MACROECONOMIC ANALYSIS AND POLICY - PSE SUMMER SCHOOL www.parisschoolofeconomics.eu - Paris School of ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
From June 17 to June 21, 2019 MACROECONOMIC ANALYSIS AND POLICY PSE SUMMER SCHOOL www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY From June 17 to June 21, 2019 OVERVIEW The Macroeconomic Analysis and Policy module is made of courses dealing with topics at the frontier of policy‐relevant research: monetary and fiscal policy; heterogeneous households, inequality and redistribution (“HANK” models); financial crises; bubbles; labor markets and unemployment; and international linkages. The courses are taught by leading research and teaching figures in their respective fields. Emphasis is put on introducing tools and developing intuition. All courses review core, standard models useful for understanding crises and recessions, and the role of policy therein. Each course contains at least one part that deals with recent research at the frontier. The program will be complemented by a special lecture by Kjetil Storesletten on China’s Economic Transformation. PREREQUISITES A pre‐requisite knowledge of macroeconomics at intermediate (Master or very strong undergraduate) level is preferable, although not formally required. PROFESSORS Florin Bilbiie is Professor of Economics at University of Lausanne, Research Fellow of the CEPR and Editor of European Economic Review. Before 2018, he was at PSE and Paris 1 Pantheon‐Sorbonne (for 9 years), and before that at Oxford University (Nuffield College) and HEC Paris. He visited and consulted with several central banks (New York Fed, Chicago Fed, ECB, Bank of England, Bundesbank, Riksbank, etc.) and held visiting positions with the National Bureau of Economic Research, New York University (NYC and Abu Dhabi) and CREi Barcelona. Florin’s research focuses on business cycles and the role, effects and optimal design of monetary and fiscal policies, in environments with: heterogeneous households (limited participation and incomplete markets); firm entry/product creation and market power; and/or complementarities. His research was published in the Journal of Political Economy, Journal of Economic Theory, Journal of Monetary Economics, American Economic Journal: Macroeconomics, among others. https://sites.google.com/site/florinbilbiie/home Jean‐Olivier Hairault is Professor of Economics at Université Paris 1 Panthéon‐Sorbonne and the Paris School of Economics and IZA Research Fellow. He joined Paris 1 in 1997 after holding positions at University of Paris‐Dauphine and University of Lille 1. He is Deputy Director of PSE in charge of Education program and co‐director of the Master APE. He is also Director of the Macroeconomic Observatory of Cepremap. Jean‐Olivier’s research focuses on business cycles and labor market dynamics; his recent main topic is the source of unemployment fluctuations, with a particular interest for a life‐cycle approach and the relative contribution of job separation and job finding rates. He is also interested in the impact of structural changes and polarization on job reallocation, and the role of labor market institutions. His research was published in Journal of European Economic Association, Economic Journal, Journal of Public Economics, International Economic Review and European Economic Review among others. https://www.parisschoolofeconomics.eu/fr/hairault‐jean‐olivier/ PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY Jean Imbs is Professor of Economics at the Paris School of Economics and a Research Director at France’s CNRS. Until 2010, he was a Professor at the London Business School, and at the University of Lausanne. His research focuses on international macroeconomics, with an interest in the consequences of microeconomic complexity for macroeconomic phenomena. He consults regularly with most major policy institutions, including the International Monetary Fund, the World Bank, the European Central Bank, the Bank of England, and many other central banks around the world. He taught at Princeton University, the University of Chicago Booth School of Business, New York University, INSEAD, HEC Paris, and for policymakers or investment professionals in France and the United Kingdom. http://www.parisschoolofeconomics.eu/en/imbs‐jean/ Romain Rancière is Professor of Economics at University of Southern California, Los Angeles since 2016 and a research fellow at NBER and CEPR. He was previously a Professor of Economics at Paris School of Economics and an economist at the research department of the IMF. His research areas are Macroeconomics and International Finance with a special emphasis on Financial Crises. He has widely published on these topics in journals such as the Quarterly Journal of Economics, American Economic Review or the Journal of Monetary Economics. He has also served as consultant for various central banks. http://www.romainranciere.com/ Gilles Saint‐Paul is Professor of Economics at the Paris School of Economics and Ecole Normale Superieure