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1 1 sur :30 0 Il existe des informations réservées Empirical Methods in Monetary Economics and Finance (offert en anglais) Winter 2011 : J01 Ravenna,Federico MAINTENANCE: ZoneCours will be out of service Introduction on saturdays from 1 a.m. to 6 a.m. Thank you for your cooperation. The primary objective of the course is to link modelling and empirical issues in modern macroeconomics. In the first part we study recent developments in dynamic stochastic general equilibrium (DSGE) modelling. Given their prominent role in current macro models, particular attention will be devoted to the role of frictions and rigidities. Next, we show how DSGE models can be estimated using state-of-the-art econometric methods. At the end of the course, students should have a clear understanding of the link between macroeconomic models and econometric techniques. The techniques discussed in this course constitute the basis required to carry out empirical research in modern macroeconomics. They are at the core of the toolkit used by macroeconomists in central banks. Contact information Professor : Federico Ravenna Office: Availability: Tuesday 1:00 p.m. - 3:00 p.m. Secretary : Jocelyne Brodeur Office: Learning material Miscellaneous resources Notes for Presentations Presentation 1: Sticky prices vs. Sticky Information, by O. Coibion Bibliography Presentation 2: Monetary Policy Rules, by R. Clarida, J. Gali and M. Gertler (you can skip section 4) The syllabus gives you a list of articles relevant for research in this field. There is no required textbook. Below is a list of books that will be of much help. Carl Walsh's book provides a comprehensive overview of many of the topics covered. Obstfeld and Rogoff's book is a useful reference for how to apply many mathematical result we will use in solving DSGE models. Its Ch. 10 also goes over the open economy models we cover in class. Hamilton's book is a good reference for the mathematical and statistical tools used in the course. Walsh, C., (2003), Monetary Theory and Policy, MIT Press. Obstfeld, M. and Rogoff, K., (1996), Foundations of International Macroeconomics, MIT Press. Woodford, M., (2002), Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton University Press. Hamilton, J., (1994), Time Series Analysis, Princeton University. Gali, Jordi, New Perspectives on Monetary Policy, Inflation, and the Business Cycle, Working Paper 8767, National Bureau of Economic Research, Cambridge, February 2002.

2 2 sur :30 Gali, Jordi and Mark Gertler, "Inflation dynamics: A structural econometric analysis", Journal of Monetary Economics 44 (1999): Gali, Jordi, Mark Gertler, and J. David Lopez-Salido, "Markups, Gaps, and the Welfare Costs of Business Fluctuations", The Review of Economics and Statistics 89(1): 44-59, February Assignments and examinations Evaluation will be based on students presentations of research papers from the literature, and a final exam. We will have lab sessions, where we will go together over problem sets. This should help you familiarize with solving DSGE models, interpreting their results, understanding how to build models to answer economic questions. To benefit fully from the lab sessions, you need to make an effort and try to solve the problem sets before coming to class. You are encouraged to solve problem sets jointly. They are also intended to suggest exercises which will train you to apply macroeconomic tools in the same way as you will be required to do in the exams - and in the future as researchers and professional economists. (%) Lab 1 (%) Lab 2 (%) LAB 1 - Thursday, January 20 LAB 2 - Monday, January 31 Plagiarism Please consult the acts and gestures that are considered plagiarism or another academic violation, along with the applicable procedure and sanctions, which range up to suspension and even expulsion from HEC. Violations are analyzed based on the facts and circumstances, and sanctions are applied accordingly. Learn more about plagiarism List of themes Theme 1 : Money and output: real effects of monetary policy through nominal rigidities Introduction: VAR evidence on the impact of business cycle shocks and monetary policy Walsh, (2003), Ch. 1. Leeper, E. Sims, C.A. and T. Zha, "What Does Monetary Policy Do?" Brookings Papers on Economic Activity (1996:2), pp MONOPOLISTIC COMPETITION AND MARKUP VARIATION IN MODELS WITH PREDETERMINED PRICES Rotemberg, J. and Woodford, M., "The Cyclical Behavior of Prices and Costs", in J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, vol. 1B, Walsh, (2003), Ch. 5.3 Obstfeld and Rogoff, (1996), Ch NOMINAL PRICE RIGIDITIES: MODELS WITH QUADRATIC COST OF PRICE ADJUSTMENT Rotemberg, J. (1996). "Prices, output, and hours: An empirical analysis based on a sticky price model". Journal of Monetary Economics, 37 (3), NOMINAL PRICE RIGIDITIES: MODELS WITH STAGGERED PRICE ADJUSTMENT Walsh, (2003), Ch. 5.5, Ch 6 Taylor, J., (1998), "Staggered price and wage setting in Macroeconomics", NBER wp 6754 Woodford, (2002), Ch. 3. Calvo, G.A. (1983). "Staggered Prices in a Utility-Maximizing Framework". Journal of Monetary Economics, 12 (3), September, Goodfriend, M. and R.G. King (1997). "The New Neoclassical Synthesis and the Role of Monetary Policy". In NBER Macroeconomics Annual 1997 by B.S. Bernanke and J.J. Rotemberg (eds.), Cambridge, MA: MIT Press. King, R.G. and A.L. Wolman (1996). "Inflation Targeting in a St. Louis Model of the 21st Century". National Bureau of Economic Research Working Paper no. 5507, March.

