Monetary Theory and Policy (Tutorial)

This course introduces students to the dynamic stochastic general equilibrium (DSGE) models used in modern monetary macroeconomics called New Keynesian models. The basic model equations including nominal frictions such as price stickiness are derivedcarefully, and model solution techniques are discussed. Numerical solutions of the models are obtained and the models are simulated and analyzed using Dynare in MATLAB. Possible extensions to the core model that may be treated in class include an analysis of optimal monetary policy.

Instructors: Prof. Dr. A. Meyer-Gohde (exception: Prof. Dr. M. Trabandt in Fall 2021) Dates: Spring 2023

Course Outline

1. Introduction Concepts/techniques: Real Business Cycles versus New Keynesianism Main readings: Galí (2008), ch. 1 Additional reading: Lucas (1976), Sims (1981)

2. A Classical Monetary Economy Concepts/techniques: Intertemporal optimization, monetary neutrality, log lin- earization Main reading: Galí (2008), ch. 2 Additional reading: King and Watson (1995)

3. The Basic New Keynesian Model Concepts/techniques: Staggered price setting, equilibrium determination Main reading: Galí (2008), ch. 3 Additional reading: Clarida et al. (1999)

4. Optimal Policy Design Concepts/techniques: Policy efficiency, optimal versus simple policy rules Main reading: Galí (2008), ch. 4 Additional reading: Woodford (2001)

5. Discretion versus Commitment Concepts/techniques: Time consistency Seite 3 von 3 Main reading: Galí (2008), ch. 5 Additional reading: Barro and Gordon (1983