Advanced Macroeconomics Topics Monetary Economics II. Fall, 2017

Transcription

1 INSTRUCTOR Advanced Macroeconomics Topics Monetary Economics II Dr. Calvin Dun JIA Department of Economics Hanqing Institute of Economics and Finance Renmin University of China LECTURES Fall, 2017 Thursdays 6:00 PM - 8:30 PM, Ming De Main Building (MDMB) Room 0307 COURSE WEBSITE OFFICE HOURS Thursdays 2:00 PM - 5:00 PM in my office MDMB Room 512A or by appointment via COURSE DESCRIPTION This course is the second of the two-semester sequence in Advanced Macroeconomics Topics, intended for second-year and above Ph.D./M.Phil. students. This course is to equip the students with the tool-kit for doing research in the areas of frontier Macroeconomics. We start with discussions of the commonly used numerical methods, and then will move to the advanced topics including the New Keynesian monetary economics, macro models with financial frictions, heterogeneous agent models, models of imperfect information, asset-pricing based on structural macro models, and the business cycle models of uncertainty shocks. PREREQUISITE Students are required to have taken the first-year Ph.D. theory courses in Microeconomics and Macroeconomics. Math courses of advanced calculus, matrix algebra, difference/differential equations, and nonlinear dynamics are recommended. 1

2 TEXTBOOK AND READINGS This course will be based on a variety of sources, but will also draw on materials from the following textbooks: Judd, K. L. (1998). Numerical Methods in Economics. The MIT Press [Judd] Adda, J. and Cooper, R. W. (2003). Dynamic Economics: Quantitative Methods and Applications. The MIT Press [AddaCooper] Galí, J. (2008). In Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press [Gali] Woodford, M. (2003). Interest and prices : foundations of a theory of monetary policy. Princeton University Press Princeton, N.J. : Woodstock [Woodford] Walsh, C. E.(2010). Monetary Theory and Policy, Third Edition. The MIT Press[Walsh] Veldkamp, L. L. (2011). Information Choice in Macroeconomics and Finance. Princeton University Press [Veldkamp] Lars Ljungqvist and Thomas J. Sargent (2012). Recursive Macroeconomic Theory, Third Edition, MIT Press. [LS] GRADING 20% EIGHT paper comments (2 pages) on eight papers from the reading list. Please make sure that except the first section that covers the numerical methods, you provide at least one paper comment for each section of the reading list. The candidates for written comments are the papers marked with a #. Comments are due at the beginning of class following the week in which the corresponding section of the reading list has been fully covered in class. I will grade these comments with 0 (minimal or no effort), 1 (summary), or 2 (critical summary). 10% Referee Report (4-5 pages) on one of the macroeconomics papers presented in our lunch-time seminar. The report is due at the beginning of class following the seminar. 35% Referee Report & Presentation (6-8 pages of report + presentation slides) Select one of the papers marked with a $ in the reading list and notify me of your choice by November 30th (one student per paper, first come, first served). Write a detailed referee report, present your findings (15 minutes), and submit your slides. The scheduling of the presentations will be discussed in class. The referee report is due at the beginning of class after your presentation. 2

3 35% Paper Replication Project. Replicate the key results of a selected paper along with a writing summary. Notify me of your choice before November 30th. Your overall course grade will be a weighted average of scores of all the categories above. If at any point during the semester, you face circumstances which prevent you from attending the lecture, handing in the assignment on time, and/or participating in exams, please contact me as early as possible to manage the situation. There is little that can be done after an unsatisfactory grade has been assigned. ASSIGNMENTS The assignments including the paper comments, the referee reports, and the presentation slides are due at the beginning of the lecture which is one week following the completion of a section in class, a lunch seminar, and your presentation respectively. Please kindly put the printed hard-copy assignments on my teaching desk before class. PAPER REPLICATION PROJECT For the replication report, you will be given ample time to complete the project. Please send me an with a script of codes and the final report in PDF. ACADEMIC INTEGRITY As a student, you are responsible for upholding the academic integrity with full commitment toalltheethics, codes, andstandardsoftherenminuniversity ofchina. Itisveryimportant for you to be aware of the consequences of cheating, fabrication, facilitation, and plagiarism. COURSE EVALUATION At the end of the semester, please let me know what you think about this class and what can be improved by taking advantage of the university s on-line course evaluation system. I really appreciate your feedback. Incorporating your suggestions will greatly help me in updating the course for future generations of students. ADDITIONAL HANDOUTS Lecture Schedule and Reading List (Disclaimer: the course plan is subject to due changes throughout the semester) 3

