Computational Tools and Macroeconomic Applications

By Lawrence J. Christiano and Jesús Fernández-Villaverde

**Overview**

The purpose of this course is to provide an overview of computational
methods for macroeconomics and international finance. The course will emphasize
methods that have proven to be useful in practice. We will show participants
how the methods discussed are implemented in Dynare,
which is free software for solving and simulating equilibrium models in MATLAB.
Dynare software for several economic models will be
distributed and participants will experiment with the code as part of the
lectures. The technical points (e.g., about multiplicity or non-existence of
model solutions) will always be illustrated using examples that are of
fundamental economic interest. Some familiarity with basic macroeconomic models
and with MATLAB will be assumed. A streaming video of the lectures is available
here.

**Handouts for Christiano’s Part of
the Course**

1) Overview of
perturbation and projection methods (see Judd’s text book and
Christiano-Fisher, JEDC, 2000).

(A more
extensive version of these notes appears here.)

2) Solution and analysis
of simple New Keynesian model (Christiano, Trabandt and Walentin chapter in
2011 Handbook of Monetary Economics, Friedman and Woodford).

a) Dynare syntax

b) Applications

i)
Rationale for the Taylor
principle.

ii)
Potential conflict between
working capital channel and Taylor principle.

iii)
Sensitivity of dynamic response
of inflation and output gap to persistence of shock.

iv)
In examples when Taylor rule
moves the interest rate in the right direction, does not move it far enough.

v)
The Taylor rule may push the interest rate in the
wrong direction when there are news shocks.

4) A DSGE Model with
Financial Frictions:
Risk Shocks.

5)
Computing Ramsey Optimal Policy
by Linearization.

**Handouts for Fernández-Villaverde’s
Part of the Course**

6) Why Non-linear/Non-Gaussian
DSGE Models?

9) Filtering and Likelihood
Estimation.

10)
Heterogeneous Agents Models.

11)
Examples: Code Perturbation
and Code Projection.