Econ 1225

It looks like this page may come alive again, as now I'm going to start teaching Econ 1225 again this spring.

Last year I created this site to communicate to students, as you can see by the number of post below it was an experiment that did not exactly take off -- I think mostly because I forgot the password and did not bother to figure out to sign in again, preferring the "canvass system" here at Brown.

Anyway, we are on again, and here is a preliminary syllabus. Perhaps I will keep this use this site more than last year.

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Spring 2014

Brown University

Advanced Macroeconomics for undergraduate students

Gauti B. Eggertsson

SYLLABUS

Monetary and Fiscal Economics and Stabilization Policy

                                                                             

Readings

This course is about macroeconomic policy with special focus on the recent economic crisis. Questions will be addressed such as: How does monetary policy affect the economy? What is the effect of government spending and tax cuts? What should the government do in the event of a financial crisis?

The main objective of the course is to introduce students to the type of models and methods used in current research in macroeconomics both in the scholarly literature but also in the practice of central banks and major policy institutions.  The current financial crisis and the economic recession of 2007-2009 will serve to illustrate the challenges confronted by macroeconomic analysis. Empirical analyses will complement the understanding of some important features of US macro and financial data.

Students are assumed to have already completed intermediate-level courses in microeconomic theory, macroeconomic theory, and econometrics, and to be familiar with the fundamentals of multivariate calculus and linear algebra.

The main reference for this class are lecture notes that will be posted prior or right after each lecture.

A reference textbook for the course is Jordi Gali, Monetary Policy, Inflation and the Business Cycle, Princeton University Press, 2008 along with Michael Woodford’s Interest and Prices, Princeton University, 2003. These books will be supplemented with additional readings, often providing applications of the theory. Many of the additional readings are available online, and most of those that are not will be available electronically on the course website.

The required work for the course will consist of several problem sets (some analytical and some applied), a midterm and a final.

Below I have added several references and added stars to those reading that are essential. Some of the material includes much more technical details than I expect the students to master, the lecture notes and problems sets will give a better idea of the appropriate level of detail students should be familiar with.

I.  Monetary Policy and Economic Stabilization

Lecture 1 Introduction to the class

Lecture 2 Introduction to basic Time Series Methods

            * Main reference: Class Notes.

James D. Hamilton, “Time Series Analysis,” Princeton University Press. Chapter 1-3.

Lecture 3 Evidence on the Real Effects of Monetary Policy

            *Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans, “Monetary Policy Shocks: What Have We Learned and To What End?” in J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, vol. 1A, Elsevier, 1999.

            Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans, “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy 113: 1-45 (2005).

            Sims, Christopher A., “Macroeconomics and Reality,” Econometrica, January 1980.

            Milton Friedman and Anna Jacobson Schwartz. 1963. “A Summing Up.” Chapter 13 of A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press for NBER): 676-700.

            Romer, C. and Romer, D. 1989, “Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz”, NBER Macroeconomic Annual.

François R. Velde. 2009. “Chronicle of a Deflation Unforetold.” Journal of Political Economy (August): 591-634.

Steinsson, J and Nakamura, “Five Facts about Prices,” Quarterly Journal of Economics, 125(3), 961-1013, August 2010.

Lectures 4 & Lecture 5: Nominal Price Level Determination

            *Gali, chap. 2.

            Woodford, chap 2.

Lecture 6:  Sticky Prices and the Real Effects of Monetary Policy: The case of IS-LM

            * Main reference here is lecture notes and blackboard derivation

*Gali, chap. 3.

            Woodford, chap 3.

Lecture 7: Sticky Prices and the Real Effect of Monetary Policy: The basic New Keynesian model

            * Main reference here is lecture notes and blackboard derivation

* Gali, chap. 3.

*Gali, J. chap 4.

            Woodford, chap 3.

Taylor, John B., “A Historical Analysis of Monetary Policy Rules,” in J.B. Taylor, ed., Monetary Policy Rules, Chicago: Univ. of Chicago Press, 1999.

Clarida, Richard, Jordi Gali, and Mark Gertler, “Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory,” Quarterly Journal of Economics 115: 147-180 (2000).

Orphanides, Athanasios, “Monetary Policy Rules, Macroeconomic Stability and Inflation: A View from the Trenches,” Journal of Money, Credit and Banking 36: 151-175 (2004).

Lecture 8: Nominal Frictions and Optimal Monetary Policy under Commitment and Discretion

*Main reference here is lecture notes and blackboard derivation

*Clarida, Richard, Jordi Gali, and Mark Gertler, “The Science of Monetary Policy: A New Keynesian Perspective,” Journal of Economic Literature 37: 1661-1707 (1999).

