- Period 2.
- Track-dependent mandatory course.
In recent years, policy makers have been confronted with important decisions concerning fiscal and monetary policy. Should governments implement austerity measures? If so, is it better to cut spending or raise taxes? Should central banks use quantitative easing when the short-term nominal interest rate has already been reduced to the zero lower bound? Should central banks target a higher rate of inflation to avoid hitting the zero lower bound again? In this course we will examine what advice mainstream macroeconomics can offer policy makers concerning these questions. We will examine both the empirical evidence macroeconomists have collected and the models they have developed to help them think about these policy questions. The students will have already encountered material for this course in their earlier economics courses. What will be different here is that these topics will be covered in more depth and at a somewhat more advanced level. First, the macroeconomic models studied are constructed using microeconomic theory. This approach has important advantages and reflects how current research in macroeconomics is done. Second, more time will be spent examining recent empirical research on these issues. The main topics of the course are fiscal and monetary policy. It will start with fiscal policy, examining empirical evidence and using microeconomic theory to construct models to help students think about the effects of fiscal policy. Monetary policy will then be introduced, again examining empirical evidence and introducing monetary policy into the models. This will also allow students to examine important interactions between fiscal and monetary policy.
Upon completion of this curricular item students will be able to analyze and use modern dynamic macroeconomic models.
Further learning outcomes of this course are that students will be able to answer the following questions:
- What insights does current mainstream macroeconomics offer policy makers concerning monetary and fiscal policy?
- How do macroeconomists obtain these insights?
- What are the limitations of macroeconomic research on these issues?
- How can advice be provided to policy makers based on macroeconomic research?