The objective of this course is to provide a short overview of the euro area economy since its creation. The first part starts with a non-technical discussion of the main policy debates brought about by the crisis and that continue to influence the conduct of monetary policy. This overview is followed by an introduction to dynamic general equilibrium modelling. The last part of the course covers advanced topics using the type of DSGE models developed after the financial crisis.

Lecture 1

The objective of this first lecture is to provide a brief overview of the most pressing issues that policy makers in the euro area have faced since the creation of the common currency. This non-technical review places particular emphasis on monetary policy and discusses the different phases observed in the last 20 years. The objective of this lecture is to outline some of the main questions raised by the financial crisis and draw some lessons for the future.

Lecture 2

The second part of the course develops a baseline DSGE models that can be used to simultaneously study the effects of monetary policy, technology and government spending shocks. The objective is to show how these different type of shocks affect the business cycle as well as the dynamics of prices. The various steps, along with the matlab codes used to solve and simulate the model, are also discussed in details.

Lecture 3

The third part of the course focuses on the issue of cross-country heterogeneity. The lecture starts by documenting a series of key stylized facts that characterize the euro area economy. The objective is to shed light on the determinants of capital flows between the North and South of the eurozone. The welfare implications of capital flows are then studied using a two-country DSGE models with financial frictions and incomplete international asset markets.

Lecture 4

The final part of the course studies the effect of credit frictions on the effectiveness of monetary policy. Since small and medium-sized enterprises represent around 99% of all non-financial corporations in the euro area, the objective is to understand how access to credit influences monetary policy transmission. One objective of this lecture is to highlight the potential importance of non-linearities and asymmetries for the transmission of monetary policy.