4 READING LIST Disclaimer: We will primarily cover the core readings from this list but you are encouraged to keep on reading per your interest in any of the following sections. : indicates the core and required reading $: indicates the candidates for the paper replication project #: indicates the candidates for both the referee report for the class presentation, and paper comments Notes: if a paper has a header of two or three signs altogether, it means it s a paper candidate that serves more than one purposes as marked by the signs. A. Computational Methods Finite Markov Chain Approximation Markov Chain Simulation Numerical Optimization Value Function Iteration AddaCooper - Chapter 3 *Aruoba, S. B., Fernandez-Villaverde, J., and Rubio-Ramirez, J. F. (2006). Comparing solution methods for dynamic equilibrium economies. Journal of Economic Dynamics and Control, 30(12): *Kopecky, K. A. and Suen, R. M. (2010). Finite state markov-chain approximations to highly persistent processes. Review of Economic Dynamics, 13(3): Money, Inflation and New Keysian Models *Walsh - Chapter 1 and 2 *Gali - Chapter 2 and 3 *Woodford - Chapter 3 *Christiano, L. J., Eichenbaum, M., and Evans, C. L. (1999). Monetary policy shocks: What have we learned and to what end? In Taylor, J. B. and Woodford, M., editors, Handbook of Macroeconomics, volume 1 of Handbook of Macroeconomics, chapter 2, pages Elsevier *Romer, C. D. and Romer, D. H. (2004). A New Measure of Monetary Shocks: Deriva- 4

5 tion and Implications. American Economic Review, 94(4): Rudebusch, G. D. (1998). Do Measures of Monetary Policy in a VAR Make Sense? International Economic Review, 39(4): Leeper, E., Sims, C., and Zha, T. (1996). What does monetary policy do? Brookings Papers on Economic Activity, 27(2):1 78 #Kuttner, K. N. (2001). Monetary policy surprises and interest rates: Evidence from the Fed funds futures market. Journal of Monetary Economics, 47(3): #Coibion, O. (2012). Are the effects of monetary policy shocks big or small? American Economic Journal: Macroeconomics, 4(2):1 32 Robert E. Lucas, J. (2000). Inflation and Welfare. Econometrica, 68(2): Galí, J. (2011). The Return Of The Wage Phillips Curve. Journal of the European E- conomic Association, 9(3): Golosov, M. and Lucas, R. (2007). Menu Costs and Phillips Curves. Journal of Political Economy, 115: *Gertler, M. and Leahy, J. (2008). A phillips curve with an ss foundation. Journal of Political Economy, 116(3): *Klenow, P. J. and Malin, B. A. (2010). Microeconomic Evidence on Price-Setting. In Friedman, B. M. and Woodford, M., editors, Handbook of Monetary Economics, volume 3 of Handbook of Monetary Economics, chapter 6, pages Elsevier #Klenow, P. J. and Kryvtsov, O. (2008). State-dependent or time-dependent pricing: Does it matter for recent u.s. inflation?*. The Quarterly Journal of Economics, 123(3): #Nakamura, E. and Steinsson, J. (2010). Monetary non-neutrality in a multisector menu cost model. The Quarterly Journal of Economics, 125(3): #Lucas, R. J. (1976). Econometric policy evaluation: A critique. Carnegie-Rochester Conference Series on Public Policy, 1(1):19 46 #Coibion, O. and Gorodnichenko, Y. (2015b). Is the phillips curve alive and well after all? inflation expectations and the missing disinflation. American Economic Journal: Macroeconomics, 7(1):

