Overview

Are business cycles costly? This lecture provides a full description on the debate on the welfare cost of fluctuations. The real business cycle framework provides an intuitive benchmark, characterized by an efficient allocation. The introduction of frictions (nominal or financial) makes the allocation less efficient. The introduction of some policy can thus be necessary to dampen these inefficient fluctuations and make the economy closer to the efficient allocation.

Handouts list

Handout 1: The Cost of Fluctuations
Objectives of the Lecture:
  • Mastering the concept of welfare cost;
  • Converting the welfare cost into consumption equivalents;
  • Using higher order simulations to compute the cost;

Materials:

chapter1.pdf Handout
RBC.mod Endougenous labor supply RBC (Dynare file)
Handout 2: A New Keynesian Perspective on Fluctuations
Objectives of the Lecture:
  • Understanding the main equations of New Keynesian Macroeconomics;
  • Estimating the Basic New Keynesian model on US data;
  • Understanding how monetary policy affect inflation dynamics.

Materials:

chapter2.pdf Handout
NK3eq.mod Basic New Keynesian model (Dynare file)
NK3eq_estim.mod Estimated New Keynesian model (Dynare file)
mydb.m Sample (MATLAB file)
Handout 3: Optimal Monetary Policy Rules
Objectives of the Lecture:
  • Evaluating the effectiveness of policy using a welfare criterion;
  • Performing a welfare ranking of alternative macroeconomic policies;

Materials:

chapter3.pdf Handout
optimal_policy.mod Optimal Monetary Policy (Dynare file)
Handout 4: Optimal Macroprudential Policy
Objectives of the Lecture:
  • Understanding the goals and implementation of macroprudential policy;
  • Examining the optimality of macroprudential policy in the face of financial frictions;
  • Understanding the coordination gains of macroprudential and monetary policies.

Materials:

chapter4.pdf Handout
optimal_policy.mod Optimal Monetary Policy (Dynare file)
simulate_zlb.mod Simulate ZLB (Dynare file)
simulate_obc.mod Simulate occasionally binding constraint (Dynare file)

Get MATLAB on your computer


Two possibibilities
Please use your own laptop if you can with MATLAB installed prior to the first lecture.
1/ Installing: Dauphine University provides a free licence for students. Please have Datafeed, Optimization and Econometrics toolboxes installed. This is the safest solution
2/ Citrix: Go to Citrix to connect to a remote server hosted in Dauphine. Note that your internet connection must be stable, which may not always be the case if many users are simultaneously connected to the wifi.

Real time macro-data on MATLAB


This is a must-read as all of the lectures will rely on DBnomics. The latter is a database aggregator which can be queried directly from MATLAB. Please read carefully this following note on DBnomics and download as well the MATLAB function which allows to get real time macro data:

DBnomics.pdf
Quick Guide.     call_dbnomics.m
Query DBnomics w/ MATLAB.

The Dynare package


How to set up Dynare
1/ Download link. (For those of you using citrix, I suggest you to use an older version of dynare because of hard drive limitation, install on H:/ drive.)
2/ Load automatically Dynare.
3/ Call dynare by typing in the command window of MATLAB “dynare NAME_OF_YOUR_DYNARE_FILE”.