ECO529: Fall 2020
Online-Live Course across several Universities
- Syllabus
- Lecture Notes (preliminary and evolving)
Outline
1. Introduction
Real Models with Financial Frictions
2. A Simple Macro-Finance Model with Heterogeneous Agents
Merkel Review Session
3. Endogenous Risk Dynamics
- slides
- sample codes (on GitHub)
- Problem Set #2
- (code templates ZIP)
- (code solution ZIP)
- video1, video2, video3
Merkel Review Session (of Problem Set 2)
4. Jumps and Epstein-Zinn utility function
Merkel Review Session (Problem Set 3)
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 (Money with medium of exchange role)
6. Money versus Debt and "The I Theory of Money"
Merkel Review Session (Money with Banking)
7. Numerical Methods (Yuliy Sannikov)
7.01 Introduction: General Class of Equations
7.02 Example: Valuation Equation and HJB
7.03 Forward and Backward Equations: HJB, KFE
7.04 Finite Difference Schemes: Key Principles
7.05 Finite Difference Operator and sign of Matrix M
7.06 Explicit Scheme
7.07 Implicit Scheme
7.08 Stationary Value Function in a Single Step
7.09 KFE using Matrix M
7.10 General Class of HJB in One Dimension
7.11 Solving HJB
7.12 Non-monotone Schemes (what can go wrong?)
7.13 Valuation Equation in m Dimensions
7.14 Convex Positive Semidefinite Cone
7.15 Some Geometry Details in Two Dimensions
7.16 The Algorithm for the 2nd-order Term in Two Dimensions
7.17 Assembling M and Solving the Valuation Equation
7.18 Solving HJB Equation in m Dimensions
Lecture:
8. Welfare and Optimal Policy
9. International Monetary System
Description
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.