ECON 269A
MONETARY POLICY I
Winter 2006




Professor: Fabio Milani, fmilani@uci.edu
Office Hours: SSPA 3145, Tuesday 15.30-17.00

Time and Location: SSPB 3266, Tu-Th 14.00-15.20.
Course Webpage: http://www.socsci.uci.edu/~fmilani/econ269a.html




COURSE MATERIAL


 Syllabus

1. Dynamic Stochastic General Equilibrium (DSGE) Models: Overview

1.1 Monetary DSGE Models

Why MONEY? Kiyotaki-Moore, Clarendon Lecture 1, Kiyotaki-Moore, Clarendon Lecture 2, Kocherlakota, Money is Memory.

Slides 1

 Woodford, Interest and Prices, 2003. Chapters 2-5.
 Walsh, Monetary Theory and Policy. Chapter 5
 Clarida, Gali, and Gertler, (1999). The Science of Monetary Policy: a New Keynesian Perspective, Journal of Economic Literature.
 Goodfriend and King, (1997). The New Neoclassical Synthesis and the Role of Monetary Policy, NBER Macroeconomics Annual.
 McCallum and Nelson, (1999). An Optimizing IS-LM Specification for Monetary Policy and Business Cycles Analysis, JMCB.
 Smets and Wouters, (2003). An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area, JEEA
 Blanchard and Gali, (2005). Real Wage Rigidities and the New Keynesian Model
 Faust, (2005). Is Applied Monetary Policy Analysis Hard?
 Collard and Dellas, (2005) The New Keynesian Model with Imperfect Information and Learning
 Sims, (2005) The State of Macroeconomic Policy Modeling: Where do We Go from Here?
 Rotemberg and Woodford, (1997) An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy
 Gali and Gertler, (1999) Inflation Dynamics: A Structural Econometric Analysis, JME.
 Rudd and Whelan, (2006) Can rational expectations sticky-price models explain inflation dynamics?, AER, forthcoming.
 Mankiw and Reis, (2002) Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve, QJE.
 Mackowiak and Wiederholt, (2005) Optimal Sticky Prices under Rational Inattention.
 Fuhrer, (1998) An Optimization Model for Monetary Policy Analysis: Can Habit Formation Help?.

1.2 Real Business Cycles (RBC) Models

 King and Rebelo, (2000). Resuscitating Real Business Cycles, Handbook of Macroeconomics.
 Rebelo, (2005). Real Business Cycle Models: Past, Present and Future, Scandinavian Journal of Economics.

1.3 Open Economy Models (New Open Economy Macroeconomics - NOEM)

 Obstfeld and Rogoff, Foundations of International Macroeconomics. Chapters:
 Lane, (1999). The New Open Economy Macroeconomics: A Survey., JIE.
 Gali and Monacelli, (2005). Monetary Policy and Exchange Rate Volatility in a Small Open Economy, RES.

2. Solving and Estimating DSGE Models

Solution of Linear Rational Expectations Models: Sims, (2000). Solving Linear Rational Expectations Models, Computational Economics.

Bayesian Estimation:

An and Schorfheide, (2005). Bayesian Analysis of DSGE Models.
Gary Koop, Bayesian Econometrics
John Geweke, Contemporary Bayesian Econometrics and Statistics
Fabio Canova, Methods for Applied Macroeconomic Research
Schorfheide, Bayesian Methods for Macroeconometrics
Heer and Maussner, Dynamic General Equilibrium Modelling: Computational Methods and Applications
Fernandez-Villaverde, Methods in Macroeconomic Dynamics

