Università Cattolica del Sacro Cuore di Milano – Master: Monetary Economics and Asset pricing
Prof. Domenico Delli Gatti (Università Cattolica) and Daniele Siena (Banque de France)
Syllabus:
The main purpose of this course is to equip the students with analytical backgrounds for understanding:
1. The fundamental features of the monetary policy transmission mechanism, with particular reference to the role of asymmetric information.
2. The role of financial markets for macroeconomic fluctuations.
Evaluation:
Written Exam - Mock Exam
Content and Readings
- The main channels of transmission of monetary policy: an overview.
- Ex post asymmetric information, monitoring costs and the external finance premium: Bernanke-Gertler.
- The credit view: the lending channel and the balance sheet channel.
- Asset prices and borrowing constraints: Kiyotaki-Moore.
- Optimal monetary policy in the New Keynesian Dynamic Stochastic General Equilibrium Model.
- Bank runs and financial contagion.
- Asset pricing.
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1. The workhorse monetary model: the baseline New Keynesian Dynamic Stochastic General Equilibrium model (DSGE).
1.1 Introduction - Slides (Lecture 1)
References
Chapter 1. Walsh, C.E. (2003), Monetary Theory and Policy. Second Edition, MIT Press, Cambridge (MA), London.
Lucas, R. (1976), Econometric Policy Evaluation: A Critique. In Brunner, K., Meltzer, A., The Phillips Curve and Labor Markets, Carnegie-Rochester Conference Series on Public Policy, 1, New York: American Elsevier, 19-46.
Michael Dotsey (2013), DSGE Models and Their Use in Monetary Policy, Business Review, Q2 2013, Philadelphia Fed.
Álvarez, Luis J. & Dhyne, Emmanuel & Hoeberichts, Marco M. & Kwapil, Claudia & Le Bihan, Hervé & Lünnemann, Patrick & Martins, Fernando & Sabbatini, Roberto & Stahl, Harald & Vermeulen, Philip & Vilmu, 2005. "Sticky prices in the euro area: a summary of new micro evidence," Working Paper Series 0563, European Central Bank.
Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
1.2 From IS-LM to microfundation - Baseline NK DSGE and solutions - Slides (Lecture 2)
References:
Chapter 5. Walsh, C.E. (2003), Monetary Theory and Policy. Second Edition, MIT Press, Cambridge (MA), London.
Chapter 3. Galì, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press, Princeton, Oxford.
Chapter 3 and 4. Woodford, Michael (2003), Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton University Press, Princeton, NJ.
Calvo, G., (1983), Staggered Prices in a Utility-Maximizing Framework, Journal of Monetary Economics, 12(3).
Taylor, J., (1980), Aggregate Dynamics and Staggered Contracts, Journal of Political Economy, 88(1).
1.3 Results of the Baseline NK DSGE model - Slides (Lecture 3)
References:
Chapter 5. Walsh, C.E. (2003), Monetary Theory and Policy. Second Edition, MIT Press, Cambridge (MA), London.
Chapter 3. Galì, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press, Princeton, Oxford.
Jordi Galí & Pau Rabanal, 2005. "Technology Shocks and Aggregate Fluctuations: How Well Does the Real Business Cycle Model Fit Postwar U.S. Data?," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 225-318 National Bureau of Economic Research, Inc.
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2. Introducing Dynare for solving and simulating DSGE models. Dynare_form and NK DSGE baseline
References:
Stéphane Adjemian, Houtan Bastani, Michel Juillard, Frédéric Karamé, Ferhat Mihoubi, George Perendia, Johannes Pfeifer, Marco Ratto and Sébastien Villemot (2011), “Dynare: Reference Manual, Version 4”, Dynare Working Papers, 1, CEPREMAP
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3. Optimal and alternative monetary policy rules: theory and applications - Slides (Lecture 4)
References:
Chapter 4. Galì, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press, Princeton, Oxford.
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4. Monetary policy tradeoffs: discretion versus commitment - Slides (Lecture 5) and Optimal Policy with Dynare
References:
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.
Chapter 5. Walsh, C.E. (2003), Monetary Theory and Policy. Second Edition, MIT Press, Cambridge (MA), London.
Chapter 5. Galì, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press, Princeton, Oxford.
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5. Financial frictions in DSGE models - Slides (Lecture 6) and Class Dynare Code / Dynare Bernanke Gertler Gilchrist (1999)
References:
Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier. - NBER Working paper version
Domenico Delli Gatti (on his website)- SLIDES on The Financial Accelerator in a Quantitative Business Cycle Framework (BGG) - DEFAP_Advanced Macro_L1 - Slides
Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
Bernanke, Ben & Gertler, Mark, 1989."Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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6. Optimal Monetary Policy in open economies - Slides (Lecture 7) and Dynare SOE (Gali Monacelli 2005) - 3 Rules
References:
Gali, Jordi and Tommaso Monacelli. 2005, Monetary Policy and Exchange Rate Volatility in A Small Open Economy, Review of Economic Studies, 20o5, pages 700-734, July.
Chapter 7. Galì, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press, Princeton, Oxford.
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The slides of these course have been built borrowing materials from many colleagues. I thank them, in particular D. Delli Gatti, J. Gali, M. Juillard, T. Monacelli and N. Viegi. I suggest you to give a look directly on their web page for additional material.