ECON 220A
MONETARY ECONOMICS
Fall 2011




Professor: Fabio Milani, fmilani@uci.edu
Office Hours: SSPA 3145, by appointment.

Time and Location: SSPA 3132, Th 5:00-7:50PM.
Course Webpage: http://www.socsci.uci.edu/~fmilani/ME2011.html




COURSE MATERIAL


 Syllabus


 Handbook of Monetary Economics, Volume 3, Pages 3-1520, I1-I77 (2010)

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)
  How important is money in the conduct of monetary policy?, Woodford, JMCB

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.

 Slides 3

3.2 Extensions

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: Macro

 Gali', chapter 3.

 Slides 4

3.5 Micro Evidence on 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

 Slides 5

4. Monetary DSGE Models

4.1 Medium and large-scale DSGE models for policy analysis

 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
... ... ...

4.2 Solving Models with Rational Expectations

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

4.3 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 6

5. Expectations

5.1 Sticky Information

Reis, A Sticky-Information General-Equilibrium Model for Policy Analysis.
Dupor et al., Integrating Sticky Prices and Sticky Information
...

5.2 'News' Shocks.

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

5.3 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
 Milani, Fabio (2011). Expectation Shocks and Learning as Drivers of the Business Cycle
 Ireland (2003). Irrational Expectations and Econometric Practice, Comment.
 Evans and Honkapohja, Learning as a Rational Foundation for Macroeconomics and Finance \
 Evans and Honkapohja, Expectations, Learning and Monetary Policy: An Overview of Recent Research
 Evans and Honkapohja, Learning and Macroeconomics
 Marcet and Sargent, Convergence of least squares learning mechanisms in self-referential linear stochastic models
 Preston, Learning About Monetary Policy Rules When Long-Horizon Expectations Matter
 Orphanides and Williams, The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations
 Huang, Liu, and Zha, Learning, Adaptive Expectations, and Technology Shocks
 Eusepi and Preston, Expectations, Learning and Business Cycle Fluctuations
 SARGENT, WILLIAMS, and ZHA, SHOCKS AND GOVERNMENT BELIEFS: THE RISE AND FALL OF AMERICAN INFLATION

6. Frictions & Extensions

6.1 Financial Frictions

Financial Accelerator

Bernanke and Gertler, Agency Costs, Net Worth, and Business Fluctuations
Bernanke, Gertler, and Gilchrist, The financial accelerator in a quantitative business cycle framework
Carlstrom and Fuerst, Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis
Christensen and Dib, The financial accelerator in an estimated New Keynesian model
Gilchrist, Gertler, and Natalucci, External Constraints on Monetary Policy and the Financial Accelerator'
Gilchrist and Saito, Expectations, Asset Prices and Monetary Policy: The Role of Learning'
Queijo von Heideken, How Important are Financial Frictions in the U.S. and the Euro Area
De Graeve, The External Finance Premium and the Macroeconomy: US Post–WWII Evidence
Christiano, Motto, and Rostagno, Financial Factors in Business Cycles
Christiano, Ilut, Motto, and Rostagno, Monetary Policy and Stock Market Boom-Bust Cycles
Kiyotaki and Moore, Credit Cycles
Levin, Natalucci, and Zakrajsek, The Magnitude and Cyclical Behavior of Financial Market Frictions
Curdia and Woodford, Credit Frictions and Optimal Monetary Policy
Gerali, Neri, Sessa, Signoretti, Credit and Banking in a DSGE Model
Gilchrist, Yankov, Zakrajsek, Credit Market Shocks and Economic Fluctuations:. Evidence from Corporate Bond and Stock Markets
Adrian and Shin, Financial Intermediaries, Financial Stability and Monetary Policy
Goodfriend and McCallum, Banking and interest rates in monetary policy analysis: A quantitative exploration
...

 Slides 7

6.2 Housing


Iacoviello, House prices, borrowing constraints and monetary policy in the business cycle
Iacoviello and Neri, Housing Market Spillovers: Evidence from an Estimated DSGE Model

6.3 Labor Market Frictions



 Slides 8



     Presentations


  9/29
Jiyu: HME Chapter 3 - Money and Inflation: Some Critical Issues, Bennett T. McCallum, Edward Nelson

  10/6
Chris: HME Chapter 8 - How Has the Monetary Transmission Mechanism Evolved Over Time? Jean Boivin, Michael T. Kiley, Frederic S. Mishkin

  10/13
Stephen: HME Chapter 6 - Microeconomic Evidence on Price-Setting Peter J. Klenow, Benjamin A. Malin
Jae: HME Chapter 5 - Imperfect Information and Aggregate Supply N. Gregory Mankiw, Ricardo Reis

  10/20
tba: HME Chapter 14 - Optimal Monetary Stabilization Policy Michael Woodford
tba: HME Chapter 15 - Simple and Robust Rules for Monetary Policy John B. Taylor, John C. Williams

  10/27
tba: HME Chapter 7 - DSGE Models for Monetary Policy Analysis Lawrence J. Christiano, Mathias Trabandt, Karl Walentin

  11/17
tba: HME Chapter 11 - Financial Intermediation and Credit Policy in Business Cycle Analysis Gertler and Kiyotaki