ENS, and Global University Professor at New York University Abu Dhabi. He is also a research fellow of CEPR, IZA and CES‐Ifo and a former member of the Conseil d'Analyse Economique. He served as consultant for various central banks, ministries, and international institutions. His research spanning a variety of topics in macroeconomics (from labor markets to political economy to bubbles to fiscal policy) has been published in leading journals such as the American Economic Review, Journal of Political Economy, Quarterly Journal of Economics, and others. He is also the author of several books. http://www.parisschoolofeconomics.eu/en/saint‐paul‐gilles/ Kjetil Storesletten is a Professor of Macroeconomics at University of Oslo. He obtained his PhD at Carnegie Mellon University in 1995. He has been a Monetary Advisor at Minneapolis Fed and an Associate Professor at Stockholm University (IIES). He is President Elect of the European Economic Association. He is a joint recipient of the Sun Yefang 2012 Award from the Chinese Academy of Social Sciences (prize granted for the paper “Growing Like China“). He is a former managing editor (2006‐10) of the Review of Economic Studies, and is currently the Chairman of this journal. He is the Principal Investigator of an ERC Advanced Grant. He is a Fellow of the Econometric Society, EEA, and CEPR. His research interests include macroeconomics, political economy, asset pricing, and the economic development of China. He has published papers in several top journals, including, among others: American Economic Review, Econometrica, Journal of Political Economy. http://folk.uio.no/kjstore/ Programme Supervisor: Axelle Ferriere Axelle Ferriere is Assistant Professor at Paris School of Economics and a Research Fellow at France’s CNRS. Before 2018, she spent 3 years at the European University Institute in Florence. She obtained her Ph.D. in Economics from the New York University, Stern School of Business. Her research primarily focuses on fiscal policy and redistribution, through the lens of heterogeneous‐agent models. In addition, she is also interested in the quantitative effects of uncertainty. Her work has been published in journals such as American Economic Journal: Macroeconomics and Journal of Monetary Economics. https://www.parisschoolofeconomics.eu/fr/ferriere‐axelle/ PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY
SCHEDULE
Monday June, 17
9 am ‐ 9.30 am Welcome coffee
9.30 am ‐ 11 am Jean Imbs, International Macroeconomics
11 am ‐ 11.15 am Break
11.15 am ‐ 12.45 pm Jean Imbs, International Macroeconomics
12.45 pm ‐ 2.30 pm Lunch
2.30 pm ‐ 4 pm Jean Imbs, International Macroeconomics
4 pm ‐ 4.15 pm Break
4.15 pm ‐ 5.45 pm Jean Imbs, International Macroeconomics
6 pm ‐ 7 pm Francis Bloch, Plenary Lecture
From 7 pm Welcome Cocktail
Tuesday June, 18
9.30 am ‐ 11 am Gilles Saint‐Paul, Bubbles
11 am ‐ 11.15 am Break
11.15 am ‐ 12.45 pm Gilles Saint‐Paul, Bubbles
12.45 pm ‐ 2.30 pm Lunch
2.30 pm ‐ 4 pm Gilles Saint‐Paul, Bubbles
4 pm ‐ 4.15 pm Break
4.15 pm ‐ 5.45 pm Gilles Saint‐Paul, Bubbles
From 6 pm Social event
Wednesday June, 19
9.30 am ‐ 11 am Jean‐Olivier Hairault, Unemployment, Labor Markets, and Policies
11 am ‐ 11.15 am Break
11.15 am ‐ 12.45 pm Jean‐Olivier Hairault, Unemployment, Labor Markets, and Policies
12.45 pm ‐ 2.30 pm Lunch
2.30 pm ‐ 4 pm Jean‐Olivier Hairault, Unemployment, Labor Markets, and Policies
4 pm ‐ 4.15 pm Break
4.15 pm ‐ 5.45 pm Jean‐Olivier Hairault, Unemployment, Labor Markets, and Policies
Thursday June, 20
9 am ‐ 10.30 am Florin Bilbiie, Macro Policies in Heterogeneous‐Agent New Keynesian Models
10.30 am ‐ 10.45 am Break
10.45 am ‐ 12.15 pm Florin Bilbiie, Macro Policies in Heterogeneous‐Agent New Keynesian Models
12.15 pm ‐ 1 pm Lunch
1 pm ‐ 2 pm Keynote: Kjetil Storesletten, China’s Economic Transformation
2 pm ‐ 2.30 pm Break
2.30 pm ‐ 4 pm Florin Bilbiie, Macro Policies in Heterogeneous‐Agent New Keynesian Models
4 pm ‐ 4.15 pm Break
4.15 pm ‐ 5.45 pm Florin Bilbiie, Macro Policies in Heterogeneous‐Agent New Keynesian Models
From 6 pm Social event
Friday June, 21
9.30 am ‐ 11 am Romain Rancière, Financial Crises: A Post‐2008 Perspective
11 am ‐ 11.15 am Break
11.15 am ‐ 12.45 pm Romain Rancière, Financial Crises: A Post‐2008 Perspective
12.45 pm ‐ 2.15 pm Lunch
2.15 pm ‐ 3.45 pm Romain Rancière, Financial Crises: A Post‐2008 Perspective
3.45 pm ‐ 4 pm Break
4 pm ‐ 5.30 pm Romain Rancière, Financial Crises: A Post‐2008 Perspective
From 6 pm Social Farewell cocktail/certificates
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019
MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY
Macro Policies in Heterogeneous‐Agent New
Keynesian Models
Florin Bilbiie
This course takes place on Thursday
OBJECTIVES
What can we learn (if anything) that is useful for policy in crisis times from current state‐of‐the‐art macroeconomic
models of the “New Keynesian” (NK) type (dynamic forward‐looking general‐equilibrium models with nominal and real
rigidities) and their recent heterogeneous‐agent extensions?
