Fiscal and Economic Policy,
Vienna University of Economics and Business (WU Wien)
Spring semester 2019
Lecture 1
Lecture 2
Lecture 3
Group Readings:
Group 1
- Chapter 13: Technological Progress and Growth from Blanchard and Giavazii
- And in addition, 3-4 people present the work by Acemoglu and Robinson on Institutions and Growth – we want to get an idea about what their book Why Nations Fail? is about:
It is summarized here (Pages 1 – 25): https://siteresources.worldbank.org/EXTPREMNET/Resources/489960-1338997241035/Growth_Commission_Working_Paper_10_Role_Institutions_Growth_Development.pdf
And here: http://www.dklevine.com/general/aandrreview.pdf
Here is a very short introduction to the topic to get yourself informed on what is going on here: https://www.symposium.org/inclusive-institutions-key-economic-growth
Slides by Acemoglu, but they are relatively advanced, so you do not have to use them: https://economics.mit.edu/files/1353
Include, present and interpret some long-term data on GDP, growth and technology - for example, similar to the slides of Jones:
http://www-leland.stanford.edu/~chadj/facts-slidesConference.pdf
Group 2
- Chapter 15: Financial Markets and Expectations from Blanchard and Giavazzi
- Cover the chapter (2-3 people)
- Financial markets – efficient or irrational? Financial Crises and bubbles (3-4 people)
The Schiller versus Fama debate introduction – are markets rational? (1 person)
https://hbr.org/2013/10/what-the-great-fama-shiller-debate-has-taught-us
(Alternative introductions – more advanced: https://voxeu.org/article/fama-hansen-shiller-nobelists-2013)
Eugene Famas Theory – Efficient Market Hypothesis
(Some more info: Eugene Fama on market rationality https://review.chicagobooth.edu/finance/archive/fair-game)
Behavioral finance and irrational behaviour (2 person):
Introduction to Animal Spirits by Schiller - http://assets.press.princeton.edu/chapters/i9163.pdf
Behavioral finance - https://www.vanguard.co.uk/documents/portal/literature/behavourial-finance-guide.pdf
(Short introduction: Richard Thaler`s work on behavioural finance - https://voxeu.org/article/richard-thaler-nobel-laureate )
Manias, Panics and Crashes – Kinderlberger (1 person)
http://www.princeton.edu/~moll/kindleberger.pdf
Group 3
Please cover the chapter (2 people):
Sections 22-1 and 22-2 look at one line of argument, namely that policy makers may have
good intentions, but they end up doing more harm than good
Section 22-3 looks at another—more cynical—line, that policy makers do what is best for
themselves, which is not necessarily what is best for the country
Additional Readings:
Central Bank Independence (2 people)
Introduction (short summary)
https://www.stlouisfed.org/annual-report/2009/central-bank-independence-and-inflation
Alesina and Summers on Central Bank Independence
http://debis.deu.edu.tr/userweb/yesim.kustepeli/dosyalar/alesinasummers1993.pdf
Is the era of central bank independence drawing to a close?
Speech By Mark Carney on Central Bank Independence
Fiscal Policy, Deficit Bias and Democratic Accountability (2 people)
Introduction:
https://abiadams.com/2011/08/11/deficit-bias-101-why-we-need-to-tie-politicians-hands-loosely/
IMF Paper on Deficit Bias and Democratic Accountability (do not present the mathematical model just the main arguments)
Group 4
Chapter 23: Fiscal Policy A Summing Up
As usual, please have in mind that you can split the material in other proportions regarding your own preference. I have only given you indicative guidance how it seemed to me to be fair, you can decide how many people take each of the materials yourself. Please, make sure you explain well the concept of Ricardian equivalence in your presentation. It will be important for the exam. Regarding the IMF Paper, please concentrate only on the main part, you can ignore the Appendix.
Please cover the chapter (2-3 people):
Section 23-1 takes stock of what we have learned about fiscal policy in this book so far.
Section 23-2 looks more closely at the government budget constraint and examines its
implications for the relation between budget deficits, the interest rate, the growth rate, and
government debt.
Section 23-3 takes up three issues for which the government budget constraint plays a
central role, from the proposition that deficits do not really matter, to how to run fiscal
policy in the cycle, to whether to finance wars through taxes or through debt.
Section 23-4 discusses the dangers associated with high government debt, from higher
taxes, to higher interest rates, to default, and to high inflation.
Additional Readings:
The Austerity debate
John Cochrane view (1 person)
https://johnhcochrane.blogspot.com/2012/10/christina-romer-on-stimulus.html
https://johnhcochrane.blogspot.com/2012/03/austerity-stimulus-or-growth-now.html
Alberto Alessina – expansionary austerity (1 person)
https://voxeu.org/article/cut-deficits-cutting-spending
https://voxeu.org/article/fiscal-adjustments-and-recession
The New View on Fiscal Policy – by Jason Furman (1-2 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:
IMF Paper on the effects of fiscal consolidation (1 - 2 person)
IMF Fall 2010 WEO chapter 3 – Will It Hurt? Will It Hurt? Macroeconomic Effects of Fiscal
Consolidation
Summary
https://voxeu.org/article/fiscal-consolidation-what-speed
Group 5
Chapter 24: Monetary Policy A Summing Up
As usual, please have in mind that you can split the material in other proportions regarding your own preference. I have only given you indicative guidance how it seemed to me to be fair, you can decide how many people take each of the materials yourself.
Please cover the chapter (2 people):
Section 24-1 takes stock of what we have learned.
Section 24-2 reviews the costs and benefits of inflation and draws implications for the
choice of a target inflation rate by central banks.
Section 24-3 describes the inflation-targeting framework.
Section 24-4 describes the challenges raised by the crisis and how they may affect the
design of monetary policy in the future.
Additional Readings:
Introduction to what the ECB has done in 2012 (1-2 people):
Monetary Policy since the crisis:
Speech by Peter Praet (1 - 2 people)
https://www.ecb.europa.eu/press/key/date/2017/html/sp170316.en.html
Defeating the zero lower bound:
Policy Paper by Ben Bernanke – please cover pages 5 till 30 (from Defeating the Zero Lower Bound to Central Bank Independence (do not cover the passage on Central Bank Independence) (this is not a long paper but it has a lot of definitions and technical terms so 2 or better 3 people can cover it if it so too complicated)
Extra readings (not mandatory):
This is additional material that is also a bit technical, but you can use it if you think the above material is not enough for everybody
Vitor Constancio – Past and future of the ECB monetary policy
https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180504.en.html