6 U.S. Monetary Policy and Policy Practices in China *Woodford - Chapter 4 *Clarida, R., Gal, J., and Gertler, M. (2000). Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory. The Quarterly Journal of Economics, 115(1): Orphanides, A. (2003). Monetary policy evaluation with noisy information. Journal of Monetary Economics, 50(3): Gertler, M., Gali, J., and Clarida, R. (1999). The Science of Monetary Policy: A New Keynesian Perspective. Journal of Economic Literature, 37(4): Bernanke, B. S. and Blinder, A. S. (1988). Credit, Money, and Aggregate Demand. American Economic Review, 78(2): *Bernanke, B. and Gertler, M. (1989). Agency Costs, Net Worth, and Business Fluctuations. American Economic Review, 79(1):14 31 Townsend, R. M. (1979). Optimal contracts and competitive markets with costly state verification. Journal of Economic Theory, 21(2): *Gertler, M. and Karadi, P. (2011). A model of unconventional monetary policy. Journal of Monetary Economics, 58(1):17 34 *Gertler, M. and Kiyotaki, N. (2010). Chapter 11 - financial intermediation and credit policy in business cycle analysis. volume 3 of Handbook of Monetary Economics, pages Elsevier *Swanson, E. T. and Williams, J. C. (2014). Measuring the effect of the zero lower bound on medium- and longer-term interest rates. American Economic Review, 104(10): *Drechsler, I., Savov, A., and Schnabl, P. (2017). The deposits channel of monetary policy. The Quarterly Journal of Economics, 132(4): Fernald, J. G., Spiegel, M. M., and Swanson, E. T. (2014). Monetary policy effectiveness in China: Evidence from a FAVAR model. Journal of International Money and Finance, 49(PA): Chen, K., Ren, J., and Zha, T. (2017). The nexus of monetary policy and shadow banking in china. Working Paper 23377, National Bureau of Economic Research *#Chen, K., Higgins, P., Waggoner, D. F., and Zha, T. (2016). China Pro-Growth Monetary Policy and Its Asymmetric Transmission. NBER Working Papers 22650, National Bureau of Economic Research, Inc 6

7 #McKay, A., Nakamura, E., and Steinsson, J. (2016). The power of forward guidance revisited. American Economic Review, 106(10): #Negro, M. D., Eggertsson, G., Ferrero, A., and Kiyotaki, N. (2017). The Great Escape? A Quantitative Evaluation of the Fed s Liquidity Facilities. American Economic Review, 107(3): #Gertler, M. and Karadi, P. (2015). Monetary policy surprises, credit costs, and economic activity. American Economic Journal: Macroeconomics, 7(1):44 76 Heterogeneous Agent Models *LS Chapters , $*Aiyagari, S. R. (1994). Uninsured Idiosyncratic Risk and Aggregate Saving. The Quarterly Journal of Economics, 109(3): *Huggett, M. (1993). The risk-free rate in heterogeneous-agent incomplete-insurance e- conomies. Journal of Economic Dynamics and Control, 17(5-6): Chatterjee, S. (1994). Transitional dynamics and the distribution of wealth in a neoclassical growth model. Journal of Public Economics, 54(1): *Hopenhayn, H. A. (1992). Entry, Exit, and Firm Dynamics in Long Run Equilibrium. Econometrica, 60(5): Melitz, M. J. (2003). The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica, 71(6): $*Krusell, P., Smith, A. A., and Jr. (1998). Income and Wealth Heterogeneity in the Macroeconomy. Journal of Political Economy, 106(5): #Khan, A. and Thomas, J. K. (2008). Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics. Econometrica, 76(2): #Khan, A. and Thomas, J. K. (2013). Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity. Journal of Political Economy, 121(6): #Kaplan, G., Moll, B., and Violante, G. L. (2016). Monetary Policy According to HANK. NBER Working Papers 21897, National Bureau of Economic Research, Inc #Krueger, D., Mitman, K., and Perri, F. (2016). Macroeconomics and household heterogeneity. Working Paper 22319, National Bureau of Economic Research 7

