ECON5500: Advanced Monetary Economics

Semester: Winter

Offered: 2024

The purpose of this course is to introduce you to the main tools of analysis of business cycle fluctuations and policies, with a special emphasis on the role of monetary factors and the channels of influence of monetary policy. The course relies on the New Keynesian framework, which is highly influential in today’s analyses of macroeconomic fluctuations in academic circles as well as at central banks and international institutions.

Current syllabus

Class material posted on eClass​

Topics outline:

1. From business-cycle measurement to macroeconomic theory

   1. GDP and its breakdown

   2. Measuring business cycle fluctuations

   3. Business cycle theory

2. Foundations: Aggregate demand

   1. The IS curve

   2. The MP curve

   3. The AD curve

3. Foundations: Aggregate supply

   1. ​Firm behavior

   2. Labor market equilibrium

   3. Natural (i.e., flexible-price) equilibrium

   4. Equilibrium with nominal rigidities

   5. The AS curve

4. Business cycle: AS-AD eq'm and the propagation of shocks

   1. Macroeconomic equilibrium

   2. ​Effect of an aggregate demand shock

   3. Effect of an aggregate supply shock

   4. ​Nominal rigidities and the nature of business-cycle fluctuations

5. ​Business cycle: Unemployment fluctuations

   1. Empirical dynamics of unemployment and worker flows

   2. ​Search and matching

   3. Macroeconomic eq'm with unemploment

6. ​Monetary policy

   1. Monetary policy implementation

   2. ​Taylor rule and Taylor principle

   3. Optimal monetary policy (disinflation, stabilization)

   4. ​Expectations and the credibility and effectiveness of monetary policy

7. ​Fiscal policy (*)

   1. Ricardian equivalence

   2. Fiscal policy in general equilibrium

   3. Government spending multiplier

   4. ​Tax multipliers

8. The liquidity trap

   1. The financial crisis and aggregate demand

   2. ​The zero lower bound (ZLB) on the short-term interest rate

   3. Liquidity trap paradoxes​

9. Unconventional monetary policies

   1. Forward guidance and the deflation bias

   2. Large scale asset purchases (including Quantitative easing)

   3. Iconoclastic monetary policies

10. Fiscal policy and structural reforms in a liquidity trap (*)

    1. General eq'm AS-AD model at the ZLB

    2. Fiscal policy in a liquidity trap

    3. Structural reform in a liquidity trap

​(Note: Chapters marked by * will be covered only if time permits)