that we will see are the indivisible labour model, habit in consumption and variable capital utilization.
Part III. The third part of the course will focus on fiscal policy in flexible price models. In particular, on the effects of increases in public spending financed by either lump-sum or distortionary taxation and debt accumulation, emphasizing the theoretical foundations of the so-called Ricardian equivalence and the match with the empirical evidence.
Part IV. The last part will focus on monetary policy issues. We will see that the introduction of money in a Walrasian model implies results that are at odds with the empirical evidence. Then, we will focus on the New-Keynesian approach, which shares the same methodological approach as the RBC theory. Still, the micro-foundation is based on monopolistic competitive markets and sticky prices. These two hypotheses make money non-neutral and give the monetary policy an active role. Finally, we will study the interaction between fiscal and monetary policy in the context of the Fiscal Theory of price level (FTPL
Core Documentation
There is no single assigned textbook for the course. Rather, class lectures and handouts will draw on my typed notes, which will be available on the Teams channel of the course. The teaching material is based on the following textbooks and scientific papers:Textbooks:
Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle.
Romer, David. Advanced Macroeconomics
Walsh, Carl. Monetary Theory and Policy.
Marchetti, Enrico. Teorie del Ciclo Economico
Scientific papers:
King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
Reference Bibliography
Textbooks: Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle. Romer, David. Advanced Macroeconomics Walsh, Carl. Monetary Theory and Policy. Marchetti, Enrico. Teorie del Ciclo Economico Scientific papers: King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.Attendance
Not mandatory, but strongly recommended.Type of evaluation
Assessment is based on four problem sets to be completed at home during the course and a final written exam. Forty per cent of the course grade will be based on the four problem sets, which essentially consist of solving, linearising, calibrating, and simulating models similar to those discussed during the lessons. The final written exam, which accounts for the remaining sixty per cent of the course grade, consists of two open questions focusing on the transmission mechanisms of the main macroeconomic shocks and on the role of policy interventions in the various models analysed during the course. teacher profile teaching materials
Part II. This second part of the course will focus on several extensions of the canonical RBC model. We will keep adding more and more elements to the model to bring the results of simulations closer to empirical evidence. The main extensions that we will see are the indivisible labour model, habit in consumption and variable capital utilization.
Part III. The third part of the course will focus on fiscal policy in flexible price models. In particular, on the effects of increases in public spending financed by either lump-sum or distortionary taxation and debt accumulation, emphasizing the theoretical foundations of the so-called Ricardian equivalence and the match with the empirical evidence.
Part IV. The last part will focus on monetary policy issues. We will see that the introduction of money in a Walrasian model implies results that are at odds with the empirical evidence. Then, we will focus on the New-Keynesian approach, which shares the same methodological approach as the RBC theory. Still, the micro-foundation is based on monopolistic competitive markets and sticky prices. These two hypotheses make money non-neutral and give the monetary policy an active role. Finally, we will study the interaction between fiscal and monetary policy in the context of the Fiscal Theory of price level (FTPL
Textbooks:
Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle.
Romer, David. Advanced Macroeconomics
Walsh, Carl. Monetary Theory and Policy.
Marchetti, Enrico. Teorie del Ciclo Economico
Scientific papers:
King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
Programme
Part I. The first part of the course deals with the basic concepts needed to define and measure economic growth and the business cycle. To derive a set of short and long-term stylised facts, we will review essential notions about the trend-cycle decomposition of historical series, the filtering procedures and the theory of stochastic processes. Then, we will derive the neoclassical growth model (Solow model) and its micro-founded version with complete and perfectly competitive markets and perfect information (Ramsey-Cass Koopmans). We will see that, in the long run, the trend component in technological progress causes the growth of real variables, whereas, in the short run, random components in the technological progress trigger the cycle.Part II. This second part of the course will focus on several extensions of the canonical RBC model. We will keep adding more and more elements to the model to bring the results of simulations closer to empirical evidence. The main extensions that we will see are the indivisible labour model, habit in consumption and variable capital utilization.
Part III. The third part of the course will focus on fiscal policy in flexible price models. In particular, on the effects of increases in public spending financed by either lump-sum or distortionary taxation and debt accumulation, emphasizing the theoretical foundations of the so-called Ricardian equivalence and the match with the empirical evidence.
Part IV. The last part will focus on monetary policy issues. We will see that the introduction of money in a Walrasian model implies results that are at odds with the empirical evidence. Then, we will focus on the New-Keynesian approach, which shares the same methodological approach as the RBC theory. Still, the micro-foundation is based on monopolistic competitive markets and sticky prices. These two hypotheses make money non-neutral and give the monetary policy an active role. Finally, we will study the interaction between fiscal and monetary policy in the context of the Fiscal Theory of price level (FTPL
Core Documentation
There is no single assigned textbook for the course. Rather, class lectures and handouts will draw on my typed notes, which will be available on the Teams channel of the course. The teaching material is based on the following textbooks and scientific papers:Textbooks:
Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle.
Romer, David. Advanced Macroeconomics
Walsh, Carl. Monetary Theory and Policy.
Marchetti, Enrico. Teorie del Ciclo Economico
Scientific papers:
King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
Reference Bibliography
Textbooks: Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle. Romer, David. Advanced Macroeconomics Walsh, Carl. Monetary Theory and Policy. Marchetti, Enrico. Teorie del Ciclo Economico Scientific papers: King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.Attendance
Not mandatory, but strongly recommended.Type of evaluation
Assessment is based on four problem sets to be completed at home during the course and a final written exam. Forty per cent of the course grade will be based on the four problem sets, which essentially consist of solving, linearising, calibrating, and simulating models similar to those discussed during the lessons. The final written exam, which accounts for the remaining sixty per cent of the course grade, consists of two open questions focusing on the transmission mechanisms of the main macroeconomic shocks and on the role of policy interventions in the various models analysed during the course.