This course reviews the core intuition and mechanisms of the standard NK model (the two textbooks by Woodford and
Gali are good references in order to refresh or introduce students to this framework). The course uses this framework
to revisit issues such as liquidity traps and zero lower bound, forward guidance and quantitative easing, and the role of
fiscal stimulus in recessions (distinguishing spending, taxes, and debt); we conclude by introducing a simple “HANK”
(heterogeneous‐agent NK) model and studying its implications for monetary and fiscal policies, and for inequality and
redistribution.
COURSE STRUCTURE & REFERENCES
1. Quick review of a plain vanilla NK model
‐ Woodford, M., (2003). “Interest and Prices: Foundations of a Theory of Monetary Policy”. Princeton
University Press
‐ Gali, J. 2010, “Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian
Framework”. Princeton University Press
2. Liquidity traps and zero lower bound: Forward guidance and quantitative easing
‐ Eggertsson, G.B. and Woodford, M. (2003) "The Zero Bound On Interest Rates And Optimal Monetary Policy,"
Brookings Papers on Economic Activity 34, 2003‐1 (2003): 139‐235
‐ Christiano L., Eichenbaum, M. and Rebelo, S. (2011). "When Is the Government Spending Multiplier Large?,"
Journal of Political Economy, 119(1), pages 78 ‐ 121
‐ Auerbach, A. J. and Obstfeld, M. (2005) "The Case For Open‐Market Purchases In A Liquidity Trap," American
Economic Review
‐ Benhabib, J., Schmitt‐Grohe, S. and Uribe, M. (2002). "Avoiding Liquidity Traps," Journal of Political Economy
‐ Bilbiie, F. (2016) “Optimal Forward Guidance”, CEPR
3. Fiscal policy to fight a recession: Spending, taxes and public debt
‐ Christiano, L., Eichenbaum, M. and S. Rebelo (2011). "When Is the Government Spending Multiplier Large?,"
Journal of Political Economy, 119(1), pages 78 ‐ 121.
‐ Woodford, M. (2011). "Simple Analytics of the Government Expenditure Multiplier," American Economic
Journal: Macroeconomics, 3(1), p 1‐35
‐ Eggertsson, G. (2010), "What Fiscal Policy Is Effective at Zero Interest Rates?", in: D. Acemoglu and M.
Woodford, eds: NBER Macroeconomics Annual 2010, University of Chicago Press.
‐ Bilbiie, F., Mueller, G. and Meier, A. (2008), "What Accounts for the Change in U.S. Fiscal Policy
Transmission?", Journal of Money, Credit and Banking, 2008
‐ Bilbiie, F., Monacelli, T. and Perotti, R., (2014), “Is government spending at the zero lower bound desirable?”,
NBER Working Paper
‐ Bilbiie, F. (2011): “Non‐Separable Preferences, Frisch Labor Supply and the Consumption Multiplier of
Government Spending: One Solution to a Fiscal Policy Puzzle”, Journal of Money, Credit and Banking.
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY
4. Simple HANK Models: Inequality and Policy (“HANK”: Heterogeneous‐Agent New Keynesian)
4.a Monetary Policy
‐ Bilbiie F. (2008). "Limited Asset Market Participation, Monetary Policy, and Inverted Aggregate
Demand Logic". Journal of Economic Theory 140, 162‐196.
