Lecture 1: Traditional Open Macro Models and Monetary Policy
|
|
- Reynard Bruce
- 6 years ago
- Views:
Transcription
1 Lecture 1: Traditional Open Macro Models and Monetary Policy Isabelle Méjean Master Economics and Public Policy, International Macroeconomics October 16 th, 2008
2 Introduction Many important questions in international macroeconomics involve monetary issues The main departure with respect to a closed economy is that several monetary authorities play independently, managing different currencies. Introducing money in a model allows addressing a number of issues: determinants of seignorage, mechanics of exchange-rate systems, long-run effects of money-supply changes on prices and exchange rates
3 Introduction (2) Role of money i) Medium of exchange ii) Store of value iii) Nominal unit of account Nature of money Here, money is meant as currency (abstract from the banking system) Money does not bear interest Simplifying assumption Liquidity premium
4 The Cagan Model
5 Hypotheses Simple empirical model of money and inflation used to study hyperinflations (ie inflation > 50% per month, ex Zimbabwe: % in january 2008) Prices are fully flexible Adjust to clear product, factor and asset markets Long-run analysis Stochastic, discrete-time model Rational expectations
6 Hypotheses (2) Demand for real money balances depends on expected future price-level inflation: m d t p t = ηe t {p t+1 p t } Higher expected inflation lowers the demand for real balances by raising the opportunity cost of holding money Ignore real determinants to focus on hyperinflation period Simplified form of Keynes LM curves: m d t p t = φy t µi t+1, with 1 + i t+1 = (1 + r t+1 ) P t+1 P t Money supply m t exogenously determined
7 Monetary equilibrium In equilibrium: m t = m d t m t p t = ηe t {p t+1 p t } First-order stochastic difference equation explaining price-level dynamics in terms of the money supply
8 Equilibrium price level p t = = p t = η [m t + ηe t {p t+1 }] [ 1 ( ) s t η E t {m s }] 1 + η 1 + η s=t [ 1 ( ) s t η E t {m s }] 1 + η 1 + η s=t no-speculative bubble condition: ( ) T η lim E t {p t+t } = 0 T 1 + η ( ) T η + lim E t {p t+t } t 1 + η The limit is indeed zero unless the absolute value of the log price level grows exponentially at a rate of at least (1 + η)/η
9 Equilibrium price level (2) The price level depends on a weighted average of future expected money supplies, with weights that decline geometrically as the future unfolds Note that: η [ ( ) ] ( ) s t η = η 1 + η 1 η = 1 1+η s=t Money is fully neutral in the absence of nominal rigidities or money illusion
10 Constant money supply m t = m, t Zero expected inflation : E t p t+1 p t = 0, Constant price level: p = m
11 Constant money supply growth m t = m + µt Constant expected inflation : E t p t+1 p t = µ, Constant price level growth: p t = η s=t = m t + µ η(1 + η) 1 + η p t = m t + µη ( ) s t η [m t + µ(s t)] 1 + η
12 Autoregressive money supply m t = ρm t 1 + ε t, 0 ρ 1, E t {ε t+1 } = 0 Price level: p t = m t 1 + η s=t ( ) s t ηρ m t = 1 + η 1 + η ηρ In the limiting case ρ = 1 in which money shocks are expected to be permanent, the solution reduces to p t = m t.
13 Announced rise in money supply m t = m, t < T m t = m, t T Price level: p t = { ( ) T t m + η 1+η ( m m), t < T m, t T The supply shock is integrated in the effective price level as long as it is announced by the government.
14 Announced rise in money supply (2)
15 Seignorage Real revenues a government acquires by using newly issued money to buy goods and nonmoney assets: Seignorage = M t M t 1 P t M t M t 1. M t M t P t If higher money growth raises expected inflation, the demand for real balances may fall, which exerts a negative influence on seignorage revenues Marginal revenue from money growth can be negative Limit to seignorage. Optimal rate of inflation defined by: M Max t M t 1 µ M t ( M s.c. t P t = with. Mt P t E t P t+1 P t µ = Mt Mt 1 M t ) η
16 Optimal Seignorage under Constant Money Growth M t M t 1 = Pt P t 1 = 1 + µ The optimal growth rate of money supply is then: µ = 1 η Inverse function of the semielasticity of real balances with respect to inflation
17 How important is seignorage? Table: Average seignorage revenues in industrialized countries Country % Government spending % GDP Australia Canada France Germany Italy New Zealand Sweden United States Source: Obstfeld & Rogoff from IMF-IFS data
18 Limits Ex 1: The Cagan Model How can we explain periods of hyperinflation, in which governments obviously let money growth exceed the optimal rate? Backward-looking expectations? Credibility issues : On date 0, the government announces that it will stick to the revenue-maximizing rate of money growth If agents believe it, they hold real balances M/P = [(1 + η)/η] η On date 1, the government has an incentive to cheat and choose a higher money growth rate If governments lack credit, agents will anticipate the government s temptation to cheat.
