Macroeconomie Monetara si Financiara

Masterat CEFIN
Trimestrul 1, an universitar 2015-2016

The aim of this class, is to provide an overview of the literature on business cycle fluctuations. We will
cover both theoretical models, as well as empirical evidence related to business cycle fluctuations.For each
topic, the main references are marked with an *. Part of the articles are classical ones for those that want
to go deeper into a certain topic. In some empirical applications you’ll need to use Matlab (a tutorial will
be provided in the Econometrics class).

Instructors: Mihai Copaciu, Ph.D., email: mihai.copaciu@gmail.com, Valeriu Nalban, email: valeriunal-
ban@gmail.com .

Time and Location: TBA

Material: the book used as main reference for most part of this class is:

• Jordi Galı́, Monetary Policy, Inflation and the Business Cycle, Princeton University Press (1st edition),
Princeton, 2008. [JG thereafter]

Certain sections, indicated below, will use material from:

• Romer, David. 2011. Advanced Macroeconomics. Fourth edition. New York: McGraw-Hill. [RD
thereafter]
• Ljungqvist, Lars and Sargent Thomas J. 2004. Recursive Macroeconomic Theory. Second Edition.
MIT Press [LS thereafter]

Grading: There will be assignments every other week (from one seminar to another) and a final exam.
They will count toward the grade as follows: assignments - 30%, final exam - 70%.

Exam: The final exam will last for 3 hours and will be in a day (to be specified later) between January 25
- February 14, 2016.

Topics to be covered (and an approximate schedule):

1. Brief overview (week 1)

• (*) N. Gregory Mankiw, 2006. ”The Macroeconomist as Scientist and Engineer,” NBER Working
Papers 12349, National Bureau of Economic Research, Inc.
• V. V. Chari & Patrick J. Kehoe, 2006. ”Modern macroeconomics in practice: how theory is
shaping policy,” Staff Report 376, Federal Reserve Bank of Minneapolis.
• David Romer, 2000.”Keynesian Macroeconomics without the LM Curve,” NBER Working Papers
7461, National Bureau of Economic Research, Inc.
• Alan S. Blinder, 1997. ”Distinguished Lecture on Economics in Government: What Central
Bankers Could Learn from Academics–And Vice Versa,” Journal of Economic Perspectives, Amer-
ican Economic Association, vol. 11(2), pages 3-19, Spring.
• Marvin Goodfriend, 2007. ”How the World Achieved Consensus on Monetary Policy,” NBER
Working Papers 13580, National Bureau of Economic Research, Inc.
• Lucas, Robert Jr, 1976. ”Econometric policy evaluation: A critique,” Carnegie-Rochester Con-
ference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.

2. Business cycle facts (week 1+seminar 1)

• (*)Finn E. Kydland & Edward C. Prescott, 1990.”Business cycles: real facts and a monetary
myth,” Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
 • (*)Peter Benczur & Attila Ratfai, 2010.”Economic fluctuations in Central and Eastern Europe:
the facts,” Applied Economics, Taylor & Francis Journals, vol. 42(25), pages 3279-3292.
• (*)Stock, James H. & Watson, Mark W., 1999. ”Business cycle fluctuations in us macroeconomic
time series,” Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of
Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64
• Kydland, Finn E & Prescott, Edward C, 1982. ”Time to Build and Aggregate Fluctuations,”
Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
• Susanto Basu & Alan M. Taylor, 1999. ”Business Cycles in International Historical Perspective,”
NBER Working Papers 7090, National Bureau of Economic Research, Inc.
• George T. McCandless, Jr. & Warren E. Weber, 1995. ”Some monetary facts,” Quarterly Review,
Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
• Christina D. Romer, 1999. ”Changes in Business Cycles: Evidence and Explanations,” NBER
Working Papers 6948, National Bureau of Economic Research, Inc.
• Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. ”Monetary policy
shocks: What have we learned and to what end?,” Handbook of Macroeconomics, in: J. B. Taylor
& M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148
• Christina D. Romer & David H. Romer, 1989. ”Does Monetary Policy Matter? A New Test in
the Spirit of Friedman and Schwartz,” NBER Chapters, in: NBER Macroeconomics Annual 1989,
Volume 4 pages 121-184 National Bureau of Economic Research, Inc.
• Robert J. Hodrick & Edward Prescott, 1981. ”Post-War U.S. Business Cycles: An Empirical
Investigation,” Journal of Money, Credit and Banking, Vol. 29, No. 1 (Feb., 1997), pp. 1-16.
• Péter Benczúr & Attila Rátfai, 2014. ”Business Cycles Around the Globe: Some Key Facts,”
Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 50(2), pages 102-109, March.
• Péter Benczúr & Emin Muradov & Attila Rátfai, 2007.”Cyclical Fluctuations in CIS Economies,”
Journal of Business Cycle Measurement and Analysis, OECD Publishing,Centre for International
Research on Economic Tendency Surveys, vol. 2007(1), pages 121-135.

