Advanced Macroeconomics: Business Cycles

Course content

The course builds upon the macroeconomics courses in the undergraduate program and presupposes corresponding qualifications. The course extends models from these courses in different directions and introduces new models. The main focus is on the theoretical underpinning, solution, and empirical validation of dynamic stochastic general equilibrium (DSGE) models. 

The course combines theory, computation and empirics: Along with theoretical models of the business cycle, students will be introduced to the computational tools needed to solve and simulate such models. In addition, a selection of empirical tools will be covered in order to enable students to carry out similar analyses on their own. A number of lectures will take the form of computer lab sessions, where students are asked to carry out computational tasks.

Specific topics in the course include:

  • Introduction to DSGE models: The Real Business Cycle model and the New Keynesian model. Introduction to Matlab and Dynare.
  • Calibration and estimation of DSGE models using different empirical strategies, including Bayesian estimation.
  • Precautionary savings and the buffer-stock model of consumption.
  • Introduction to structural vector autoregressive (SVAR) models with applications to monetary and fiscal policy.
  • The effects of fiscal policy in DSGE models and the connection with SVAR evidence.
  • The macroeconomic implications of financial frictions at the household and/or firm level, the role of occasionally binding credit constraints, and the scope for macroprudential policy.

 

Learning outcome

After completing the course, the student should be able to:

Knowledge:

  • Have insight into the basic theoretical concepts, mathematical methods and models of modern macroeconomics.
  • Account for the key building blocks of DSGE models.
  • Discuss the main empirical methodologies used to validate DSGE models. 
  • Select the relevant computational tools necessary for solving, simulating and estimating DSGE models. 

 

Skills:

  • Apply the concepts, methods, tools and models learned during the course.
  • Assess the models from a theoretical as well as an empirical point of view.
  • Interpret formal results obtained from the analytical and numerical analysis of DSGE models, discussing them in economic and intuitive terms, and putting them into the perspective of the related literature.

 

Competences:

  • Plan and carry out an independent theoretical, computational and/or empirical analysis of one or more aspects of modern business cycles in advanced economies.
  • Combine the aforementioned ingredients in order to validate a theoretical model and its qualitative and quantitative implications.

 

Abilities along these lines are essential for being qualified to work in the economic research and analysis divisions of companies, organisations and government institutions.

 

Most of the lectures will take the form of theoretical lectures on the topics described above. In addition, a number of lectures will take the form of computer sessions where students are asked to bring their laptop, download some codes and/or data, and solve various exercises under supervision.
The course will feature 1 or 2 assignments, on which students are allowed to work in groups.

The course material will consist primarily of journal articles. A tentative and non-exhaustive list of key papers on the topics covered in the course is given below, but a final reading list will be made available as the course progresses. In addition, the course will build on material from the following textbook:

Jordi Galí (2015): Monetary Policy, Inflation, and the Business Cycle. Second Edition, Princeton University Press.

List of relevant papers:

Blanchard, O.J., and N. Kiyotaki 1987, Monopolistic Competition and the Effects of Aggregate Demand, American Economic Review 77, p. 647-666. 

Blanchard, O.J., and R. Perotti 2002, An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output, Quarterly Journal of Economics 117, p. 1329-1368.

Carroll, C., 1997, Buffer-Stock Saving and the Life Cycle / Permanent Income Hypothesis, Quarterly Journal of Economics 112, p. 1-55.

Fernandez-Villaverde, J., J.F. Rubio-Ramirez, and F. Schorfheide 2016, Solution and Estimation Methods for DSGE Models, Handbook of Macroeconomics 2, p. 527-724.

Galí, J., J.D. López-Salido, and J. Vallés, 2007, Understanding the Effects of Government Spending on Consumption, Journal of the European Economic Association 5, p. 227-270.

Iacoviello, M., 2005, House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle, American Economic Review 95, p. 739-764.

 

It is strongly recommended that Macro III has been followed prior to taking the course.
Familiarity with intertemporal optimization, the analysis of static and dynamic systems under rational expectations and basic multivariate econometrics.

Due to an overlapping syllabus with the summerschool Theoretical and Empirical Foundations of DSGE Modeling (AØKA08207U) both courses cannot be taken.

Schedule:
The course consists of 3 hours of lectures every week from week 36 to 50 (except week 42).

The overall schema for the Master can be seen at https:/​/​intranet.ku.dk/​economics_ma/​courses/​CourseCatalogue-E17/​Courseschema/​Pages/​default.aspx

Timetable and venue:
To see the time and location of lectures please press the link under "Se skema" (See schedule) at the right side of this page. E means Autumn.

You can find the similar information partly in English at
https:/​​/​​skema.ku.dk/​​ku1718/​​uk/​​module.htm
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-E17; [Name of course]””
-Select Report Type: “List – Weekdays”
-Select Period: “Efterår/Autumn – Weeks 31-5”
Press: “ View Timetable”

ECTS
7,5 ECTS
Type of assessment
Written assignment, 7 days
individual take-home exam.
The exam assignment is in English and must be answered in English.
Aid
All aids allowed
Marking scale
7-point grading scale
Censorship form
External censorship
if chosen by the Head of Studies.
Criteria for exam assessment

Students are assessed on the extent to which they master the learning outcome for the course.

To receive the top grade, the student must be able to demonstrate in an excellent manner that he or she has acquired and can make use of the knowledge, skills and competencies listed in the learning outcomes.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 144
  • Exam
  • 20
  • English
  • 206