Tópicos de Macroeconomia (2 º Sem 2017/2018)

1. Dynamic Stochastic General Equilibrium Models: A primer.

1.1. Simple dynamic stochastic general equilibrium models

1.2. Imperfect competition

1.3. The New Keynesian model

2. Dynamic Stochastic General Equilibrium Models: Methods and applications

2.1. DSGE models in practice: using Dynare

2.2. Housing market and collateral constraints

2.3. Unconventional monetary policy

3. Readings in Macroeconomics

3.1. Economic growth and fiscal policy

3.2. Fiscal-monetary policy interactions

3.3. Financial markets and fiscal policy

3.4. Imperfect competition and non-linear dynamics

3.5. DSGE models with heterogeneous agents

3.6. Quantitative easing, housing

Readings

Core readings

• Galí, J. (2015). Monetary Policy, Inflation, and the Business Cycle, 2 ^nd edn. New Jersey: Princeton University Press.
• Heijdra, B. (2017). Foundations of Modern Macroeconomics, 3 ^rd edn. Oxford: Oxford University. Press.
• Ljungqvist, L., Sargent, T. (2004). Recursive Macroeconomic Theory, 2 ^nd edn. Cambridge Mass.: The MIT Press.
• Romer, D. (2011). Advanced Macroeconomics, 4 ^th ed. New York: McGraw-Hill.
• Stokey, N. & Lucas, R. (1989). Recursive Methods in Economic Dynamics. Cambridge Mass.: Harvard University Press.
• Wickens, M. (2008) Macroeconomic Theory: A dynamic general equilibrium approach, Oxford: Princeton University Press.

Additional readings for chapter 1

• Blanchard, O. & Kahn, C. (1980). The Solution of Linear Difference Models under Rational Expectations. Econometrica 48 (5), 1305-1313.
• Clarida, R., Galí, J., & Gertler, M. (1999). The Science of Monetary Policy: A New Keynesian perspective. Journal of Economic Literature 37 (4), 1661-1707.
• Costa, L. (2011). A Few Notes for Chapter III. Mimeo: ISEG, ULisboa.
• Costa, L. (2014). A Few Notes for Chapter IV. Mimeo: ISEG, ULisboa.
• Costa, L. (2007). A Few Notes for Chapter V. Mimeo: ISEG, ULisboa.
• Costa, L. & Dixon, H. (2011). Fiscal Policy under Imperfect Competition with Flexible Prices: An overview and a survey. Economics: The Open-Access, Open-Assessment E-Journal 5 (2011-3), 1-57.
• Goodfriend, M. & King, R. (1997). The New Neo-Classical Synthesis and the Role of Monetary Policy. NBER Macroeconomics Annual, 231-283.
• Rotemberg, J. & Woodford, M. (1999). The Cyclical Behavior of Prices and Costs. In Taylor, J. & Woodford, M. (eds.). Handbook of Macroeconomics Vol. 1B, 1051-1035.

Additional readings for chapter 2

• Bernanke, B., Gertler, M., & Gilchrist, S. (1999). The Financial Accelerator in a Quantitative Business Cycle Framework. In Taylor & J., Woodford, M. (eds.). Handbook of Macroeconomics Vol. 1C, 1341-93.
• King, R. & Rebelo, S. (2000). Resuscitating Real Business Cycles. In Taylor, J. & Woodford, M. (eds.). Handbook of Macroeconomics Vol. 1B, 931-42.
• Kiyotaki, N. & Moore, J. (1997). Credit Cycles. Journal of Political Economy 105 (2), 211-248.
• Merz, M. (1995). Search in the Labor Market and the Real Business Cycle. Journal of Monetary Economics 36 (2), 269-300.
• Pissarides, C. (2000). Equilibrium Unemployment Theory, 2 ^nd edn (Ch. 1-2). Cambridge Mass.: The MIT Press.
• Quadrini, V. (2011). Financial Frictions in Macroeconomic Fluctuations. Economic Quarterly 97 (3), 209-254.
• Shimer, R. (2005). The Cyclical Behavior of Equilibrium Unemployment and Vacancies. American Economic Review 95 (1), 25-49.

