Advanced Topics in Macroeconomics
By Lawrence J. Christiano
Morning lectures will develop the New
Keynesian model from its foundations. Afternoon sessions will be devoted to computer
exercises designed to illustrate properties of the New Keynesian model and to
gain experience in solving models with Dynare.
Lectures and
Handouts
Introductory remarks.
1)
Linearization as a method for
solving general equilibrium models (handout).
2)
Foundations of the New Keynesian
model (handout#1 and handout#2).
a)
A simple non-monetary model:
efficient allocations and decentralization.
b)
Monetary, sticky price (i.e., New
Keynesian) version of the above model.
i)
(Ramsey) optimal monetary policy
defined and analyzed in the sticky price model.
Result: under Ramsey
optimal monetary policy, allocations in sticky price model (eventually) coincide
with efficient allocations in non-monetary economy.
ii) Analysis of sticky price model when monetary policy is governed by
the Taylor rule.
Afternoon Sessions
Apart from
giving students hands-on experience with the quantitative analysis of models,
the two homework exercises allow us to discuss the following topics:
1)
The
Taylor principle (see section 3.1 of handbook chapter).
a)
The
rationale for the principle in the standard NK model.
b)
Circumstances
when things can go awry with the Taylor principle:
i)
An
important working capital channel.
ii)
News
shocks.
2)
The Taylor rule
versus optimal monetary policy.
a) Display several examples in which the Taylor rule is
not ‘aggressive enough’ in moving the interest rate.
b)
Modifying
the Taylor rule so that the Ramsey-optimal monetary policy is implemented.
Introduction to model solving with Dynare using the real business cycle model.
Assignment #9
We will study
question 2 of this assignment only. This question works with the Clarida-Gali-Gertler model, which is developed in the
handout above, as well as here.
The
text for this assignment, as well as all the necessary software, is included in
this zip file.
Background readings
The main reference for New Keynesian models is my chapter with Trabandt and Walentin, in the 2010 Handbook of Monetary Economics, edited by Friedman and Woodford.