2023-2024 / ECON2288-1

Monetary Economics

Duration

30h Th

Number of credits

 Master in economics : general (120 ECTS)5 crédits 

Lecturer

Pierrick Clerc

Language(s) of instruction

English language

Organisation and examination

Teaching in the second semester

Schedule

Schedule online

Units courses prerequisite and corequisite

Prerequisite or corequisite units are presented within each program

Learning unit contents

The course provides students with an introduction to the dynamic stochastic general equilibrium models (DSGE) of the New Keynesian approach. That approach has emerged as the mainstream framework for the analysis of interactions between monetary policy, inflation and the business cycle. The lectures start with a discussion on the emergence of DSGE models, their advantages and shortcomings, and their use in central banks for forecasting and policy simulation. Empirical stylized facts on the effects on monetary policy are illustrated with the help of Vector Autoregressive models (VAR). Next theoretical foundations are set up and a classical monetary model (similar to the RBC model) is sketched. The theoretical and empirical shortcomings of this model provide a motivation for the introduction of New Keynesian features (monopolistic competition and nominal rigidities) and the development of a basic New Keynesian model. Non-neutrality and optimality of monetary policy are discussed inside this framework. Realistic features such as, among others, habits formation, variable utilization rate of capital and investment adjustment costs, are then added to the basic model in order to characterize the Smets \& Wouters (2003, 2007) model. This model constitutes the backbone of DSGE models used at the IMF, the European Central Bank, the Federal Reserve and many central banks including the National Bank of Belgium. Extensions to financial frictions and zero lower bound issues are covered at the end of the course.

Learning outcomes of the learning unit

The objective of the course is to help students in understanding empirical models (VAR) and the intuition of theoretical models (DSGE) used as tools for macroeconomic and monetary policy design. The course equips students with important tools for solving and estimating models, and analysing their output (e.g. Blanchard-Kahn solution method, impulse-responses functions, historical decomposition,...). Furthermore, practical training sessions will familiarize students with the matlab/octave software and the dynare toolbox, widely used in the academic and central banking communities for handling macroeconomic models.

Prerequisite knowledge and skills

Introductory course in macroeconomics. Basic notions in time series econometrics.

Planned learning activities and teaching methods

Lectures, given primarily through slides, will be complemented by practical training sessions. These training sessions aims at guiding students in completing their home assignments. The home assignments have two objectives: providing students with experience on the practical use of models and monitoring the students' progress in the course.

Mode of delivery (face to face, distance learning, hybrid learning)

face-to-face

Recommended or required readings

(Required) The primary reference book for the course is ``Monetary Policy, Inflation, and the Business Cycle" (Princeton, 2nd edition) by Jordi Gali.
(Recommended) It is complemented by two other references, ``Monetary Theory and Policy" by C. Walsh, and ``Interest and Prices: Foundations of a Theory of Monetary Policy" by M. Woodford.

Assignments
Written exam

Work placement(s)

Organisational remarks and main changes to the course

Contacts

Tutor: Thomas Lejeune, Thomas.Lejeune@uliege.be

Association of one or more MOOCs