2.1 Monetary DSGE Models

 Smets and Wouters, (2003). An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area, JEEA
 Smets and Wouters, (2005). Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach, JAE
 Schorfheide, (2000). Loss Function-based Evaluation of DSGE Models, JAE
 Christiano, Eichenbaum, and Evans (2005). Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy, JPE
 Giannoni and Woodford (2003). Optimal Inflation Targeting Rules
 Rabanal and Rubio-Ramirez (2005). Comparing New Keynesian Models of the Business Cycle : A Bayesian approach, JME
 Fernandez-Villaverde and Rubio-Ramirez (2005). Estimating Dynamic Equilibrium Economies: Linear versus Nonlinear Likelihood, JAE
 Justiniano and Primiceri (2005). The Time Varying Volatility of Macroeconomic Fluctuations
 Laforte (2005). Pricing Models: A Bayesian DSGE approach for the US Economy
 Levin-Onatski-Williams-Williams (2005). Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models, NBER Macro Annual
 Fernandez-Villaverde, Rubio-Ramirez, and Santos (2006). Convergence Properties of the Likelihood of Computed Dynamic Models, Econometrica

2.2 RBC Models

 Gali and Rabanal, (2004). Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data?
 Chari, Kehoe, and McGrattan (2005) Business Cycle Accounting, Econometrica.

2.3 Open Economy Models

 Bergin, (2003). Putting the 'New Open Economy Macroeconomics' to a test, JIE
 Ghironi, (1999) Towards New Open Economy Macroeconometrics.
 Lubik and Schorfheide (2005). Do Central Banks Respond to Exchange Rates? A Structural Investigation, JME
 Lubik and Schorfheide (2005). A Bayesian Look at New Open Economy Macroeconomics, NBER Macro Annual
 Justiniano and Preston (2005). ...
 Fuesta and Rabanal (2004). Euro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model: What is Important and What is Not
 Adolfson, Laseén, Lindé, and Villani (2005). Bayesian estimation of an open economy DSGE model with incomplete pass-through
 Curdia and Finocchiaro (2005). An Estimated DSGE Model for Sweden with a Monetary Regime Change 

3. Estimating DSGE Models with Learning

3.1 Models with Adaptive Learning

Webpage: Adaptive Learning in Macroeconomics
 Evans and Honkapohja (1999). Learning Dynamics, Handbook Macro.
 Evans and Honkapohja (2001). Learning and Expectations in Macroeconomics.
 Carceles-Poveda and Giannitsarou (2004). Adaptive Learning in Practice, Toolbox Programs, Toolbox Manual.
 Evans and Honkapohja (2003). Adaptive Learning and Monetary Policy Design, JMCB.
 Evans and Honkapohja (2005). Monetary Policy, Expectations and Commitment, SJE.
 Bullard and Mitra (2002). Learning about monetary policy rules, JME.
 Preston (2005). Learning About Monetary Policy Rules When Long-Horizon Expectations Matter, IJCB.
 Evans (2001). Economics of Expectations.
 McCallum (1999). Role of the Minimal State Variable Criterion in Rational Expectations Models.
 Bullard (2006). The Learnability Criterion and Monetary Policy.

3.2 Estimating Models with Learning

 Milani, Fabio (2004). Expectations, Learning and Macroeconomic Persistence
 Sargent, Williams, and Zha (2005). Shock and Government Beliefs: the Rise and Fall of American Inflation, AER
 Zha (2005). Dynare lecture notes
 Ireland (2003). Irrational Expectations and Econometric Practice, Comment.

4. A-Theoretical Models: VARs and Bayesian VARs

4.1 Estimating VARs, SVARs, and BVARs. Identifying the Effects of Monetary Policy

 Christiano, Eichenbaum, and Evans (1999). Monetary Policy Shocks: What Have We Learned, and To What End
 Sims and Zha (1999). What Does Monetary Policy Do?, BPEA

4.2 Factor-Augmented VARs

 Bernanke, Boivin, and Eliasz (2005) Measuring Monetary Policy: A Factor Augmented Vector Autoregressive (FAVAR) Approach, QJE
 Belviso and Milani (2003). Structural Factor-Augmented VAR (SFAVAR) and the Effects of Monetary Policy"
 Giannone, Reichlin, Sala (2003). Tracking Greenspan: Systematic and Unsystematic Monetary Policy Revisited