19 Open-economy extension Obstfeld & Rogoff
20 Hypotheses of the model Small open economy Exogenous output Money demand defined by: Flexible prices and PPP: m t p t = ηi t+1 + φy t p t = e t + p t with e t the (log of) nominal exchange rate (home currency per unit of foreign currency) and pt the world foreign-currency price
21 Hypotheses of the model (2) Uncovered interest parity: { } 1 + i t+1 = (1 + it+1)e Et+1 t E t i t+1 = i t+1 + E t e t+1 e t Simple arbitrage argument under perfect foresight and no exchange-rate risk premium Note that the log UIP relation is only an approximation since, by the Jensen s inequality, ln E t {E t+1 } > E t {ln E t+1 }.
22 Exchange-rate dynamics Incorporating the PPP and the IUP conditions into the money demand gives: m t p t e t = ηi t+1 η(e t {e t+1 } e t ) + φy t m t φy t + ηi t+1 p t e t = η(e t {e t+1 } e t ) Solving for e t implies: e t = η s=t ( ) s t η E t {m s φy s + ηi s+1 ps } 1 + η
23 Exchange-rate dynamics (2) Describes the behaviour of nominal exchange rates as a function of expectations of future variables ( asset pricing equations). Nominal exchange-rate depreciation if: the path of the home money supply raises, thus increasing the domestic price level and the exchange rate (through PPP) the real domestic income goes down, thus contracting money demand which exerts a negative pressure on the domestic price level the foreign interest rate increases the foreign price level drops Note that this equation relies on a PPP assumption Long-run Model
24 Autoregressive money growth m t m t 1 = ρ(m t 1 m t 2 ) + ε t where ε iid, E t 1 {ε t } = 0 Expected rate of exchange rate depreciation: E t {e t+1 } e t = η Exchange rate level: s=t ( ) s t η E t {m s+1 m s } 1 + η e t = m t + η ( ) s t η E t {m s+1 m s } 1 + η 1 + η s=t ηρ = m t η ηρ (m t m t 1 ) Impact of an unanticipated shock to m t : direct exchange rate increase ( raises the current nominal money supply) + when ρ > 0, increases expectations of future money growth, thereby pushing the exchange rate even higher.
25 Exchange rate fixing Fixed exchange rate: e t = ē and ηi φy p = 0 Fixed money supply: m t = m = ē Fixed exchange rate: e t = ē and ηi φy p 0 Money supply endogenous, Adjustment to market-driven fluctuations in i Future fixing at some future date T : e t = ē, t T In period T 1: m T 1 φy T 1 + ηi T p T 1 e T 1 = η(e T 1 e T e T 1 ) = 0 i T = i T + E T 1 e T e T 1 = i T i adjusts to satisfy the UIP relation. The monetary equilibrium implies that m also adjusts, whatever the exchange rate level the private sector expects The announcement is not a well-adapted solution for the exchange rate market to converge towards an equilibrium value.