Additional readings for chapter 3

• Afonso, A. & St. Aubyn, M. (2009). Macroeconomic Rates of Return of Public and Private Investment: Crowding-in and Crowding-out Effects. Manchester School 77 (S1), 21-39.
• Beaudry, P. & Portier, F. (2006). Stock Prices, News, and Economic Fluctuations. American Economic Review 96 (4), 1293-1307.
• Benhabib, J. & Farmer, R. (1996). Indeterminacy and Sector-Specific Externalities. Journal of Monetary Economics 37 (3), 421-443.
• Bleaney, M., Gemmell, N., & Kneller, R. (2001). Testing the Endogenous Growth Model: Public expenditure, taxation, and growth over the long-run. Canadian Journal of Economics 34 (1), 36-57.
• Brinca, P., Holter, H., Krusell, P., & Malafry, L. (2016). Fiscal Multipliers in the 21st Century. Journal of Monetary Economics 77 (C), 53-79.
• Case, K. & Shiller, R. (2003). Is There a Bubble in the Housing Market? Brookings Papers on Economic Activity 34 (2), 299-362.
• Codogno, L., Favero, C., & Missale, A. (2003). Yield Spreads on EMU Government Bonds. Economic Policy 18 (37), 503-532.
• Galí, J. (1994). Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand.  Journal of Economic Theory 63 (1), 73-96.
• Galí, J., López-Salido, D., & Vallés, J. (2007). Understanding the Effects of Government Spending on Consumption. Journal of the European Economic Association 5 (1), 227-270.
• Greenwald, B. & Stiglitz, J. (1993). Financial Market Imperfections and Business Cycles. Quarterly Journal of Economics 98 (1), 77-114.
• Jaimovich, N. (2007). Firm Dynamics and Markup Variations: Implications for sunspot equilibria and endogenous economic fluctuations. Journal of Economic Theory 137 (1), 300-325.
• Kanik, B. & Xiao, W. (2014). News, Housing Boom-Bust Cycles, and Monetary Policy. International Journal of Central Banking 10 (4), 249-298.
• Kiyotaky, N. & Moore, J. (1997). Credit Cycles. Journal of Political Economy 105 (2), 211-248.
• Krusell, P., & Smith, A. (1998). Income and Wealth Heterogeneity in the Macroeconomy. Journal of Political Economy 106 (5), 867-896.
• Lucas, R., (1978). Asset Prices in an Exchange Economy. Econometrica 46 (6), 1429-1445.
• McCallum, B. (2001). Indeterminacy, Bubbles, and the Fiscal Theory of Price Level Determination. Journal of Monetary Economics 47 (1), 19-30.
• Mehra, E. & Prescott, E. (1985). The Equity Premium: A puzzle. Journal of Monetary Economics 15 (2), 145-162.
• Milani, F. & Treadwell, J. (2012). The effects of monetary policy news and surprises. Journal of Money, Credit and Banking 44 (8), 1667-1692.

Grading

Normal Period

The final mark in this period is the weighted average of the marks obtained in (i) a group project (20%), (ii) the presentation/discussion of articles (30%), and in (ii) the exam (50%).

i) Group project

The project is a computational application based upon the lectures and seminars dedicated to DSGE models.

Groups are composed of 2 or 3 students selected randomly.

ii) Presentation and discussion of articles

Each student is responsible for presenting an article (A) on one of the topics in chapter 3 of the syllabus and for discussing another article (B) on a different topic.

Presentation of article A (20%) will be assessed considering the quality of the overheads, of the presentation, and of the responses to the discussant and other participants in the seminar.

Discussion of article B, and also of the remaining articles (10%), will be assessed considering the quality of the discussion (paper B) and the overall participation in the seminars

ii) Written exam

Individual, written, and unseen 2:15 hour examination papers are composed of 3 questions with identical weights based upon the articles presented in the seminars.

These are open-book exams and all the study materials in paper can be used. Scientific calculators are welcome, but personal computers, tablets, and cellular phones are strictly forbidden.

Appeal Period

The final mark in this period is the one obtained in the written exam. This exam has the same features and rules as the normal period one.

Group project

The group project must have the following features:

1. The group project will consist on a few questions that require knowledge of the issues discussed in the lectures and seminars dedicated to DSGE models. The project will mainly be of a computational nature (not necessarily exclusively).

2. The question for the group project will be made available to the students at the beginning of April. At that time, the deadline for handing the group project in will be communicated. There will be a session dedicated for solving this project on April). The students can use this session to solve the group project but also to clarify doubts they may have regarding the project.

3. Students must deliver a detailed written solution (including dynare codes that allow for the replication of results) of the questions comprising the project exclusively up to the announced deadline. Students should send their group projects to lukosta@iseg.ulisboa.pt . If students hand in the group projects after the deadline, they will have 0 has a group project grade.

Presentation of articles

The presentation of the articles must have the following features:

1. To be based upon the projection of overheads that are known as the presentation file (e.g. PowerPoint, Beamer);

2. To have the maximum duration of 30 minutes;

3. To have the following structure:

• article topic;
• relevant-literature framework;
• the basic research question and the answer to it;
• describing the basic model and its working;
• main results;
• conclusions.

4. The contribution to the strand of literature and recent developments.

Signing up deadline : 18 April 2018. S end e-mail message to aafonso@iseg.ulisboa.pt . The students should coordinate among themselves to choose the papers and the respective discussants.

Deadline for sending the presentation file :  via e-mail to aafonso@iseg.ulisboa.pt  up to the end of the preceding Friday in PDF format. Additionally, the file should be sent to the discussant.

Discussion of articles

The discussion of the articles must have the following features:

1. To be based upon the presentation file produced by the presenter and made available at least 4 days in advance;

2. To have the maximum duration of 15 minutes;

3. To have the following structure:

• brief abstract of the paper contents;
• agreement points with the presenter;
• disagreement points with the presenter;
• the contribution to the strand of literature.

Teaching staff

António Afonso (ISEG; UECE) - aafonso@iseg.ulisboa.pt

Luís F. Costa (ISEG; UECE) - lukosta@iseg.ulisboa.pt

Sandra Gomes (Banco de Portugal) - sgomes@bportugal.pt