MACROECONOMICS II

Credit Hours: 3 · Graduate

This course uses and deepens the tools that were introduced in Macroeconomics I and applies them to study other applications to macroeconomic questions. We will study welfare properties of equilibria in dynamic stochastic general equilibrium models and consider questions of optimal policy, both when policymakers have the ability to commit and when they do not. We will introduce the main methods for solving DSGE models numerically, discuss the challenges that arise when government policy is itself endogenously determined, and briefly touch on recent advances. We will then turn our attention to nominal frictions as a possible source of business cycles, introducing the basic New Keynesian model and discussing other ways in which these frictions can be justified. Within this context, we will study the stabilization properties of monetary and fiscal policy, and their interaction.