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Business Cycles

  • Teacher(s):   F.Bilbiie  
  • Course given in: English
  • ECTS Credits: 6 credits
  • Schedule: Spring Semester 2020-2021, 4.0h. course (weekly average)
  •  sessions
  • site web du cours course website
  • Related programme: Master of Science (MSc) in Economics
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This course introduces students with some of the main workhorse models in modern macroeconomic analysis, and has four main objectives.

1. familiarize students with the way(s) modern macroeconomics attempts to explain business cycle fluctuations, capital accumulation, public spending, taxes, and debt, and monetary phenomena by using economic theory (i.e. a positive endeavour)

2. apply this to learn about policy in crisis times; focus on "New Keynesian" (NK) models and simple recent heterogeneous-agent extensions. Liquidity traps and zero lower bound, forward guidance, fiscal stimulus (spending, taxes, and debt); simple, tractable "HANK" (heterogeneous-agent NK) models

3. allow students to analyze normative prescriptions: once we have a model that does a reasonable job at 1., we can use it to study whether and how can we improve welfare by using macroeconomic policies. Study implications for monetary and fiscal policies, and for inequality and redistribution.

4. along the way to 1., 2., and 3. learn some modern modelling techniques, or tools that are of independent theoretical interest.

5. develop economic intuition, which may easily seem of secondary importance when one struggles with 4; this is a trap we will try to avoid.


Course Outline

1 Preliminaries
- Business cycle "stylized facts": basic statistical analysis of macro time series
- Tools: solving a discrete-time stochastic dynamic optimization problem in two minutes, with examples.
2ˆ™ The benchmark dynamic stochastic general equilibrium (DSGE) model, aka the RBC model
- Planner and Competitive equilibrium, and the Welfare Theorems
- Steady State and "solving" the model locally: loglinearization
- Calibration and model solution; equilibrium determinacy
- How good is the model: computing artificial second moments and comparing them to the data.
- Asset Pricing Implication
3ˆ™ Fiscal Policy in General Equilibrium
- The government spending multiplier
- Government debt and Ricardian equivalence; Debt sustainability
- The Fiscal Theory of the Price Level
- Distortionary taxation and Ricardian equivalence
4ˆ™ Money
- Basic monetary models (Cash in advance, Money in the utility)
- Money demand and monetary doctrines
- Dynamics, Price level determination; Inflation and welfare
5 The New Keynesian model: nominal and real rigidities
- Liquidity traps and zero lower bound: Forward guidance and quantitative easing
- Fiscal policy to fight a recession in the NK model
6 Tractable HANK Models: Inequality and Policy ("HANK": Heterogeneous-Agent New Keynesian)
- TANK (Two-Agent NK) Model and The New Keynesian Cross
- An Analytical Tractable (T) HANK model
- Monetary and Fiscal Policy in THANK models
7 Extensive Margins and Aggregate Supply
- Entry, product variety, and business cycles
- Welfare properties and optimal policies in models with markups and varieties


Main reference: Lecture Notes: see before class at
Textbooks?: None as such (see articles in class); some useful books for macro:

∙ Blanchard and Fischer (1989), Lectures on Macroeconomics, MIT Press
∙ Ljungqvist and Sargent (2004), Recursive Macroeconomic Theory, 2nd edition, MIT Press
∙ Stokey and Lucas with Prescott: Recursive Methods in Economic Dynamics MIT Press
∙ Walsh (2010), Monetary Theory and Policy, MIT Press
∙ Woodford, M., (2003). "Interest and Prices". PUP
∙ Gali, J. 2010, "Monetary Policy, Inflation and the Business Cycle". PUP
∙ Also very useful (complementary) lecture notes online by D. Krueger, P. Krusell, and G. Violante.


Advanced Macroeconomics (MSc.4.1)


First attempt

Written TBA hours

SUMMER 2020, due to coronavirus


As announced and in order to adjust to the Corona-Covid19 emergency situation, the exam will be take-home and will take place in June -- date and details to be announced soon.


Written TBA hours


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