The Cagan Model. Lecture 15 by John Kennes March 25
The Cagan Model Lecture 15 by John Kennes March 25 The Cagan Model Let M denote a country s money supply and P its price level. Higher expected inflation lowers the demand for real balances M/P by raising
More informationNominal Exchange Rates Obstfeld and Rogoff, Chapter 8
Nominal Exchange Rates Obstfeld and Rogoff, Chapter 8 1 Cagan Model of Money Demand 1.1 Money Demand Demand for real money balances ( M P ) depends negatively on expected inflation In logs m d t p t =
More informationNotes on Models of Money and Exchange Rates
Notes on Models of Money and Exchange Rates Alexandros Mandilaras University of Surrey May 20, 2002 Abstract This notes builds on seminal contributions on monetary policy to discuss exchange rate regimes
More information7.1 Assumptions: prices sticky in SR, but flex in MR, endogenous expectations
7 Lecture 7(I): Exchange rate overshooting - Dornbusch model Reference: Krugman-Obstfeld, p. 356-365 7.1 Assumptions: prices sticky in SR, but flex in MR, endogenous expectations Clearly it applies only
More informationLecture 9: Exchange rates
BURNABY SIMON FRASER UNIVERSITY BRITISH COLUMBIA Paul Klein Office: WMC 3635 Phone: (778) 782-9391 Email: paul klein 2@sfu.ca URL: http://paulklein.ca/newsite/teaching/305.php Economics 305 Intermediate
More informationLecture 1 Money. Haakon O.Aa. Solheim. April 1, 2002
Lecture 1 Money Haakon O.Aa. Solheim April 1, 2002 1 Introduction This lecture will discuss the topic of money. Why do we use money? I then present the Cagan model a framework that provides a useful view
More informationLectures on International Money
Lectures on International Money Haakon O. Aa Solheim Norwegian School of Management, 2002 February 28, 2003 There is no sphere of human thought in which it is easier to show superficial cleverness and
More informationMonetary Economics Basic Flexible Price Models
Monetary Economics Basic Flexible Price Models Nicola Viegi July 26, 207 Modelling Money I Cagan Model - The Price of Money I A Modern Classical Model (Without Money) I Money in Utility Function Approach
More informationECON 4325 Monetary Policy and Business Fluctuations
ECON 4325 Monetary Policy and Business Fluctuations Tommy Sveen Norges Bank January 28, 2009 TS (NB) ECON 4325 January 28, 2009 / 35 Introduction A simple model of a classical monetary economy. Perfect
More information14.05 Intermediate Applied Macroeconomics Problem Set 5
14.05 Intermediate Applied Macroeconomics Problem Set 5 Distributed: November 15, 2005 Due: November 22, 2005 TA: Jose Tessada Frantisek Ricka 1. Rational exchange rate expectations and overshooting The
More informationEKONOMI KEUANGAN INTERNASIONAL LANJUTAN
EKONOMI KEUANGAN INTERNASIONAL LANJUTAN CHAPTER 1 MONEY AND CURRENCY Introduction This lecture will discuss the topic of money. Why do we use money? I then present the Cagan model a framework that provides
More informationMacroeconomics 2. Lecture 5 - Money February. Sciences Po
Macroeconomics 2 Lecture 5 - Money Zsófia L. Bárány Sciences Po 2014 February A brief history of money in macro 1. 1. Hume: money has a wealth effect more money increase in aggregate demand Y 2. Friedman
More informationFiscal and Monetary Policies: Background
Fiscal and Monetary Policies: Background Behzad Diba University of Bern April 2012 (Institute) Fiscal and Monetary Policies: Background April 2012 1 / 19 Research Areas Research on fiscal policy typically
More informationOptimal Monetary Policy in the new Keynesian model. The two equations for the AD curve and the Phillips curve are
Economics 05 K. Kletzer Spring 05 Optimal Monetary Policy in the new Keynesian model The two equations for the AD curve and the Phillips curve are y t E t y t+ σ (i t E t π t+ δ)+g t (AD) and π t E t π
More informationDynamic Macroeconomics
Chapter 1 Introduction Dynamic Macroeconomics Prof. George Alogoskoufis Fletcher School, Tufts University and Athens University of Economics and Business 1.1 The Nature and Evolution of Macroeconomics
More informationSatya P. Das NIPFP) Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model 1 / 18
Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model Satya P. Das @ NIPFP Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model 1 / 18 1 CGG (2001) 2 CGG (2002)
More informationTopic 7. Nominal rigidities
14.452. Topic 7. Nominal rigidities Olivier Blanchard April 2007 Nr. 1 1. Motivation, and organization Why introduce nominal rigidities, and what do they imply? In monetary models, the price level (the
More informationNational Income & Business Cycles
National Income & Business Cycles accounting identities for the open economy the small open economy model what makes it small how the trade balance and exchange rate are determined how policies affect
More information1 A tax on capital income in a neoclassical growth model
1 A tax on capital income in a neoclassical growth model We look at a standard neoclassical growth model. The representative consumer maximizes U = β t u(c t ) (1) t=0 where c t is consumption in period
More informationLecture 1b. The open economy. The international flows of capital and goods, balance of payments and exchange rates.
