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Business Cycles

  • Enseignant(s):  
  • Titre en français: Cycles réels
  • Cours donné en: anglais
  • Crédits ECTS:
  • Horaire: Semestre de printemps 2021-2022, 4.0h. de cours (moyenne hebdomadaire)
      WARNING :   this is an old version of the syllabus, old versions contain   OBSOLETE   data.
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Objectifs

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, debt, and monetary phenomena by using economic theory (i.e. a positive endeavour)


2. apply this to learn about policy in crisis times by using "New Keynesian" (NK) models and simple recent heterogeneous-agent extensions. Learning about liquidity traps and the zero lower bound, forward guidance, fiscal stimulus (spending, taxes, and debt) and 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 explaining business cycle fluctuations (point 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.

Contenus

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.
2 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
3 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
4 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

Références

Main reference: Lecture Notes and material on moodle.
Textbooks: Article seen in classe - some useful (but not compulsory 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.

Pré-requis

Advanced Macroeconomics (MSc.4.1)

Evaluation

1ère tentative

Examen:
Sans examen (cf. modalités)  
Evaluation:

Take home exam during the semester.

Rattrapage

Examen:
Ecrit 24h heures
Documentation:
Autorisée
Calculatrice:
Autorisée
Evaluation:

TAKE HOME EXAM



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