3 3 sur :30 Yun, T. (1996). "Nominal Price Rigidity, Money Supply Endogeneity, and Business Cycles". Journal of Monetary Economics, 37 (2), Galí, J., "New Perspectives on Monetary Policy, Inflation, and the Business Cycle," NBER Working Paper No. 8767, Feb STEADY STATE PRICE DISTRIBUTION AND INFLATION DYNAMICS UNDER ALTERNATIVE MODELING ASSUMPTIONS: CONFRONTING THE DATA Wolman, A., (1999), "Sticky prices, marginal cost and the behaviour of inflation", Federal Reserve Bank of Richmond Economic Quarterly 85/4. Theme 2 : Microeconomic evidence on nominal rigidities Hobijn, B., F. Ravenna, and A. Tambalotti, "Menu costs at work: Restaurant prices and introduction of the euro," Quarterly Journal of Economics, Nakamura, E. and J. Steinsson, "Five Facts About Prices: A Reevaluation of Menu Cost Models," Quarterly Journal of Economics, Bils, Mark and Peter J. Klenow, "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy 112(5), 2004, Angeloni, Ignazio, Luc Aucremanne, Michael Ehrmann, Jordi Galí, Andrew Levin, Frank Smets, "New Evidence on Inflation Persistence and Price Stickiness in the Euro Area: Implications for Macro Modelling," Journal of the European Economic Association, 4 (2-3), , Theme 3 : New Keynesian models of the monetary transmission: empirical applications 1. WHAT DRIVES INFLATION. THEORETICAL AND EMPIRICAL CONCEPTS OF THE OUTPUT GAP Galí, Jordi and Mark Gertler, "Inflation Dynamics: A Structural Econometric Investigation," Journal of Monetary Economics, 1999, 44, Sbordone, A. M., "Prices and Unit Labor Costs: A New Test of Price Stickiness," Journal of Monetary Economics, 49(2), Mar. 2002, Walsh, C. E., "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," 2003, American Economic Review. Rotemberg, J. and Woodford, M., (1998), 'An optimization-based econometric framework for the evaluation of monetary policy', in B. Bernanke and J. Rotemberg, eds., NBER Macroeconomics Annual 1997, MIT Press. Woodford, M., (2002), Ch.3 2. STRUCTURAL ESTIMATION OF THE NEW KEYNESIAN PHILLIPS CURVE WITH GMM Galí, Jordi, Mark Gertler, and J. David López-Salido, "European Inflation Dynamics," European Economic Review, 45, 2001, TAYLOR RULE ESTIMATION WITH GMM. INSTRUMENT RULES AND OPTIMAL POLICY Walsh, (2003), Ch. 10. Haldane, A. and Batini, N., (1998), 'Forward-looking rules for monetary policy', NBER WP Taylor, J.B. (1993). "Discretion versus Policy Rules in Practice". Carnegie-Rochester Conference Series on Public Policy, 39, (1999), Monetary Policy Rules, NBER. Woodford, M., (2002), Ch.4 Clarida, R., Gali, J. and Gertler, Mark, (2000), 'Monetary policy rules and macroeconomic stability: evidence and some theory', Quarterly Journal of Economics 115: Svensson, L., (1997), "Inflation forecast targeting: implementing and monitoring inflation targets, European Economic Review 41: p Kuttner, K. and Posen, A., (1999), "Does talk matter after all? Inflation targeting and central bank behaviour", FRBNY Staff Paper 88. Bernanke, B., Laubach, T., Mishkin, F. and Posen, A., (1999), Inflation Targeting: Lessons from the International Experience, Princeton: Princeton University Press. 4. STICKY PRICES VS. STICKY INFORMATION: EMPIRICS Coibion, Olivier, Testing the Sticky Information Phillips Curve forthcoming in The Review of Economics and Statistics. Trabandt, M., Sticky information vs. Sticky prices: a horse-race in a DSGE framework, Kiel Working Paper 1369, 2007.