Lecture 1b. The open economy. The international flows of capital and goods, balance of payments and exchange rates. Carlos Llano (P) & Nuria Gallego (TA) References: these slides have been developed based
More informationSentiments and Aggregate Fluctuations
Sentiments and Aggregate Fluctuations Jess Benhabib Pengfei Wang Yi Wen June 15, 2012 Jess Benhabib Pengfei Wang Yi Wen () Sentiments and Aggregate Fluctuations June 15, 2012 1 / 59 Introduction We construct
More informationA simple equilibrium model for commodity markets
A simple equilibrium model for commodity markets Ivar Ekeland, Delphine Lautier, Bertrand Villeneuve Chair Finance and Sustainable Development Fime Lab University Paris-Dauphine Commodity market Commodity
More informationTopic 6. Introducing money
14.452. Topic 6. Introducing money Olivier Blanchard April 2007 Nr. 1 1. Motivation No role for money in the models we have looked at. Implicitly, centralized markets, with an auctioneer: Possibly open
More informationGT CREST-LMA. Pricing-to-Market, Trade Costs, and International Relative Prices
: Pricing-to-Market, Trade Costs, and International Relative Prices (2008, AER) December 5 th, 2008 Empirical motivation US PPI-based RER is highly volatile Under PPP, this should induce a high volatility
More informationAlternative theories of the business cycle
Alternative theories of the business cycle Lecture 14, ECON 4310 Tord Krogh October 19, 2012 Tord Krogh () ECON 4310 October 19, 2012 1 / 44 So far So far: Only looked at one business cycle model (the
More informationClassical monetary economics
Classical monetary economics 1. Quantity theory of money defined 2. The German hyperinflation episode studied by Cagan 3. Lucas s two illustrations: money and inflation, inflation and interest rates 4.
More informationPublic budget accounting and seigniorage. 1. Public budget accounting, inflation and debt. 2. Equilibrium seigniorage
Monetary Economics: Macro Aspects, 2/2 2015 Henrik Jensen Department of Economics University of Copenhagen Public budget accounting and seigniorage 1. Public budget accounting, inflation and debt 2. Equilibrium
More informationIntroducing nominal rigidities. A static model.
Introducing nominal rigidities. A static model. Olivier Blanchard May 25 14.452. Spring 25. Topic 7. 1 Why introduce nominal rigidities, and what do they imply? An informal walk-through. In the model we
More informationMacroeconomics: Principles, Applications, and Tools
Macroeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 16 The Dynamics of Inflation and Unemployment Learning Objectives 16.1 Describe how an economy at full unemployment with inflation
More informationRECURSIVE VALUATION AND SENTIMENTS
1 / 32 RECURSIVE VALUATION AND SENTIMENTS Lars Peter Hansen Bendheim Lectures, Princeton University 2 / 32 RECURSIVE VALUATION AND SENTIMENTS ABSTRACT Expectations and uncertainty about growth rates that
More informationLecture 3, Part 1 (Bubbles, Portfolio Balance Models)
Lecture 3, Part 1 (Bubbles, Portfolio Balance Models) 1. Rational Bubbles in Theory 2. An Early Test for Price Bubbles 3. Meese's Tests Foreign Exchange Bubbles 4. Limitations of Bubble Tests 5. A Simple
More informationAre we there yet? Adjustment paths in response to Tariff shocks: a CGE Analysis.
Are we there yet? Adjustment paths in response to Tariff shocks: a CGE Analysis. This paper takes the mini USAGE model developed by Dixon and Rimmer (2005) and modifies it in order to better mimic the
More informationDMF model and exchange rate overshooting. Lecture 1, MSc Open Economy Macroeconomics, Birmingham, Autumn 2015 Tony Yates
DMF model and exchange rate overshooting Lecture 1, MSc Open Economy Macroeconomics, Birmingham, Autumn 2015 Tony Yates Motivation Dornbusch (1976) writing shortly after demise (1973) of fixed exchange
More informationWHAT DOES THE HOUSE PRICE-TO-
WHAT DOES THE HOUSE PRICE-TO- INCOME RATIO TELL US ABOUT THE HOUSING AFFORDABILITY: A THEORY AND INTERNATIONAL EVIDENCE (THIS VERSION: AUG 2016) Charles Ka Yui LEUNG City University of Hong Kong Edward
More informationLectures 24 & 25: Determination of exchange rates
Lectures 24 & 25: Determination of exchange rates Building blocs - Interest rate parity - Money demand equation - Goods markets Flexible-price version: monetarist/lucas model - derivation - hyperinflation
More informationConsumption and Asset Pricing
Consumption and Asset Pricing Yin-Chi Wang The Chinese University of Hong Kong November, 2012 References: Williamson s lecture notes (2006) ch5 and ch 6 Further references: Stochastic dynamic programming:
More informationThe Basic New Keynesian Model
Jordi Gali Monetary Policy, inflation, and the business cycle Lian Allub 15/12/2009 In The Classical Monetary economy we have perfect competition and fully flexible prices in all markets. Here there is
More information(Incomplete) summary of the course so far
(Incomplete) summary of the course so far Lecture 9a, ECON 4310 Tord Krogh September 16, 2013 Tord Krogh () ECON 4310 September 16, 2013 1 / 31 Main topics This semester we will go through: Ramsey (check)
More informationMacroeconomics and finance
Macroeconomics and finance 1 1. Temporary equilibrium and the price level [Lectures 11 and 12] 2. Overlapping generations and learning [Lectures 13 and 14] 2.1 The overlapping generations model 2.2 Expectations
More informationGovernment debt. Lecture 9, ECON Tord Krogh. September 10, Tord Krogh () ECON 4310 September 10, / 55
Government debt Lecture 9, ECON 4310 Tord Krogh September 10, 2013 Tord Krogh () ECON 4310 September 10, 2013 1 / 55 Today s lecture Topics: Basic concepts Tax smoothing Debt crisis Sovereign risk Tord
More informationMACROECONOMICS. Prelim Exam
MACROECONOMICS Prelim Exam Austin, June 1, 2012 Instructions This is a closed book exam. If you get stuck in one section move to the next one. Do not waste time on sections that you find hard to solve.
