ECO529: Financial and Monetary Economics

Semester: 

Spring

Offered: 

2019
Online-Live Course across 8 Universities

 

 

1. Introduction

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Real Models with Financial Frictions

 

 

2. A Simple Macro-Finance Model in Continuous Time

 

 

 

    Merkel Review Session

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Problem Set #0

Stochastic Calculus Basics

Problem Set #1

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3. Macro-Finance Model with Heterogeneous Agents

 

 

    Merkel Review Session

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Problem Set #2

Differential Equations Basics

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4. A Symmetric International Model with Runs/Sudden Stops           

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Monetary Models with Aggregate and Idiosyncratic Risk

 

 

5. A Simple Money Model

    Optimal Inflation (Target), Fiscal Theory of the Price Level
    and Medium of Exchange

 

    Merkel Review Session

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Problem Set #3

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6. Money versus Debt

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7. The I Theory of Money

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Problem Set #4

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8. Welfare and Optimal Policy                    (Yuliy Sannikov)

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Problem Set #5

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9. Long-run Risk and Shock Elasticities     (Lars Hansen)

    Two-sector Model with Frictions

    Numerical Simulations

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The Great Recession led to a transformational rethinking of Monetary Economics. While prior to the Great Recession the key frictions were price stickiness and wage rigidities, the great recession highlighted the importance of financial frictions. Similarly, financial regulation shifted course. Whereas prior to the crisis the focus was on micro-prudential regulation, measuring the soundness and risks of individual banks in isolation, current thinking stresses the importance of macro-prudential regulation with its focus on spillover risks. Several new systemic risk measures were proposed. The course would also cover interaction between monetary policy and macro-prudential policy as well as spillover analysis and the implications for the international financial architecture from a risk-centric viewpoint. This course would (i) expose students to these new research trends and also (ii) contrasts it with the established New Keynesian framework.

In terms of economic methodology, the course would teach students new advanced tools, including formal modeling, economic dynamical systems in continuous time, strategic interactions, asymmetric information, and modern welfare analysis. The empirical component would range from model estimation, calibration to reduced form analysis. There is strong interest from many Ph.D. students, and expect that advanced undergraduate and possibly for Master students will also take this course.