Theory and Practice of Macroeconomic Policy
- to present the main current macroeconomic problems
- to describe the role of government and central banks in the economy
- to understand the role of fiscal and monetary policy
- be able to analyze financial and real data, apply the macroeconomic tools for the analysis of both monetary and financial sphere
- be able to acquire the necessary skills to discuss different macroeconomic problems, the fiscal and monetary authorities’ actions and decisions, the consequences of macroeconomic policy changes for the economy
- Introduction. The main objectives of macroeconomic policyInflation as policy target. Social costs and benefits of inflation. Sacrifice ratio. Optimal inflation level. Target output level. Optimal and natural output. Exchange rate policy. Exchange rate and real variables. Exchange rate policy as an anti-inflation measure.
- Part 1. The main problems of macroeconomic policy. Lecture 2. InflationMonetary factors of inflation. Unpleasant monetary arithmetic. Fiscal theory of price level. Dynamic inconsistency of low-inflation policy. The role of reputation and delegation of policy. Policy rules. The role of central bank’s independence. Inflation persistence. Hyperinflations and stabilization programs.
- Part 1. Lecture 3. Zero-lower boundZLB and monetary policy efficiency. The origins of liquidity traps. The role of exchange rate policy. Unconventional monetary policy: targets and instruments. Fiscal policy at ZLB. The role of strategic interaction between a central bank and a government.
- Part 1. Lecture 4. Global financial crisesThe global crisis of 2008. Policy mistakes and uncertainty. Exchange rate crises. Fisrt-, second- and third-generation models of currency crises. Monetary policy during exchange rate crises. European debt crisis. European macroeconomic policy.
- Part 1. Lecture 5. International migrationMigration of low- and high skilled labor force. International migration and the distribution of resources, incomes and welfare. Intra- and inter-generation conflicts. Fiscal effects of international migration.
- Part 1. Lecture 6. Financial globalizationTrade and financial globalization. Financial integration as a tax problem. Tax competition. International capital flows. A stylized model of financial integration.
- Part 1. Lecture 7. Government debtGovernment debt as a fiscal instrument. The role of a central bank’s independence. The structure of government debt. Tax smoothing as a factor of debt accumulation. The model of government debt accumulation. The role of uncertainty. Debt crises. The model of sovereign debt default with self-fulfilling prophecies (Cole, Kehoe). Stabilization policy.
- Part 2. The economics of monetary unions. Lecture 8. Between international openness and monetary sovereigntyA simple model of a monetary union. Theory of optimum currency areas. Currency unions in prospect and retrospect.
- Part 2. Lecture 9. Monetary policy in currency unionsThe role of idiosyncratic shocks in monetary unions. Policy effects. The optimal monetary policy in a monetary union.
- Part 2. Lecture 10. Fiscal policies in currency unionsPublic deficits, transfers and public debts in currency unions. Federal fiscal transfer rules in monetary unions. Imbalances and fiscal policy in a monetary union.
- Part 2. Lecture 11. Fiscal federalism or intergovernmental cooperation?Regional fiscal policy spillovers in a monetary union. Cooperation and commitment. Symbiosis of monetary and fiscal policies in a monetary union. Federal fiscal transfers in monetary unions. Fiscal federalism versus fiscal cooperation.
- Part 2. Lecture 12. Thoughts of a fiscal unionFiscal union desirability. Fiscal union in Europe: pros and cons. ComPact and Maastricht comemorandum.
- Part 3. The evolution and the current state of macroeconomic policy. Lecture 13. Monetary policy regimesDiscretion versus commitment policy. Taylor rule and its evolution. Advantages and disadvantages of policy rules. Exchange rate regimes. Monetary base and interest rate as policy intermediate targets. Inflation targeting: introduction.
- Part 3. Lecture 14. Inflation targetingStrict and flexible inflation targeting. The role of expectations. Inflation targeting in advanced economies. Forward guidance as an instrument of inflation targeting. Inflation targeting in developing countries. The optimal design of inflation targeting. The role of communication policy.
- Part 3. Lecture 15. Communication policy of central banksThe role of public and private information for agents’ actions. Strategic complementarity. The impact of a central bank’s verbal interventions on forecasts’ precision and market volatility. Central bank transparency: pros and cons. The model of Morris and Shin (2002). Verbal interventions and financial crises. Information policy of central banks in practice: the Fed, the ECB, the Bank of Russia, etc.
- Part 3. Lecture 16. Macroprudential tools and unconventional monetary policyPeculiarities of the global financial crisis of 2008. Shadow banking sector. Macroprudential policy. Basel 3. Unconventional monetary policy. Quantitative and qualitative easing. Efficiency of unconventional policies. Developed countries’ experience: Japan, the USA, the UK, the eurozone. Normalization of monetary policy.
- Average mark for quizzes (неблокирующий)Short quizzes are based on topics covered in the class. No possibility is given to complete the missed quizzes.
- Attendance (неблокирующий)Attendance is not evaluated but is highly recommended to understand better the concepts learned during the classes. Previous experience has shown that the average mark is usually higher for the students who actively participate in sessions. Lectures will be interactive with discussions between the lecturer and students. Questions and comments are welcome during the lectures.
- Home assignment (неблокирующий)As a result of this case study, a student has to prepare an analytical outlook, which covers: • the problems present in an analyzed economy; • fiscal and monetary policies taken to face with these problems; • analysis of policy efficiency or policy mistakes. Max length of the document is 10 pages (appendices and covers not included). The documents sent after the dead-line are not evaluated.
- Essay (неблокирующий)The essay is to be prepared after the second part of the course. The essay is the critical literature overview at a chosen topic. Max length of the document is 5 pages (appendices and covers not included)
- Exam (неблокирующий)The written documentation for the excuse is to be presented to the Students’ Office in accordance with the HSE’s rules.
- Промежуточная аттестация (2 модуль)0.1 * Average mark for quizzes + 0.25 * Essay + 0.4 * Exam + 0.25 * Home assignment
- Advanced Macroeconomics, 3rd ed., 678 p., Romer, D., 2006
- Monetary theory and policy, Walsh C. E., 2003
- Macroeconomic theory : a dynamic general equilibrium approach, Wickens M., 2008
- Monetary economics in developing countries, Ghatak S., Sanchez-Fung J. R., 2007