More informationSentiments and Aggregate Fluctuations
Sentiments and Aggregate Fluctuations Jess Benhabib Pengfei Wang Yi Wen March 15, 2013 Jess Benhabib Pengfei Wang Yi Wen () Sentiments and Aggregate Fluctuations March 15, 2013 1 / 60 Introduction The
More informationThe Dornbusch overshooting model. The short run and long run together
The Dornbusch overshooting model. The short run and long run together Overview of the Dornbusch model Weaknesses of preceding models: Long run Monetary Model: exchange rate far more volatile than monetary
More informationAdvanced Macro and Money (WS09/10) Problem Set 4
Advanced Macro and Money (WS9/) Problem Set 4 Prof. Dr. Gerhard Illing, Jin Cao January 6, 2. Seigniorage and inflation Seignorage, which is the real revenue the government obtains from printing new currency,
More informationAggregate demand. Short run aggregate demand (AD) function: Monetary rule followed by the government: Short run aggregate supply (AS) function:
Aggregate supply Aggregate demand Policy rule Variables are measured in natural logaritms. Short run aggregate demand (AD) function: Monetary rule followed by the government: Short run aggregate supply
More informationChapter 3: Dynamic Macroeconomic Approaches to the Balance of Payments and the Exchange Rate
Advanced International Macroeconomics and Finance Chapter 3: Dynamic Macroeconomic Approaches to the Balance of Payments and the Exchange Rate Miguel Leon-Ledesma and Alexander Mihailov Plan of talk introduction
More informationExchange Rate Regimes
Exchange Rate Regimes Lecture 2 LIUC 2011 1 How many exchange rate regimes do we have? Hard pegs or no legal tender (23 countries or %12): No separate legal tender (10 countries) The country adopts a foreign
More informationMacroeconomics 2. Lecture 6 - New Keynesian Business Cycles March. Sciences Po
Macroeconomics 2 Lecture 6 - New Keynesian Business Cycles 2. Zsófia L. Bárány Sciences Po 2014 March Main idea: introduce nominal rigidities Why? in classical monetary models the price level ensures money
More informationOpen economy macroeconomics and exchange rates Part II
Understanding the World Economy Master in Economics and Business Open economy macroeconomics and exchange rates Part II Lecture 11 Nicolas Coeurdacier nicolas.coeurdacier@sciencespo.fr Lecture 11 : Open
More information1. The Flexible-Price Monetary Approach Assume uncovered interest rate parity (UIP), which is implied by perfect capital substitutability 1.
Lecture 2 1. The Flexible-Price Monetary Approach (FPMA) 2. Rational Expectations/Present Value Formulation to the FPMA 3. The Sticky-Price Monetary Approach 4. The Dornbusch Model 1. The Flexible-Price
More informationIntroducing money. Olivier Blanchard. April Spring Topic 6.
Introducing money. Olivier Blanchard April 2002 14.452. Spring 2002. Topic 6. 14.452. Spring, 2002 2 No role for money in the models we have looked at. Implicitly, centralized markets, with an auctioneer:
More information1 The empirical relationship and its demise (?)
