ECON 225A
MONETARY ECONOMICS
Fall 2009




Professor: Fabio Milani, fmilani@uci.edu
Office Hours: SSPA 3145, Tuesday 3.00-5.00

Time and Location: SSPB 3266, Tu-Th 12.30-1.50.
Course Webpage: http://www.socsci.uci.edu/~fmilani/ME2009.html



COURSE MATERIAL


 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.

 Slides 1

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
 Cochrane (1998), What do the VARs mean? Measuring the output effects of monetary policy, JME

 Slides 2

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
 Gali', Monetary Policy, Inflation, and the Business Cycle.
 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 Empirical Evidence

 Gali', chapter 3.

 Slides 3

3.5 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). Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices, JMCB
 Golosov and Lucas, (2007). Menu Costs and Phillips Curves, JPE
 Midrigan, (2006). Menu Costs, Multi-Product Firms and Aggregate Fluctuations
 Eichenbaum et al., (2009). Reference Prices and Nominal Rigidities
 Gagnon, (2009). Price Setting during Low and High Inflation: Evidence from Mexico, QJE

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 br> Fernandez-Villaverde, Rubio-Ramirez, and Santos (2006). Convergence Properties of the Likelihood of Computed Dynamic Models, Econometrica
 Del Negro, Schorfheide, Smets, and Wouters, (2005). On the fit and forecasting performance of New-Keynesian models
... ... ...

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

 Slides 4

5. Learning in Macroeconomic Models

 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
 Ireland (2003). Irrational Expectations and Econometric Practice, Comment.

6. Business Cycles

6.1 'News' as Drivers of the Business Cycle.

Beaudry and Portier, Stock Prices, News and Economic Fluctuations
Beaudry and Portier, Exploring Pigou's Theory of Cycles
Jaimovich and Rebelo, Behavioral Theories of the Business Cycle
Jaimovich and Rebelo, Can News about the Future Drive the Business Cycle?
Schmitt-Grohe and Uribe, What's News in Business Cycles
Fujiwara, Hirose, and Shintani, Can News Be a Major Source of Aggregate Fluctuations? A Bayesian
Barsky and E. Sims, Information Shocks, Animal Spirits, and the Meaning of Innovations in Consumer Confidence
Beaudry, P. and F. Portier, The 'News' View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral U.S. Data
Jaimovich and Rebelo, News and Business Cycles in Open Economies
Kobayashi and Nutahara, Nominal Rigidities, News-Driven Business Cycles, and Monetary Policy
Lorenzoni, News Shocks and Optimal Monetary Policy
Davis, News and the Term Structure in General Equilibrium
E. Sims, Expectations Driven Business Cycles: An Empirical Evaluation

7. 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). Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?
 Tuesta 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

8.


9. Future Directions

 Cecchetti et al., (2009). Integrating financial stability: new models for a new challenge