Please note the prerequisites for this course at the bottom of the course description.
This course focuses on macroeconomic policy, specifically fiscal and monetary policy. The lectures focus on theoretical models in the literature underpinning these policies. A series of guest lectures by practitioners provides hands-on experience and three assignments (a presentation of state of the art literature, a convincing essay and a simulation exercise) and a set of tutorials provides students with a good overview of the skills required of a macroeconomic policy maker.
First, we show how the policy recommendations of the IS-LM-AS-AD model familiar from the bachelor courses change when the economy is having balance sheet problems or is bound by the zero lower bound. After we have firmly established this model, we will explore the limits of this model by discussing debt sustainability issues and monetary policy credibility. After that, we introduce a small behavioural macromodel with heterogeneous expectations and show how the presence of animal spirits, i.e. waves of optimism and pessimism in the economy, change what prudent policies are. Finally, we briefly discuss bubbles, before we turn to the European debt crisis and the currency union in the last lecture.
Learning objectives
At the end of the course the student is able to:
Explain on two levels (in plain English and using a model):
- Effects of a shock on the macroeconomy
- Goals of fiscal and monetary policy and their limitations
- Effects of fiscal and monetary policy and their limitations
- The tension between short-term and long-term policy goals
- The role of expectations and behavioural biases in macroeconomics
- Pros and cons of a monetary union.
Skills:
- Adequately summarise a key macroeconomic paper from the literature, describe its impact on the literature and explain whether and when it holds any relevance.
- Write a policy paper that (1) addresses a policy issue (2) is embedded in the academic and the policy literature (3) clearly advocates a solution to the issue and (4) is to the point (max 1500 words).
- Write a code to generate an impulse response function and interpret it.
Format
The course comes with lectures, tutorials and guest lectures. The lecturer explains concepts and economic models, while tutorials are used to discuss exercises that help in understanding the models and concepts introduced in the lectures. The guest lectures are more practical and are given by experts in the field who are involved in making economic forecasts, evaluating election programs, preparing monetary policy decision, making economic news, etc.
As part of the course the student will write a policy paper, do a simulation exercise and present a paper in pairs of two.
Assessment method
• Final exam: 3/6 of the final grade (individual)
• Policy paper: 1/6 of the final grade (group of 2)
• Simulation exercise: 1/6 of the final grade (individual or group of 2)
• Paper presentation: 1/6 of the final grade (group of 2)
Prerequisites
The course is open to all students enrolled in the master program Economic Policy. For students from other programs, sufficient knowledge of macroeconomics (either a course in Advanced Macroeconomics or Finance) and econometrics (the Master course 'Empirical Economics' or another Advanced Econometrics course) is required.
In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not re-usable meaning that codes from second hand books do not work, as well as access codes from books with a different ISBN number. Separate or spare codes are usually not available.
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