BURNABY SIMON FRASER UNIVERSITY BRITISH COLUMBIA Paul Klein Office: WMC 3635 Phone: (778) 782-9391 Email: paul klein 2@sfu.ca URL: http://paulklein.ca/newsite/teaching/305.php Economics 305 Intermediate
More informationLimits to Arbitrage. George Pennacchi. Finance 591 Asset Pricing Theory
Limits to Arbitrage George Pennacchi Finance 591 Asset Pricing Theory I.Example: CARA Utility and Normal Asset Returns I Several single-period portfolio choice models assume constant absolute risk-aversion
More informationInternational Finance
International Finance Exchange Rate Economics: Asset Market Approach 1. Introduction During the Bretton Woods period the International Monetary System was organised in such a way that exchange rates were
More informationWhat Are Equilibrium Real Exchange Rates?
1 What Are Equilibrium Real Exchange Rates? This chapter does not provide a definitive or comprehensive definition of FEERs. Many discussions of the concept already exist (e.g., Williamson 1983, 1985,
More informationLastrapes Fall y t = ỹ + a 1 (p t p t ) y t = d 0 + d 1 (m t p t ).
ECON 8040 Final exam Lastrapes Fall 2007 Answer all eight questions on this exam. 1. Write out a static model of the macroeconomy that is capable of predicting that money is non-neutral. Your model should
More informationassumption. Use these two equations and your earlier result to derive an expression for consumption per worker in steady state.
Tutorial sheet 2 for UBC Macroeconomics Martin Ellison, 2018 Exercise on consumption in the Solow growth model The Solow growth model is in steady-state when investment ss YY tt is exactly offset by depreciation
More informationEconomics 826 International Finance. Final Exam: April 2007
Economics 826 International Finance Final Exam: April 2007 Answer 3 questions from Part A and 4 questions from Part B. Part A is worth 60%. Part B is worth 40%. You may write in english or french. You
More informationCarlin & Soskice: Macroeconomics
Carlin & Soskice: Macroeconomics 6 Fiscal Policy Solutions to questions set in the textbook Please email w.carlin@ucl.ac.uk with any comments about the questions and answers. We would also be pleased to
More informationExercises on the New-Keynesian Model
Advanced Macroeconomics II Professor Lorenza Rossi/Jordi Gali T.A. Daniël van Schoot, daniel.vanschoot@upf.edu Exercises on the New-Keynesian Model Schedule: 28th of May (seminar 4): Exercises 1, 2 and
More information1. Money in the utility function (start)
Monetary Policy, 8/2 206 Henrik Jensen Department of Economics University of Copenhagen. Money in the utility function (start) a. The basic money-in-the-utility function model b. Optimal behavior and steady-state
More informationMonetary Policy, Financial Stability and Interest Rate Rules Giorgio Di Giorgio and Zeno Rotondi
Monetary Policy, Financial Stability and Interest Rate Rules Giorgio Di Giorgio and Zeno Rotondi Alessandra Vincenzi VR 097844 Marco Novello VR 362520 The paper is focus on This paper deals with the empirical
More informationChapter 6. The Open Economy
Chapter 6 0 IN THIS CHAPTER, YOU WILL LEARN: accounting identities for the open economy the small open economy model what makes it small how the trade balance and exchange rate are determined how policies
More informationCHAPTER 17 (7e) 1. Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.
Self-practice (Open Economy) Ch 17(7e): Q1, Q2, Q5 Ch 18(7e): Q1, Q2, Q5, Q7, Ch 20(6e): Q1-Q5 CHAPTER 17 (7e) 1. Using the information in this chapter, label each of the following statements true, false,
More informationChapter 12 Keynesian Models and the Phillips Curve
George Alogoskoufis, Dynamic Macroeconomics, 2016 Chapter 12 Keynesian Models and the Phillips Curve As we have already mentioned, following the Great Depression of the 1930s, the analysis of aggregate
More informationMonetary credibility problems. 1. In ation and discretionary monetary policy. 2. Reputational solution to credibility problems
Monetary Economics: Macro Aspects, 2/4 2013 Henrik Jensen Department of Economics University of Copenhagen Monetary credibility problems 1. In ation and discretionary monetary policy 2. Reputational solution
More informationThis paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON
~~EC2065 ZB d0 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZB BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences,
More informationUnemployment Persistence, Inflation and Monetary Policy in A Dynamic Stochastic Model of the Phillips Curve
Unemployment Persistence, Inflation and Monetary Policy in A Dynamic Stochastic Model of the Phillips Curve by George Alogoskoufis* March 2016 Abstract This paper puts forward an alternative new Keynesian