8 #Ahn, S., Kaplan, G., Moll, B., Winberry, T., and Wolf, C. (2017). When inequality matters for macro and macro matters for inequality. Working Paper 23494, National Bureau of Economic Research Imperfect Information *Veldkamp Chapters 1,2,3 *Mankiw, N. G. and Reis, R. (2002). Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. The Quarterly Journal of Economics, 117(4): *Morris, S. and Shin, H. S. (2002). Social value of public information. American Economic Review, 92(5): *Lorenzoni, G.(2009). A Theory of Demand Shocks. American Economic Review, 99(5): *Sims, C. A. (2010). Rational Inattention and Monetary Economics. In Friedman, B. M. and Woodford, M., editors, Handbook of Monetary Economics, volume 3 of Handbook of Monetary Economics, chapter 4, pages Elsevier *Beaudry, P. and Portier, F. (2006). Stock prices, news, and economic fluctuations. American Economic Review, 96(4): Mackowiak, B. and Wiederholt, M. (2009). Optimal Sticky Prices under Rational Inattention. American Economic Review, 99(3): #Coibion, O. and Gorodnichenko, Y. (2015a). Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts. American Economic Review, 105(8): #Makowiak, B. and Wiederholt, M. (2015). Business cycle dynamics under rational inattention. The Review of Economic Studies, 82(4): #Jaimovich, N. and Rebelo, S. (2009). Can news about the future drive the business cycle? American Economic Review, 99(4): Financial Frictions, Liquidity, and Bubbles *Kiyotaki, N. and Moore, J.(1997). Credit Cycles. Journal of Political Economy, 105(2): *Bernanke, B. and Gertler, M. (1989). Agency Costs, Net Worth, and Business Fluctuations. American Economic Review, 79(1):

9 Bernanke, B. S., Gertler, M., and Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. In Taylor, J. B. and Woodford, M., editors, Handbook of Macroeconomics, volume 1 of Handbook of Macroeconomics, chapter 21, pages Elsevier Greenwald, B. C. and Stiglitz, J. E. (1993). Financial Market Imperfections and Business Cycles. The Quarterly Journal of Economics, 108(1): *Diamond, D. W. and Dybvig, P. H. (1983). Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy, 91(3): *Tirole, J. (1985). Asset Bubbles and Overlapping Generations. Econometrica, 53(6): Holmstrom, B. and Tirole, J. (1997). Financial intermediation, loanable funds, and the real sector. The Quarterly Journal of Economics, 112(3): #Martin, A. and Ventura, J. (2012). Economic Growth with Bubbles. American Economic Review, 102(6): Adrian, T. and Shin, H. S. (2009). Money, Liquidity, and Monetary Policy. American Economic Review, 99(2): #Jimenez, G., Ongena, S., Peydro, J.-L., and Saurina, J. (2012). Credit supply and monetary policy: Identifying the bank balance-sheet channel with loan applications. American Economic Review, 102(5): #Gilchrist, S., Schoenle, R., Sim, J., and Zakrajŝek, E. (2017). Inflation dynamics during the financial crisis. American Economic Review, 107(3): Uncertainty and Business Cycles *Bloom, N. (2009). The Impact of Uncertainty Shocks. Econometrica, 77(3): *Bachmann, R. and Bayer, C. (2014). Investment Dispersion and the Business Cycle. American Economic Review, 104(4): *Bloom, N., Floetotto, M., Jaimovich, N., Saporta-Eksten, I., and Terry, S. J. (2014). Really Uncertain Business Cycles. Working Papers 14-18, Center for Economic Studies, U.S. Census Bureau *Bloom, N.(2014). Fluctuations in Uncertainty. Journal of Economic Perspectives, 28(2):

10 #Baker, S. R., Bloom, N., and Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4): #Jurado, K., Ludvigson, S. C., and Ng, S. (2015). Measuring Uncertainty. American Economic Review, 105(3): #Caldara, D., Fuentes-Albero, C., Gilchrist, S., and Zakrajek, E. (2016). The macroeconomic impact of financial and uncertainty shocks. European Economic Review, 88: SI: The Post-Crisis Slump Leduc, S. and Liu, Z. (2016). Uncertainty shocks are aggregate demand shocks. Journal of Monetary Economics, 82(C):20 35 Bundick, B. and Basu, S. (2017). Uncertainty shocks in a model of effective demand. The Quarterly Journal of Economics, 85(3): Fernández-Villaverde, J., Guerrón-Quintana, P., Rubio-Ramírez, J. F., and Uribe, M. (2011). Risk Matters: The Real Effects of Volatility Shocks. American Economic Review, 101(6): Jia, D. (2016). Disagreement vs. Uncertainty: Investment Dynamics and Business Cycles. Working papers, University of Maryland, Job Market Paper 10