For the wrong reasons. Yes, the model still led them to recommend Fiscal Policy, but with a hefty dollop of misguided faith in Monetary Policy MonPol. MonPol has always been a poor recession fighting tool because it lacks the operational transmission mechanism to strongly influence the economy. To be clear, my view on Monetary Policy is simple — interest rate changes are an extremely imprecise way to manage the economy and the Fed is constrained by specific laws that limit what it can and cannot purchase when it implements QE.
So modern Fed policy is essentially limited to discretionary changes in interest rates and swapping high quality assets with high quality assets via QE. These policies have tangential transmission mechanisms, but are imprecise tools.
- Monetary economics.
- Unconventional Monetary Policy: Between the Past and Future of Monetary Economics!
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This makes Monetary Policy a very limited stimulus tool. On the other hand, Monetary Policy is a very effective austerity tool as high interest rates and negative interest rates can essentially suffocate a banking system when implemented in the proper environment. So, I guess you could say that I view MonPol as a poor recession fighting tool and a more effective inflation fighting tool. It just so happens that the GFC exposed it as the permanent reality. Why does it matter? I can hear some people saying that none of this really matters. Summers and Krugman use predominantly Wicksellian models no, not Keynesian models that are highly sympathetic to using Monetary Policy as the primary tool for enacting change.
This is why, when a recession happens, the most influential policy analysts talk about the Fed first. And it is why, even economists like Krugman were saying that Fed policy can still work 7 years after the GFC. Economists have constructed models that portray the Fed as the first line of defense.
Faculty of Business, Economics and Social Sciences
No, we need to be more emphatic and work from a more operational perspective. What should be done specifically? Please read these articles ahead of time! While I encourage reading more, only the indicated page numbers are required reading and basis of classroom discussions. This is primarily a readings class. Mechanics: Since this is a joint class, we will be understanding than usual about R or PF grades for those of you who want to focus on the material in one or the other half of the course.
Auditors are also welcome, but we would much rather you registered in some way R or PF if you can, so the deans and department chairs know we weren't teaching to an empty room. If you come, though, you are expected to do the readings, participate in class discussion, do the written work, and come every week. Make sure you are getting class emails! There will be a lot of communication via the class email list. Prerequisites: I presume most students have taken the first year Ph. You should have one quarter of Ph. I will distribute occasional problem sets, which will include written response questions to the readings.
However, most of our work will be on reading and understanding ideas rather than on developing further modeling abilities or econometric technique. Bring a name card to every class at least until everyone in the class knows everyone else. If you don't use a name card, don't be disappointed when I don't learn your name. We meet Tuesday and Thursday in Rosenwald Class is canceled for Thursday, April 5. We'll find a time to reschedule. Week 1 notes. Warning: Many typos. This is not required reading, but may be a useful reference.
January These are some slides that I'll cover following "Determinacy and Identification. Problem set 1 Due Tuesday April 10 Problem set 1 answers. Problem set 3 Problem set 3 answers Matlab program. I have local copies of many papers, which should always work. Please report any broken links.
You may find my " Inflation and Debt " in National Affairs also useful. It was designed as a nontechnical version of "Understanding policy," but also explains what I think is wrong with standard views.
The Appendix to understandng policy with budget constraint algebra is a useful reference. Of course I think you should read all my earlier papers on fiscal theory and monetary economics, especially the long term debt paper. But of course you should read all of Tom Sargent and Chris Sims's too and maybe first! I won't make you buy it, or assign pages in one day, but you should own this and read part I if you're gong to do monetary economics.
Week 3 Problems in the New Keynesian model. No, it is not just smoke and mirrors for ISLM.plemulapearir.tk
MIME - Master in International and Monetary Economics
Background: In case you're not aware, I've been part of a bit of a blog war over stimulus. This essay Stimulus RIP is the best summary. If you google Krugman or Delong's blogs with "stimulus" you will find hours of entertainement on the subject. In the sort of "classical" models you have been trained on at Chicago, stimulus really doesn't work. That's becaue you have been taught to analyze taxes and spending in terms of incentives for behavior rather than as flows of money and "spending.
These effects are covered in the "neoclassical" parts of the above papers. Most policy is conducted within "Old-Keynesian models.
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I'll dig up an undergraduate textbook to cover ISLM "models," and we will have covered them a bit in "Determinacy and Identification. You will see that much of my "understanding policy" describes "fiscal stimulus" as inflation. Current and future deficits cause inflation, and if you believe in a Phillips curve, you get some stimulus out of that. But that is usually considered "monetary" policy with fiscal coordination. Finally, the assigned reading.
Recently, New-Keynesian modelers have claimed very strong fiscal stimulus effects, though their models unlike ISLM are coherent economic models, with budget constraints and everything. Let's read one to see if it makes sense, or whether it suffers from the "Determinacy and Identification" problems.
- A Dangerous Love (de Warenne Dynasty).
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- Models of Monetary Economies.
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Valerie Ramey has a nice review of empirical work. You'll learn basically that everyone runs the same regressions and nobody has solved the identification problem. Week 5. Monetary policy yesterday and today; the role of the central bank. Local copy. Central banking really is the last refuge of central planners, which should embolden your search for rules, institutions and mechanisms to do a better job. Blog posts Fed Independence , World's biggest Hedge Fund describe some of my thinking on the question, whither the Fed?
This is the readiung list from the last time I taught the full course. It has a larger focus, trying to cover all of monetary economics in 10 weeks. Cochrane john. I will assign some exercises, primarily reproducing or extending simple pieces of empirical work. Our primary task though will be meeting and discussing articles.
You must read and think about the readings before class, and be ready to discuss the readings in class. I will occasionally ask students to lead discussions on papers or parts of papers. You should be ready to do this. Friedman and the big picture The supposed effects of monetary policy. Questions: What is a shock anyway?
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Why is it important to study policy shocks? Does studying responses to shocks mean we implicitly assume a model in which only unanticipated shocks have effects? How important is orthogonalization to the results? Vars are simple and deceptive! What do the VARs Mean? Responses to monetary policy shocks seem long and drawn out. Do we need models with extensive frictions? No, because the response of policy to polich shocks is also drawn out.
If you allow expected policy to affect output and inflation, you can make sense of drawn out impulse-response functions with a very short structural response, but a long-lasting impulse. None of the above accounts for much of economic fluctuations or inflation. Monetary policy shocks in particular account for very little output fluctuation and zero inflation variation.