More informationFourth Edition. Olivier Blanchard. Massachusetts Institute of Technology PEARSON. Prentice Hall. Prentice Hall Upper Saddle River, New Jersey 07458
Fourth Edition Olivier Blanchard Massachusetts Institute of Technology PEARSON Prentice Hall Prentice Hall Upper Saddle River, New Jersey 07458 } Chapter 1 A Tour of the World 3 Chapter 2 A Tour of the
More informationIncentives and economic growth
Econ 307 Lecture 8 Incentives and economic growth Up to now we have abstracted away from most of the incentives that agents face in determining economic growth (expect for the determination of technology
More informationGRA 6639 Topics in Macroeconomics
Lecture 9 Spring 2012 An Intertemporal Approach to the Current Account Drago Bergholt (Drago.Bergholt@bi.no) Department of Economics INTRODUCTION Our goals for these two lectures (9 & 11): - Establish
More informationFEEDBACK TUTORIAL LETTER
FEEDBACK TUTORIAL LETTER 2 ND SEMESTER 2018 ASSIGNMENT 1 INTERMEDIATE MACRO ECONOMICS IMA612S 1 Course Name: Course Code: Department: INTERMEDIATE MACROECONOMICS IMA612S ACCOUNTING, ECONOMICS AND FINANCE
More informationDemographic Trends and the Real Interest Rate
Demographic Trends and the Real Interest Rate Noëmie Lisack Rana Sajedi Gregory Thwaites Bank of England November 2017 This does not represent the views of the Bank of England 1 / 43 Disclaimer This does
More informationMacroeconomics. Lecture 4: IS-LM model: A theory of aggregate demand. IES (Summer 2017/2018)
Lecture 4: IS-LM model: A theory of aggregate demand IES (Summer 2017/2018) Section 1 Introduction Why we study business cycles Recall the discussion about economy in the long-run Does it apply to e.g.
More informationSuggested Solutions to Assignment 7 (OPTIONAL)
EC 450 Advanced Macroeconomics Instructor: Sharif F. Khan Department of Economics Wilfrid Laurier University Winter 2008 Suggested Solutions to Assignment 7 (OPTIONAL) Part B Problem Solving Questions
More informationFundamental and Non-Fundamental Explanations for House Price Fluctuations
Fundamental and Non-Fundamental Explanations for House Price Fluctuations Christian Hott Economic Advice 1 Unexplained Real Estate Crises Several countries were affected by a real estate crisis in recent
More informationEC 205 Lecture 20 04/05/15
EC 205 Lecture 20 04/05/15 Remaining material till the end of the semester: Finish Chp 14 (1 subsection left) Open economy version of IS-LM (Chp 6.1&6.3+13) Chp 16 OR Dynamic macro models (As time permits)
More information1 Optimal Taxation of Labor Income
1 Optimal Taxation of Labor Income Until now, we have assumed that government policy is exogenously given, so the government had a very passive role. Its only concern was balancing the intertemporal budget.
More informationMoney Demand. ECON 40364: Monetary Theory & Policy. Eric Sims. Fall University of Notre Dame
Money Demand ECON 40364: Monetary Theory & Policy Eric Sims University of Notre Dame Fall 2017 1 / 37 Readings Mishkin Ch. 19 2 / 37 Classical Monetary Theory We have now defined what money is and how
More information0. Finish the Auberbach/Obsfeld model (last lecture s slides, 13 March, pp. 13 )
Monetary Policy, 16/3 2017 Henrik Jensen Department of Economics University of Copenhagen 0. Finish the Auberbach/Obsfeld model (last lecture s slides, 13 March, pp. 13 ) 1. Money in the short run: Incomplete
More informationChapter 9, section 3 from the 3rd edition: Policy Coordination
Chapter 9, section 3 from the 3rd edition: Policy Coordination Carl E. Walsh March 8, 017 Contents 1 Policy Coordination 1 1.1 The Basic Model..................................... 1. Equilibrium with Coordination.............................
More informationIdiosyncratic risk, insurance, and aggregate consumption dynamics: a likelihood perspective
Idiosyncratic risk, insurance, and aggregate consumption dynamics: a likelihood perspective Alisdair McKay Boston University June 2013 Microeconomic evidence on insurance - Consumption responds to idiosyncratic
More informationOptimal Width of the Implicit Exchange Rate Band, and the Central Bank s Credibility Naci Canpolat
Optimal Width of the Implicit Exchange Rate Band, and the Central Bank s Credibility Naci Canpolat Hacettepe University Faculty of Economic and Administrative Sciences, Department of Economics ABSTRACT
More informationIs there a significant connection between commodity prices and exchange rates?
Is there a significant connection between commodity prices and exchange rates? Preliminary Thesis Report Study programme: MSc in Business w/ Major in Finance Supervisor: Håkon Tretvoll Table of content
More informationPart A: Answer Question A1 (required) and Question A2 or A3 (choice).
