Economic Policy
Vienna University of Economics and Business (WU Wien), Summer Semester 2024
Fiscal Policy and Austerity Summary
This course covers the main principles of economic policy and the use of monetary and fiscal policy throughout the business cycle. We learn the main features of the market economy and explore and understand why monetary policy matters and how the actions of the central bank affect GDP, inflation and unemployment. We explore and explain fiscal policy and government interventions and their economic effects. In our weekly discussions we discuss topics of current macroeconomic significance and the possible policy choices for public institutions – governments and central banks. We seek to ensure a good understanding of the different trade-offs that central banks and government are facing when acting to affect GDP and inflation.
The first module of the class includes lectures on the fundamentals of monetary and fiscal policy. A second module includes the group presentations by students on recent articles and speeches by policy-makers to understand better macroeconomic policy-making debates in practice.
Throughout the class and its core, is the preparation and then conduct of a simulation of the European Central Bank Governing Council Press Conference. In these simulations, students take the role of the ECB President and Vice President. Their colleagues, take the role of journalists. Akin to a real ECB Press Conference, journalists participate in the Q&A session by asking questions in regards to the policy decisions taken by the ECB, while the ECB representatives explain and communicate these decisions in line with the position of the ECB and the information the Governing Council has decided to convey to financial markets and the broader public.
In the Summer Semester 2024 we will covered in real-time and discuss the Governing Council Meetings in April and in June (See ECB Website).
Furthermore, for the group presentations, the following articles and speeches should be covered by the groups:
Group 1 The Covid Crisis and “Freezing the Economy” – Supply and Demand Shocks - 2 May 2024
Baldwin: How we should think about containing COVID19 economic crisis (2 people)
https://voxeu.org/article/how-should-we-think-about-containing-covid-19-economic-crisis
Flattening the Pandemic and Recessionary Curve (2 people)
https://econfip.org/policy-brief/flattening-the-pandemic-and-recession-curves/
Coronavirus and macroeconomic policy (2 people)
https://voxeu.org/article/coronavirus-and-macroeconomic-policy
In addition, the homework task for your group is the following (1 person):
1. Prepare in addition to your presentation, a couple of slides (4-5 slides) that will compare the forecasts by different institutions about GDP growth this year and next year (and or/this quarter) for a number of countries (2-4 countries, e.g. US, UK, Germany, France etc...). This means, explore and find different forecasts that have been published in the recent month. Find forecasts published by different institutions (e.g. IMF, national central banks, national research institutes in the countries in questions); create some graphs comparing these results (could be bar charts, could be other charts); explain the differences (you do not need to read the whole analysis and explanation published by the institutions such as the IMF - just have some bullet points explaining to us what each institutions was thinking would happen when creating their forecasts).
Group 2 Fiscal Policy – Austerity and Government Spending Multipliers - 16 May 2024
Please cover:
Multiplier Debate - Fiscal Consolidation - At What Speed - Blanchard and Leigh (3 people)
https://voxeu.org/article/fiscal-consolidation-what-speed
Austerity and fiscal adjustments - Alberto Alessina (2 people)
https://voxeu.org/article/fiscal-adjustments-and-recession
https://voxeu.org/article/cut-deficits-cutting-spending
The New View on Fiscal Policy – by Jason Furman (3 people)
https://voxeu.org/article/new-view-fiscal-policy-and-its-application (this is a summary, please also read the whole article for clarification and details:
Please, make sure you explain well the concept of Ricardian equivalence in your presentation. It will be important for the exam.
In addition, the homework task for your group is the following (1 person presents the results):
1. I want for you to make your own first survey and report the results. It will not be representative as you would only ask your fellow students, so you will have a sample of around 20 people, but it is still something. I would like you to ask your colleagues the following question:
Ask you classmates (send them emails and ask them to answer the following question):
If tomorrow by surprise you are given 500 (five hundred) extra dollars (maybe you win the lottery or your university transfers you a one-off extra payment or some other random event that leads to this happens), how much of it would you spend in the next year? You can respond with just a number (either in dollar terms or %) or also with a longer reply if you know exactly what you will do with the money.
You would report first the average value you have obtained; you will search on the Internet for a paper which reports self-reported MPCs (marginal propensities to consume) and will compare its average results with the ones you obtain. Then you will report a bar chart with all answers. Finally, you can think about actually amending the question a bit (adding a second question) and sending it expressed in one way to half of the class and in another way to the rest of the class, to see whether this affects the outcomes they give you. You need to think about this latest part on your own first before asking me what I mean by it.
Group 3 Fiscal and Monetary Developments in the global economy - 23 May 2024
IMF Fiscal Monitor 2024: Coming out 17 April 2024 (3 people, and we should discuss which parts exactly you present, as it is very long)
https://www.imf.org/en/Publications/FM/Issues/2024/04/17/fiscal-monitor-april-2024
Money and inflation - Thünen Lecture by Isabel Schnabel, Member of the Executive Board of the ECB, at the annual conference of the Verein für Socialpolitik (3 people)
https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230925_1~7ad8ef22e2.en.html
In addition, the homework task for your group is the following:
1. Prepare in addition to your presentation, a couple of slides (4-5 slides) that will talk about the recent wave of the ECB Survey of Professional Forecasters. You can find it on the ECB website. In two or three slides you will tell us what is the ECB Survey of Professional Forecasters and in another two or three slides you will present 2 or 3 interesting graphs from the recent survey, with a special focus on inflation, GDP and unemployment expectations. Everything you need is on the ECB website.
Group 4 Monetary Policy, “Whatever It Takes” and QE - 06 June 2024
Introduction to what the ECB has done in 2012 (1 person)
Monetary Policy since the crisis: Speech by Peter Praet (3 people)
https://www.ecb.europa.eu/press/key/date/2017/html/sp170316.en.html
The monetary policy response to the pandemic emergency (2 people)
https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200501~a2d8f514a0.en.html
In addition, the homework task for your group is the following (1 person):
1. Prepare in addition to your presentation, a couple of slides (4-5 slides) that will talk about the recent wave of the ECB Bank Lending Survey. You can find it on the ECB website. In two or three slides you will tell us what is the ECB Bank Lending Survey and in another two or three slides you will present 2 or 3 interesting graphs from the recent survey. The survey report is long - but we just need a summary of the two or three most important graphs, which you will find on the ECB website. Everything you need is on the ECB website.
Group 5 Fiscal and Monetary Policy Policy at the Euro Area Level - 13 June 2024
As usual, please have in mind that you can split the material in other proportions regarding your own preference.
Completing the Odyssean journey of the European monetary union - Vitor Constancio (3 people)
https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180517.en.html
Past and future of the ECB monetary policy - Vitor Constancio (3 people)
https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180504.en.html
Phillip Lane - Underlying Inflation (2 people)
https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230306~57f17143da.en.html
In addition, the homework task for your group is the following (1 person):
1. Prepare in addition to your presentation, a couple of slides (4-5 slides) that will talk and summarize the recent World Economic Outlook Macroeconomic Forecasts by the IMF. You can find it on the IMF website (in October a new one has been published already).
In two or three slides you will tell us what is the main message and in another two or three slides you will present 2 or 3 interesting graphs from the chapter. The chapter may seem long, but you should not think about this as presenting the whole chapter - you should skim the text and then choose the most interesting/important graphs and key messages. Choosing and explaining why this information is important is central part of this assignment.