Kydland, Finn E., and Edward C. Prescott, “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy 85: 473-491 (1977).

Gali, chap. 5.

Walsh, chap. 8, and sec. 11.3.

Woodford,  I&P, chap. 7, secs. 1, 2, and 5.

Lecture 9: Medium scale estimated macroeconomic models

* Sbordone, A. Tambalotti, A, Rao, K, and K. Walsh, (2010) “Policy Analysis using DSGE Models: An Introduction.” FRBNY Economic Policy Review.

Smets, Frank, and Rafael Wouters. 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach." American Economic Review, 97(3): 586–606.

Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans, “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy 113: 1-45 (2005).

II.  Stabilization Policy During Financial Crises

Lecture 11.  The Liquidity Trap, Japan and the Great Depression

            *Eggertsson, Gauti B., and Michael Woodford, “The Zero Bound on Interest Rates and Optimal Monetary Policy,” Brookings Papers on Economic Activity 2003-1: 139-235. [Also available at http://www.columbia.edu/~mw2230/BPEA.pdf]

*Eggertsson, Gauti B., “Great Expectations and the End of the Depression,” American Economic Review 98: 1476-1516 (2008).

Krugman, Paul R., “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap,” Brookings Papers on Economic Activity 1998-2: 137-206. [Also available at

http://web.mit.edu/krugman/www/bpea_jp.pdf]

Ben S. Bernanke and Vincent R. Reinhart, “Conducting Monetary Policy at Very Low Short-Term Interest Rates,” American Economic Review [Papers and Proceedings] 94(2): 85-90 (2004). 

           

Lecture 12.  Non-standard Monetary Policy in a “Liquidity Trap”: Is “Quantitative Easing” or Credit Easing Effective?

Curdia, Vasco, and Michael Woodford, “The Central-Bank Balance Sheet as an Instrument of Monetary Policy,” Journal of Monetary Economics, forthcoming. [Available online at http://www.columbia.edu/~mw2230/CR2010.pdf]

            Keister, Todd, and James McAndrews, “Why Are Banks Holding So Many Excess Reserves?” Federal Reserve Bank of New York Staff Report no. 380, July 2009.

            Del Negro, M, Eggertsson, G, Ferrero, A and N. Kiyotaki, “The Great Escape? A Quantitative Evaluation of the Fed’s Liquidity Facilities”, mimeo [Available on my homepage]

Lectures 13 Is Fiscal Stimulus Effective?

* Eggertsson, Gauti B., “What Fiscal Policy is Effective at Zero Interest Rates?” NBER Macroeconomics Annual 2010, forthcoming. [Available on my webpage]

* Denes, Matthew, Gilbukh, Sonia and Eggertsson, Gauti, “Deficits, Public Debt Dynamics and Tax and Spending Multipliers,” Economic Journal, 123 (566), 133-163, 2013 [Available on my webpage]

            Woodford, Michael, “Simple Analytics of the Government Expenditure Multiplier,” American Economic Journal: Macroeconomics 3: 1-35 (2011)

            Christiano,  Lawrence, M. Eichenbaum, and S. Rebelo, “When Is the Government Spending Multiplier Large?” NBER Working Paper no. 15394, October 2009.

III.  Financial Stability and Economic Stability

Lectures 14  Financial Factors in Business Fluctuations

* Diamond, D. and Philip Dybvig, (1983), "Bank Runs, Deposit Insurance, and Liquidity", Journal of Political Economy, Vol. 91, No. 3. (Jun., 1983), pp. 401-419.

* Eggertsson, Gauti, B. and Paul Krugman, “Debt, Deleveraging and the Liquidity Trap: A Fisher-Minsky-Koo Approach,” Quarterly Journal of Economics, forthcoming. [Available at http://www.ny.frb.org/research/economists/eggertsson/EggertssonKrugmanR2.pdf]

Bernanke, B. and M. Gertler (1989), "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, Vol. 79. No.1, p. 13-31.

Kiyotaki, N. and J. Moore, (1997), "Credit Cycles," Journal of Political Economy, vol. 105, no.2.

            Hall, Robert E., “The High Sensitivity of Economic Activity to Financial Frictions,” Economic Journal, forthcoming 2011. [Available at http://www.stanford.edu/~rehall/HSEA120909.pdf]

            Gilchrist, Simon, Vladimir Yankov, and Egon Zakrajsek, “Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets,” NBER Working Paper no. 14863, April 2009.

Bernanke, Ben S., Mark Gertler, and Simon Gilchrist, “The Financial Accelerator in a Quantitative Business Cycle Framework,” in J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, vol. 1C, Elsevier, 1999.