Ph.D. Core Exam -- Macroeconomics 13 August 2018 -- 8:00 am to 3:00 pm Part A: Answer Question A1 (required) and Question A2 or A3 (choice). A1 (required): Short-Run Stabilization Policy and Economic Shocks
More information1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the
1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the money supply constant. Figure 1 (B) shows what the model looks like if the Fed adjusts the money supply to hold
More informationMidterm - Economics 160B, Fall 2011 Version A
Name Student ID Section (or TA) Midterm - Economics 160B, Fall 2011 Version A You will have 75 minutes to complete this exam. There are 5 pages and 108 points total. Good luck. Multiple choice: Mark best
More informationMacroeconomics. Basic New Keynesian Model. Nicola Viegi. April 29, 2014
Macroeconomics Basic New Keynesian Model Nicola Viegi April 29, 2014 The Problem I Short run E ects of Monetary Policy Shocks I I I persistent e ects on real variables slow adjustment of aggregate price
More information14.02 Quiz 3. Time Allowed: 90 minutes. Fall 2012
14.02 Quiz 3 Time Allowed: 90 minutes Fall 2012 NAME: MIT ID: FRIDAY RECITATION: FRIDAY RECITATION TA: This quiz has a total of 3 parts/questions. The first part has 13 multiple choice questions where
More informationImperfect Knowledge, Asset Price Swings and Structural Slumps: A Cointegrated VAR Analysis of their Interdependence
Imperfect Knowledge, Asset Price Swings and Structural Slumps: A Cointegrated VAR Analysis of their Interdependence Katarina Juselius Department of Economics University of Copenhagen Background There is
More informationEcon 101A Final Exam We May 9, 2012.
Econ 101A Final Exam We May 9, 2012. You have 3 hours to answer the questions in the final exam. We will collect the exams at 2.30 sharp. Show your work, and good luck! Problem 1. Utility Maximization.
More informationInflation targeting: A supplement to Open Economy Macroeconomics
Inflation targeting: A supplement to Open Economy Macroeconomics Asbjørn Rødseth March 28, 2011 Preliminary and incomplete c Asbjørn Rødseth 2011 Abstract The purpose of this compendium is to show how
More informationPart A: Answer question A1 (required), plus either question A2 or A3.
Ph.D. Core Exam -- Macroeconomics 15 August 2016 -- 8:00 am to 3:00 pm Part A: Answer question A1 (required), plus either question A2 or A3. A1 (required): Macroeconomic Effects of Brexit In the wake of
More informationChapter 10 Aggregate Demand I
Chapter 10 In this chapter, We focus on the short run, and temporarily set aside the question of whether the economy has the resources to produce the output demanded. We examine the determination of r
More informationOptimal Monetary Policy
Optimal Monetary Policy Graduate Macro II, Spring 200 The University of Notre Dame Professor Sims Here I consider how a welfare-maximizing central bank can and should implement monetary policy in the standard
More informationEconomics 502. Nominal Rigidities. Geoffrey Dunbar. UBC, Fall November 22, 2012
Economics 502 Nominal Rigidities Geoffrey Dunbar UBC, Fall 2012 November 22, 2012 Geoffrey Dunbar (UBC, Fall 2012) Economics 502 November 22, 2012 1 / 68 Money Our models thusfar have been real models.
More informationB r i e f T a b l e o f C o n t e n t s
B r i e f T a b l e o f C o n t e n t s Chapter 1. Introduction Part I. CAPITAL ACCUMULATION AND ECONOMIC GROWTH Chapter 2. Neoclassical Growth Models Chapter 3. Endogenous Growth Models Chapter 4. Some
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Spring, 2009
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Spring, 2009 Section 1. (Suggested Time: 45 Minutes) For 3 of the following 6 statements,
More informationChapter 9, section 2 from the 3rd edition: The Obstfeld-Rogoff Two-Country Model
Chapter 9, section 2 from the 3rd edition: The Obstfeld-Rogoff Two-Country Model Carl E. Walsh April 2017 Contents 1 Introduction 2 2 The Obstfeld-Rogoff Two-Country Model 3 2.1 The Linear Approximation................................
More informationFETP/MPP8/Macroeconomics/Riedel. Money, Interest Rates and the Exchange Rate
FETP/MPP8/Macroeconomics/Riedel Money, Interest Rates and the Exchange Rate Money, Interest Rates and the Exchange Rate In the previous lecture we learned that the exchange rate between two currencies
More information