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University of Alberta Department of Economics Monetary Economics I (540-B1)
Winter-2019
Instructor: Malik Shukayev Office: Tory 9–12
Email:[email protected]
Class Times: M, W 9:30 - 10:50 Classroom: Tory B 125 Office hours: M, W 14:00–15:00
or by appointment Course Objectives
This is a graduate-level course which focuses on the analysis of monetary policy in Dynamic Stochastic General Equilibrium (DSGE) models of the economy. We will start with basic real business cycle (RBC) models in order to introduce some technical issues in the simplest way possible. For these models we will be: deriving the dynamic equation systems; de-trending these equations; discussing various solution methods; calibrating the parameters using macroeconomic data; simulating; and comparing our simulations with the data. I will provide detailed lecture notes for these introductory topics, which will also help you complete your first homework on log-linearized solutions of RBC models. I will also show some data sources and provide Matlab codes for these simulations. After building (or refreshing) these foundations, we will be studying increasingly advanced monetary DSGE models in published articles or working papers. In studying those models our objective will be to replicate to the extent possible some of the simulations in those papers. We will be using Dynare and IRIS software packages to solve and simulate these models. My strategy will be to give you homework assignments based on those papers in advance of my lectures on the same topics. This way I hope to create more stimulating learning experience. You will also be asked to do a team course project in which you will try to code and simulate a DSGE model from a recent paper of your choice. I will expect a brief (but nice and clear) report on your work and working codes from everyone. All groups will be asked to present their projects during the last few lecture dates.
Prerequisites
The prerequisites for this course are ECON 481 and ECON 482, which are strictly enforced by the department.
Recommended textbook
Jordi Galí (2015) “Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework” Second edition. This is a recommended textbook for this class available from Princeton University Press http://press.princeton.edu/titles/10495.html. The first edition of this book should also be fine.
Communication outside the class
• I will use eClass to post announcements, lecture notes, answer keys, and review questions.
eClass can be accessed via the https://eclass.srv.ualberta.ca/portal/
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• You are welcome to come to my office hours listed at the top of this page. I am also available at other times by appointment, but would prefer to see you during my office hours, because I might be busy with other classes or responsibilities.
• I will try to respond to your e-mail messages within 24 hours. Typically, I may not be able to respond to your requests immediately.
Course evaluation and important dates
The final grades will be based on: 3 homework assignments (15% each), midterm exam (20%), team course project (15%) and the final exam (20%).
All groups will have a chance to present their team course project (30 min presentation with questions) during the last few lecture meetings. Each team should have 2 or 3 members.
Challenge Weight in the final grade Tentative due date
Assignment 1 15% Monday, January 28
Assignment 2 15% Monday, February 11
Midterm Exam 20% Wednesday, February 13
Assignment 3 15% Monday, March 11
Course project report 15% Wednesday, April 3
Final exam 20% To be confirmed
Total 100%
Software tools
We will be working extensively with Matlab codes. Some of our Matlab codes will be created using Dynare and IRIS software packages. Both Dynare and IRIS are freely available for download. I encourage you to check http://www.dynare.org/ and https://github.com/IRIS-Solutions-Team/IRIS-
Toolbox/wiki/IRIS-Macroeconomic-Modeling-Toolbox for user guides, manuals and extensive libraries of detailed modeling examples.
Tentative Outline and Reading list
1. Intro to RBC models: de-trending and calibrating the Solow growth model. Lecture notes and Matlab codes will be provided. We will also have a MATLAB tutorial in a computer lab.
2. Intro to RBC models: Ramsey growth model. Lecture notes and Matlab codes will be provided.
3. Log-linearized solution of RBC model. Based on Lau and Ng (2004) and on my extended answer key to Homework Assignment 1.
4. VAR evidence on the effects of monetary policy shocks. Based on Chapter 1 of Galí (2015). IRIS codes to be provided. We will also have an IRIS tutorial in a computer lab.
5. Money in the Utility model (MIU). Based on Chapter 2 of Jordi Galí (2015).
6. Basic New-Keynesian model. Based on Peter N. Ireland (2004) and on my answer key to Homework Assignment 2. Additional material: Bauer, Haltom, Rubio-Ramirez, (2003).
7. New-Keynesian model with Calvo-type nominal rigidities and trend inflation. Based on chapter 3 of Galí (2015) and on Drago Bergholt (2012) derivation notes.
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8. Monetary Policy analysis in the New-Keynesian model. Based on Clarida, Galí, and Gertler (1999) and on Chapter 4 of Galí (2015).
9. Real-financial linkages and monetary policy. Based on Christensen & Dib (2008) and on my extended answer key to Homework Assignment 3.
10. Small open economy models. Based on Schmitt-Grohe & Uribe (2003).
11. Exchange rates in small open economies. Based on Burstein, Eichenbaum & Rebelo (2007).
Please note:
• The assignments will be distributed about a week before they are due and must be submitted to me by 9:30 AM on the due date. No late assignments will be accepted. If you send your
assignment in an electronic form, I must have a complete version by 9:30 AM as well.
• You may work on your assignments and the course project in groups and submit only one report per group. Please write all of your group members on your assignment's first page so that it's easier to grade them.
• In your assignments make sure to clearly answer the questions posed. I need to see answers to my questions before I can give you any credit.
• Class attendance will not count toward your grade, but I encourage you to attend my lectures because I may discuss solutions to the assigned problem sets or stress important topics during classes.
• You will not have make-up exams, or extra credit essays. In case you miss the midterm for health, or other exceptional reasons, its weight will be transferred to the final exam. The exceptional reasons for missing the midterm exam must be substantiated with a "Request for Excused Absence or Deferral of Term Work" form (here on the Arts Intranet). For students who miss a midterm exam, the final exam might be different than that written by the rest of the class.
University policy statements
• “Policy about course outlines can be found in the Evaluation Procedures and Grading System section of the University Calendar.”
• “The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour and avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.”
• “Audio or video recording of lecture, labs, seminars, or any other teaching environment by students is allowed only with the prior written consent of the instructor or as part of an approved accommodation plan. Recorded material is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).”