3. Real business cycle (RBC) models (weeks 2-5+seminars 2-3)

• (*)Robert G. King & Sergio T. Rebelo, 2000. ”Resuscitating Real Business Cycles,” RCER
Working Papers 467, University of Rochester - Center for Economic Research (RCER).
• Hansen, Gary D., 1985. ”Indivisible labor and the business cycle,” Journal of Monetary Eco-
nomics, Elsevier, vol. 16(3), pages 309-327, November.
• Baxter, Marianne & King, Robert G, 1993. ”Fiscal Policy in General Equilibrium,” American
Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
• John Fernald, 2012. ”A quarterly, utilization-adjusted series on total factor productivity,”Working
Paper Series 2012-19, Federal Reserve Bank of San Francisco.
• Nir Jaimovich & Sergio Rebelo, 2006. ”Can News About the Future Drive the Business Cycle?,”
NBER Working Papers 12537, National Bureau of Economic Research, Inc.

4. Adding money in the RBC models (weeks 2-5+seminars 2-3)

• (*)JG, chapter 2.
• Cooley, Thomas F & Hansen, Gary D, 1989. ”The Inflation Tax in a Real Business Cycle Model,”
American Economic Review, American Economic Association, vol. 79(4), pages 733-48, Septem-
ber.

5. Lucas Imperfect Information Model (week 6)

• (*)RD, Sub-chapters 6.9-6.10.

• (*)Lucas, Jr., Robert E., 1995. ”Monetary Neutrality,” Nobel Prize in Economics documents
1995-1, Nobel Prize Committee.

2
 • Lucas, Robert Jr., 1972. ”Expectations and the neutrality of money,” Journal of Economic Theory,
Elsevier, vol. 4(2), pages 103-124, April.

6. New Keynesian models (weeks 7-12+seminars 4-7)

Except sub-section (a), the remaining subsections are excellently summarized in the following two
articles:

• Mark Gertler & Jordi Gali & Richard Clarida, 1999. ”The Science of Monetary Policy: A New
Keynesian Perspective,” Journal of Economic Literature, American Economic Association, vol.
37(4), pages 1661-1707, December.
• Jordi Galı́, 2008. ”The new Keynesian approach to monetary policy analysis: Lessons and new
directions,” Economics Working Papers 1075, Department of Economics and Business, Universitat
Pompeu Fabra.

(a) Monopolistic competition; sticky prices; coordination failure

• (*)RD, Sub-chapters 6.5-6.8.
• (*)Álvarez, Luis J. & Dhyne, Emmanuel & Hoeberichts, Marco M. & Kwapil, Claudia & Le
Bihan, Hervé & Lünnemann, Patrick & Martins, Fernando & Sabbatini, Roberto & Stahl,
Harald & Vermeulen, Philip & Vilmu, 2005. ”Sticky prices in the euro area: a summary of
new micro evidence,” Working Paper Series 0563, European Central Bank.
• Ball, Laurence & Mankiw, N. Gregory, 1994. ”A Sticky-Price Manifesto,” NBER Working
Papers 4677, National Bureau of Economic Research, Inc.
• Russell Cooper & John Haltiwanger, 1993. ”Evidence on Macroeconomic Complementari-
ties,” NBER Working Papers 4577, National Bureau of Economic Research, Inc.
(b) The basic New Keynesian model
• (*)JG, chapter 3.
• Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. ”Nominal Rigidities
and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy,
University of Chicago Press, vol. 113(1), pages 1-45, February.
(c) Monetary policy design in models with nominal rigidities
• (*)JG, chapter 4.
(d) Discretion versus commitment in the conduct of monetary policy
• (*)JG, chapter 5.

7. Fiscal Monetary Theories of Inflation (weeks 13-14)

• (*)LS chapter 26 (relevant subsections will be indicated in class)

• (*)Lawrence J. Christiano & Terry J. Fitzgerald, 2000. ”Understanding the fiscal theory of the
price level,” Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-38.
• Leeper, E. (1991). Equilibria under ‘active’ and ‘passive’ monetary policies. Journal of Monetary
Economics 27(1), 129–147.
• Thomas J. Sargent & Neil Wallace, 1981. ”Some unpleasant monetarist arithmetic,” Quarterly
Review, Federal Reserve Bank of Minneapolis, issue Fall.
• Christopher A. Sims. Lindau Nobel Laureate Meetings. Inflation, Fear of Inflation and Public
Debt. Video lecture