5. Post-War U.S. Monetary Policy: Has it Changed?

 Clarida, Gali, and Gertler (2000) Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory, QJE
 Orphanides, (2004). Monetary Policy Rules, Macroeconomic Stability and Inflation: A View from the Trenches, JMCB
 Lubik and Schorfheide (2004) Testing for Indeterminacy: An Application to U.S. Monetary Policy, AER
 Sims and Zha (2005) Were There Regime Switches in US Monetary Policy?, AER
 Boivin and Giannoni (2005) Has Monetary Policy Become More Effective?, Review of Economics and Statistics
 Milani (2005) Learning, Monetary Policy Rules, and Macroeconomic Stability
 Canova and Gambetti (2005). Structural Changes in the US Economy: Bad Luck or Bad Policy

6. Incorporating Labor Market Frictions in DSGE Models

 Shimer (2005). Reassessing the Ins and Outs of Unemployment
 Walsh (2005) Labor Market Search, Sticky Prices, and Interest Rate Policies, RED
 Trigari (2003) Equilibrium Unemployment, Job Flows and Inflation Dynamics
 Lubik and Krause (2005). The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions
 Christoffel, Kuestee, and Linzert (2005). The Impact of Labor Markets on the Transmission Process of Monetary Policy for the German Economy
 Nason and Slotsve (2004). Along the New Keynesian Phillips Curve with Nominal and Real Rigidities
 Braun (2005). (Un)Employment Dynamics: The Case of Monetary Policy Shocks

7. Behavioral Macroeconomics

 Akerlof (2002). Behavioral Macroeconomics and Macroeconomic Behavior, AER
 How Humans Behave, Boston Fed 2003 Conference







 REFEREE REPORT
Some Guidelines, RIE hints for referees, CJE's advice , The Task of the Referee
Write a referee report on one of the following papers (they are job market papers by students in macroeconomics):

 Braun (JMP 2005) (Un)Employment Dynamics: The Case of Monetary Policy Shocks
 Beechey (JMP 2004) Excess Sensitivity and Volatility of Long Interest Rates: The Role of Limited Information in Bond Markets REFEREE: Jerry Benzl.
 Scotti (JMP 2004) A Multivariate Bayesian Analysis of Policy Rates: Fed and ECB Timing and Level Decision REFEREE: Patrick Van Horn.
 Primiceri (JMP 2003) Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy REFEREE: Gabriela Best.
 Molnar (and Santoro) (JMP 2005) Optimal Monetary Policy when Agents are Learning REFEREE: Michelle Kim.
 Zhao (JMP 2005) Monetary Policy under Mis-specified Expectations REFEREE: Esther Lee.
 An (JMP 2005) Bayesian Estimation of DSGE Models: Lessons from Second-Order Approximations REFEREE: Yong Kyun Kim.
 Justiniano (JMP 2003) Sources and Propagation Mechanims of Foreign Disturbances in Small Open Economies: A Dynamic Factor Analysis
 Curdia (JMP 2005) Monetary Policy under Sudden Stops
 Kim (and Mark) (JMP 2004) Exchange Rates and Fundamentals under Adaptive Learning REFEREE: Nathan Fiala.
 Trigari (JMP 2003) Equilibrium Unemployment, Job Flows and Inflation Dynamics
 Midrigan (JMP 2005) Menu Costs, Multi-Product Firms, and Aggregate Fluctuations


 PRESENTATION

Schedule:

Date Presenter Topic (Preliminary)
February 2, Th. Nathan Fiala A Small Open Economy DSGE Model for Ghana
February 7, Tu. Jerry Benzl Monetary and Fiscal Policy Interactions
February 9, Th. Patrick Van Horn A DSGE Model of The Great Depression
February 14, Tu. Michelle Kim A Small Open Economy Model for Korea under RE and Learning
February 16, Th. Gabriela Best Bad Luck or Bad Policy?
February 21, Tu. Yong Kyun Kim Estimating a DSGE model with optimal monetary policy under learning
February 23, Th. Esther Lee A DSGE Model with Learning for Korea/Japan



 TOPICS for the course paper:
I will distribute in class a list of possible research ideas. You can also work on different ideas of your choice, as long as they are connected with the course.

Writing suggestions by Cochrane, Don Davis 1,2



 Useful Links: Department of Economics




























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