Duration
30h Th
Number of credits
Lecturer
Language(s) of instruction
English language
Organisation and examination
Teaching in the first semester, review in January
Schedule
Units courses prerequisite and corequisite
Prerequisite or corequisite units are presented within each program
Learning unit contents
The course gives a broad overview of the links between the macroeconomy and financial markets, with a focus on the role played by monetary policy in creating these links. The course starts by exposing the functioning of modern central banks, also reviewing the basic new Keynesian model (the prevailing framework). The course then tackles two shortcomings of this framework.
First, the course takes an empirical approach to identify monetary policy shocks and to estimate their effects on the macroeconomy, the financial system (stock returns, financial uncertainty) and how the two interact. The focus is set on (structural) vector autoregressive (SVAR) models and the identification methods used in practice to conduct impulse-response analyses. Limitations of these approaches are discussed.
Second the course presents term structure models which relate the short -term rate featured in the basic new Keynesian model to the entire yield curve (that is, medium- and long-term interest rates). Going beyond the expectations hypothesis, the importance of (time-varying) risk premia in financial markets is discussed on the basis of a consumption-based asset pricing model, and af f ine term structure models with no-arbitrage restrictions are taken as reference empirical tool.
Practical implementation of the discussed empirical models (term-structure models and structural vector autoregressive models) are covered in exercise sessions.
Finally, students will present seminal articles from the macro-finance literature (a list of articles will be provided) exploring further the links between the macroeconomy and the financial sphere (including financial stability aspects). The course is also complemented by presentations of guest speakers with recognized expertise in the field of macro-finance.
Learning outcomes of the learning unit
Improve knowledge of mainstream macro models, and their practical implementation through econometric softwares.
At the end of this course, the students are expected to:
- understand the functioning of modern central banks, and their role in the economy and for the financial markets.
- have a theoretical understanding of macro and financial linkages, in particular between monetary policy, financial variables and macroeconomic developments.
- have an understanding of term-structure models, and structural vector autoregressive models, and be able to exploit these models to draw policy-relevant conclusions with respect to the link between monetary policy, the macroeconomy and the financial markets.
- be able to estimate an SVAR model to conduct a structural analysis
- be able to read and understand scientific methodological articles, to implement the proposed methodology.
In addition, the students will develop the following competences:
- use of a foreign language (English, with emphasis on a scientific vocabulary),
- writing of a term paper,
- ability to present oraly scientific concepts,
- ability to work autonomously.
Prerequisite knowledge and skills
Advanced econometrics, introductory courses on macroeconomics and monetary policy
Planned learning activities and teaching methods
This course consists in a combination of lectures on theory and hands-on computer sessions.
Mode of delivery (face to face, distance learning, hybrid learning)
Blended learning
Additional information:
Mostly face-to-face. Some sessions may be held virtually.
Course materials and recommended or required readings
Platform(s) used for course materials:
- LOL@
Further information:
Selected readings (full list will be provided during the course)
- Bernanke, B. (2022), "21st century monetary policy: the Federal Reserve from the Great Inflation to COVID-19," W. W. Norton & Company
- Cochrane, J. H. (2017), "Macro-Finance," Review of Finance, 21(3), 945-985.
- Campbell, J. Y. (2018), "Financial Decisions and Markets: A Course in Asset Pricing," Princeton University Press: chapter 8.3.
- Joslin, S., K. J. Singleton, and H. Zhu (2011), "A New Perspective on Gaussian Dynamic Term Structure Models," The Review of Financial Studies, 24(3), 926-970.
- Nelson, C. R. and A. F. Siegel (1987), "Parsimonious Modeling of Yield Curves," The Journal of Business, 60(4), 473-489.
- Lütkepohl (2017) "A New introduction to multivariate time-series analysis"
Exam(s) in session
Any session
- In-person
oral exam
Written work / report
Out-of-session test(s)
Further information:
Written work / report
Further information:
Assignments only, no exam.
The first part of the final grade comes from a group assignment. The students will present in December a seminal articles on either term structure models (some embedding a semi-structural macroeconomic model), (structural) vector autoregressive models, or the link between monetary policy and financial stability. The presentations has to be done in groups, (the exact number will depend on the number of students). The presentation should last about 20 minutes and is followed by 10 minutes of Q&A (30 minutes in total). Students will receive individual grades, taking into account the difficulty of the material presented and the ability to answer to the questions.
Depending on the number of participants and schedule constraints, the remaining of the grade will come from two assignment aiming at applying in practice the theory seen in class, building upon the exercise sessions.
Exact weights between the two assignments will be detailed at the beginning of the course.
Work placement(s)
Organisational remarks and main changes to the course
Contacts
First part of the course:
Prof. B. De Backer : bruno.debacker@nbb.be
Second part of the course:
Prof. J. Hambuckers: jhambuckers@uliege.be
Teaching assistant:
R. Crucil : romain.crucil@uliege.be