4 4 sur :30 Klenow, P. and Willis, J., Sticky information and Sticky Prices, Journal of Monetary Economics 54, FINANCIAL FRICTIONS: STRUCTURAL ESTIMATION OF THE NEW KEYNESIAN PHILLIPS CURVE IN A MODEL OF THE COST CHANNEL Barth, M. J. III and V. A. Ramey, "The Cost Channel of Monetary Transmission," NBER Macroeconomic Annual 2001, Cambridge, MA: MIT Press, Ravenna, F. and Walsh, C., "Optimal Monetary Policy with the Cost Channel", Journal of Monetary Economics 53:2, March 2006 Theme 4 : Reduced form models of the business cycle: Vector Autoregressions 1. STRUCTURAL VAR IDENTIFICATION STRATEGIES Blanchard O.J. and D. Quah, "The Dynamic Effects of Aggregate Demand and Supply Disturbances", American Economic Review 79, pp Uhlig, Harald "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," manuscript, CentER, Tilburg University. 2. EVIDENCE FROM US DATA. THE LIQUIDITY EFFECT. THE PRICE PUZZLE Christiano, Lawrence J. and Eichenbaum, Martin, "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, 82 (2), 1992, Bernanke, B. and I. Mihov, "Measuring Monetary Policy," Quarterly Journal of Economics Vol. 113, No. 3. (August 1998): Christiano, L.J., Eichenbaum M. and C.L. Evans, "Monetary Policy Shocks: What Have We Learned and to What End?" in John Taylor and Michael Woodford, eds. Handbook of Macroeconomics Elsevier Science Ltd, Christiano, L.J., Eichenbaum M. and C.L. Evans, "Identification and the Effects of Monetary Policy Shocks," in M.I. Blejer, Z. Eckstein, Z. Hercowitz and L. Leiderman, eds., Financial Factors in Economic Stabilization and Growth (Cambridge University Press: Cambridge, U.K. 1996), pp Strongin, S., "The Identification of Monetary Policy Disturbances: Explaining the Liquidity Puzzle," Journal of Monetary Economics, vol. 35, no. 3 (August 1995), pp Bernanke, B., Gertler M., and M. Watson, "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, (1997:1), pp (including discussion). Boivin, J. and Giannoni, M., (2006), 'Has Monetary Policy Become More Effective?', Review of Economics and Statistics 88(3): Ahmed, S., Levin, A. and Wilson, A., (2004), 'Recent US Macroeconomic Stability: Good Policies, Good Practices or Good Luck?', Review of Economics and Statistics 86(3): Theme 5 : DSGE models - design, estimation and use in policy analysis 1. VAR AS REDUCED FORM OF DSGE MODELS Ravenna, F., "Vector Autoregressions and Reduced Form Representation of Dynamic Stochastic General Equilibrium Models", Journal of Monetary Economics 54:7, October 2007 Fernandez-Villaverde J., J. F. Rubio-Ramirez, and T. J. Sargent and M. Watson "A, B, C's and (D)'s For Understanding VARS" (with), American Economic Review, Vol. 97, No. 3, pp Gali, Jordi and Pau Rabanal (2004), "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data?" Chari, V.V., Patrick Kehoe and Ellen McGrattan, 2005, "A Critique of Structural VARs Using Real Business Cycle Theory," Federal Reserve Bank of Minneapolis Working Paper 631, February. Chari, V., Kehoe, P. and McGrattan, E., (2007), 'Business Cycle Accounting', Econometrica, 75:3. 2. KALMAN FILTERING AND ML ESTIMATION OF DSGE MODELS Kim, J., (2000), "Constructing and estimating a realistic optimizing model of monetary policy", Journal of monetary economics 45: p Ireland, P., (2000), "Sticky price models of the business cycle: specification and stability", NBER wp Ireland, P., (2004), 'A method for taking models to the data', Journal of Economic Dynamics and Control 28: AN ESTIMATED MODEL OF A SMALL OPEN ECONOMY: THE CANADIAN CASE Mendoza, E., (1991), 'Real business cycle in small open economy', American Economic Review 81(4):

5 5 sur :30 Obstfeld and Rogoff, (1996), Ch. 10. Walsh, (1999), Ch. 6. Kollmann, R., (1996), 'The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation', University College London Discussion Paper 96/27. Monacelli, T., (2001), "Into the Mussa puzzle: monetary policy rules and the real exchange rate in a small open economy", mimeo, Boston College. Monacelli, T., "Monetary Policy in a Low Pass-Through Environment," Journal of Money, Credit, and Banking, 37(6), Dec. 2005, Ravenna, F., "The Impact of Inflation Targeting: Testing the Good Luck Hypothesis", 2009 Bouakez, H., (2005), 'Nominal rigidity, Desired markup variations and real exchange rate persistence', Journal of International Economics 66: POLICY ANALYSIS IN MEDIUM-SCALE DSGE MODELS Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans, "Nominal Rigidities and the Dynamics Effects of a Shock to Monetary Policy," Journal of Political Economy, 113 (1), 2005, Smets, F. and R. Wouters, "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, 1(5), 2003, Adolfson, Malin, Stefan Laséen, Lesper Lindé, and Mattias Vallani,"Evaluating an Estimated New Keynesian Small Open Economy Model," Riskbank Working paper, Nov Rotemberg, J. J. and M. Woodford, "An Optimizing-Based Econometric Model for the Evaluation of Monetary Policy," NBER Macroeconomic Annual 1997, Cambridge, MA: MIT Press, Adolfson, M., Laseen, S., Linde, J. and Villani, M., (2008), 'Evaluating an Estimated New Keynesian Small Open Economy Model', Journal of Economic Dynamics and Control, 32(8): Del Negro, M., Schorfheide, F., Smets, F. and Wouters, R., (2006), 'On the fit of New Keynesian Models', Journal of Business and Economic Statistics 25: Last updated: :57 Institute of Applied Economics Federico Ravenna HEC Montréal, Tous droits réservés. ZoneCours: v2_2_01_00_yk zonecours@hec.ca