ECON 225A
MONETARY ECONOMICS I
Winter 2008




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

Time and Location: SSL 117, Tu-Th 11.00-12.20.
Course Webpage: http://www.socsci.uci.edu/~fmilani/ME2008.html



COURSE MATERIAL (Preliminary List)


 Syllabus

1. Foundations

1.1 What is Money?

  Kiyotaki-Moore, Clarendon Lecture 1
  Kiyotaki-Moore, Clarendon Lecture 2
  Kocherlakota, Money is Memory.
  Adam Smith (1776) "Of the Origin and Use of Money," Book I, Ch. IV, in An Inquiry Into the Nature and Causes of The Wealth of Nations
  Karl Menger (1892) "On the Origin of Money," Economic Journal 2, 239-255.

1.2 How to Introduce Money in Macro Models?

  Money-in-the-Utility function (Walsh, Monetary Theory and Policy)
  Cash-in-Advance constraint (Walsh, Monetary Theory and Policy)
  Search Models (Rupert et al., The search-theoretic approach to monetary economics: a primer)
  Monetary models without money (Cashless Economy) (Woodford, Interest and Prices)

2. Empirical Evidence on the Effects of Monetary Policy

 Christiano, Eichenbaum, and Evans (1999). Monetary Policy Shocks: What Have We Learned, and To What End
 McCandless and Weber (1995). Some Monetary Facts
 Sims and Zha (1999). What Does Monetary Policy Do?, BPEA
 Bernanke, Boivin, and Eliasz (2005) Measuring Monetary Policy: A Factor Augmented Vector Autoregressive (FAVAR) Approach, QJE
 Bernanke, Ben S., and Ilian Mihov (1998), "Measuring Monetary Policy," QJE 113, 869-902.
 Romer D. and Romer C. (2004), "A New Measure of Monetary Shocks: Derivation and Implications," AER.
 Olivei and Tenreyro (2007) The Timing of Monetary Policy Shocks, AER

3. The New Keynesian Model

3.1 Assumptions and Model Derivation

 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.
 King, (2000). The New IS-LM Model: Language, Logic, and Limits , Economic Quarterly, FRB Richmond.
 Gali and Gertler, (2007). Macroeconomic Modeling for Monetary Policy Evaluation  , JEP.
 Woodford, (1998). Doing without Money: Controlling Inflation in a Post-Monetary World , RED.

3.2 Extensions


 Mankiw, Reis, and Weil, (2002). Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve, QJE.
 Amato and Laubach, (2002). Rule-of-thumb behaviour and monetary policy, EER.

3.3 Optimal Policy and Interest-Rate Rules

 Clarida, Gali, and Gertler, (1999). The Science of Monetary Policy: a New Keynesian Perspective, Journal of Economic Literature.
 Benigno and Woodford, (2007). Linear-Quadratic Approximation of Optimal Policy Problems .
 Woodford, (2002). Inflation Stabilization and Welfare .
 Giannoni and Woodford, (2002). Optimal Interest-Rate Rules: I. General Theory.
 Giannoni and Woodford, (2002). Optimal Interest-Rate Rules: II. Applications.
 Woodford, Interest and Prices, 2003.
 Walsh, Monetary Theory and Policy.

3.4 Sticky Prices

 Bils and Klenow, (2004). Some Evidence on the Importance of Sticky Prices, JPE
 Nakamura and Steinsson, (2007). Five Facts About Prices: A Reevaluation of Menu Cost Models
 Eurosystem Inflation Persistence Network, (2005). Sticky prices in the euro area: a summary of new micro evidence
 Blinder et al., (1998). Asking About Prices: A New Approach to Understanding Price Stickiness
 Davis and Hamilton, (2004). Asking About Prices: A New Approach to Understanding Price Stickiness, JMCB

3.5 Empirical Evidence

 Del Negro, Schorfheide, Smets, and Wouters, (2005). On the fit and forecasting performance of New-Keynesian models

4. Monetary DSGE Models: Estimation

 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

4.1 Solving Models with Rational Expectations

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

4.2 Estimation Techniques. 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
 Fernandez-Villaverde, Methods in Macroeconomic Dynamics
 DeJong and Dave, Structural Macroeconometrics

5. Modeling Expectations: Rational Expectations vs. Adaptive Learning

 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.
 Milani, Fabio (2007). 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.

6. Topics

6.1 The Great Moderation. The Great Inflation, Economic Beliefs, and Stabilization Policy

 McConnell and Perez-Quiros (2000) Output Fluctuations in the United States: What Has Changed since the Early 1980's?, AER
 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 (2008) Learning, Monetary Policy Rules, and Macroeconomic Stability, JEDC
 Canova and Gambetti (2005). Structural Changes in the US Economy: Bad Luck or Bad Policy
 Cecchetti et al (2007). Understanding the Evolving Inflation Process
 Benati and Surico (2007). Vector Autoregressions and the Great Moderation
 Gali' and Gambetti (2007). On the Sources of the Great Moderation
 Canova and Gambetti (2007). Do Expectations Matter? The Great Moderation Revisited

6.2 The Effects of Globalization on Inflation Dynamics

 Romer (1993). Openness and Inflation: Theory and Evidence, QJE
 Rogoff (2003). Impact of Globalization on Monetary Policy
 Rogoff (2001). Globalization and Global Disinflation
 Temple (2002). Openness, Inflation, and the Phillips Curve: A Puzzle, JMCB
 Terra (1998). Openness and Inflation: A New Assessment, QJE
 Tootell (1998). Globalization and U.S. Inflation
 Gamber and Hung (2001). Has the rise in globalization reduced U.S. inflation in the 1990s?, EI
 Wynne and Kersting (2007). Openness and inflation
 Ihrig et al. (2007). Some Simple Tests of the Globalization and Inflation Hypothesis
 Borio and Filardo (2007). Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation
 Mumtaz and Surico (2007). Evolving International Inflation Dynamics: World and Country Specific Factors
 Ciccarelli and Mojon (2005). Global Inflation
 Boivin and Giannoni (2005). Global Forces and Monetary Policy Effectiveness
 Castelnuovo (2007). Tracking US Inflation Expectations with Domestic and Global Indicators
 Ball (2006). Has Globalization Changed Inflation?
 Razin (2004). Globalization and Disinflation: A Note
 Razin and Yuen (2002). The ‘New Keynesian’Phillips curve: closed economy versus open economy
 Razin and Binyamini (2007). Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy
 D'Agostino and Surico (2007). Does global liquidity help to forecast US inflation?
 Guerrieri, Gust, and Lopez-Salido (2008). International Competition and Inflation: A New Keynesian Perspective
 Sbordone (2007). Globalization and Inflation Dynamics: A Structural Perspective
 Woodford, (2007). Globalization and Monetary Control.

6.3 Monetary and Fiscal Policy Interactions

6.4 The Changing Relationship between Oil and the Macroeconomy

 Blanchard and Gali (2007). The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?

6.5 Asset Prices, Housing Prices, and their Effect on Macroeconomic Dynamics

6.6 Monetary Politics

7. New Keynesian Model: New Directions

7.1 Labor Frictions

 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

7.2 Financial Frictions











 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):



 PRESENTATION
Present a comment on one paper of your choice among those that have been presented at the most recent AEA meetings and that have a monetary focus. Pick the paper from here

Schedule:




 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