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Monetary Economics 2


Aims of the course

Synthetically present the theory of monetary economics and monetary policy based on Neo-Keynesian models of nominal and real rigidities in economy.
Familiarize graduate students with the advanced methodological tools. First, the basic canonic transcription of the closed economy model will be derived, followed by its amplification to the open economy, and finally the basic empiric applications and potential model expansions. The basic emphasis will be on the new approach to studying monetary policy, which achieves price stability though the control of interest rates following the Neo-Wicksellian approach.
Students learn the basic methods for solving linear stochastic forward-looking models using Dynare.
In the empirical part of the course we introduce vector autoregressions as one of the basic tools of macroeconomic analysis. The econometric methods are applied to current macroeconomic issues.

Course syllabus

1. Monopolistic competition and aggregate demand
1.1 Consumption basket and price indexes
1.2 Household optimization problem
1.3 Expectations augmented IS curve
1.4 Trade balance and complete markets
2. Nominal rigidities and the New-Keynesian Phillips curve
3. Log-linearization and model solution methods for dynamic stohastic models
4. Rational expectations equilibrium and VAR representation
5. Monetary policy in the closed economy
5.1 Taylor rule and Taylor principle
5.2 Inflation targeting in closed economy
5.3 Optimal monetary policy: discretion and commitment
6. Determinacy in a cashless economy
7. Empirical applications – the analysis of monetary policy with the SVAR model

Course director(s)

  • Igor Masten, PhD, Full Professor

  • Academic Unit for Money and Finance (Regular Member)
  • Academic Unit for Mathematics, Statistics and Operations Research (Associate Member)
  • Office Hours
  • Tuesday at 14:00 in RZ-205
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