‐ Bilbiie F. (2017) “The New Keynesian Cross: Understanding Monetary Policy with Hand‐to‐Mouth
Households” CEPR DP
‐ McKay, A., E. Nakamura, and Steinsson, J. (2015) “The Power of Forward Guidance Revisited”,
American Economic Review
‐ Kaplan, G., Moll, B., and Violante, G. (2017) “Monetary Policy According to HANK”, American
Economic Review
‐ Bilbiie F. and Straub, R. (2013), "Asset Market Participation, Monetary Policy Rules and the Great
Inflation", Review of Economics and Statistics
‐ Bilbiie F. (2017) “The Puzzle, the Power, and the Dark Side: Forward Guidance Redux”, CEPR DP
‐ Bilbiie, F. and Ragot, X. (2017) “Optimal Monetary Policy and Liquidity with Heterogeneous
Households”, CEPR
4.b Fiscal Policy
‐ Bilbiie, F. (2017) “Inspecting the Mechanism: Fiscal Stimulus with Heterogeneous Households” CEPR
DP
‐ Gali, J., Lopez‐Salido, D. and Valles, J. (2007) “Understanding the Effects of Government Spending on
Consumption”, Journal of the European Economic Association
‐ Eggertson, G. and Krugman, P. (2013), "Debt, Deleveraging, and the Liquidity Trap: A Fisher‐Minsky‐
Koo Approach, Quarterly Journal of Economics, 127(3): 1469‐1513, August.
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019
MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY
Unemployment, Labor Markets, and Policies
Jean‐Olivier Hairault
This course takes place on Wednesday
OBJECTIVES
This class purports to review recent developments in labor macroeconomics. This course reviews the core intuition and
mechanisms of the standard search and matching model with and without capital accumulation. It uses this framework
to study the unemployment volatility issue. It starts in a first part with an empirical investigation of the relative
contribution of separations and hirings to the unemployment volatility and presents different extensions dealing with
the Shimer’s puzzle (the inability of the standard model to explain the observed unemployment volatility). In a second
part, the course introduces equilibrium unemployment in DSGE models. In particular, it will present the different ways
to deal with the heterogeneity issue raised by the co‐existence of employed and unemployed households. In
conclusion, optimal monetary policy will be reinvestigating in presence of unemployment.
COURSE STRUCTURE & REFERENCES
1. Relative contributions of separations and findings to unemployment volatility
‐ Barnichon, R. (2010b). Productivity and unemployment over the business cycle. Journal of Monetar
Economics, 57(8), 1013 – 1025.
‐ Blanchard, O.&Diamond, P. (1989). The beveridge curve. Brookings Papers on Economic Activity, 20(1), 1‐76.
‐ Blanchard, O. & Diamond, P. (1990). The cyclical behovior of the gross flows of u.s. workers. Brookings
Papers on Economic Activity, 21(2), 85–156.
‐ Canova, F., Lopez‐Salido, D., & Michelacci, C. (2013). The ins and outs of unemployment: An analysis
conditional on technology shocks. The Economic Journal, 123(569), 515–539.
‐ Elsby, M. W. L., Hobijn, B., & Åahin, A. (2013). Unemployment Dynamics in the OECD. Review of Economics
and Statistics.
‐ Fujita, S. (2011). Dynamics of worker flows and vacancies: Evidence from the sign restriction approach.
Journal of Applied Econometrics.
‐ Fujita, S. & Ramey, G. (2009). The cyclicality of separation and job finding rates. International Economic
Review, 50(2), 415–430.
‐ Hairault, J. O., Le Barbanchon, T., & Sopraseuth, T. (2015). The cyclicality of the separation and job finding
rates in France. European Economic Review.
‐ Petrongolo, B. & Pissarides, C. A. (2008). The ins and outs of european unemployment. The American
Economic Review, 98(2), 256–262.
‐ Shimer, R. (2012). Reassessing the ins and outs of unemployment. Review of Economic Dynamics.
‐ Smith, J. C. (2011). The ins and outs of uk unemployment. The Economic Journal, 121(552), 402–444.
2. Unemployment fluctuations in the matching model : solving the Shimer’s Puzzle
‐ Den Haan, W. J., Ramey, G., & Watson, J. (2000). Job destruction and propagation of shocks.
Fujita, S. & Ramey, G. (2012), ‘Exogenous versus endogenous separation’, American Economic Journal :
Macroeconomics 4(4), 68–93.
‐ Gomme, P. & Lkhagvasuren, D. (2015), 'Worker search effort as an amplification mechanism', Journal of
Monetary Econmics 75.
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY
‐ Hagendorn, M. & Manovskii, I. (2008), ‘The cyclical behavior of equilibrium unemployment and vacancies
revisited’, American Economic Review 98(4), 1692–1706.
‐ Hall, R. E. (2005), ‘Employment fluctuations with equilibrium wage stickiness’, American Economic Review
95(1), 50–65.
‐ Hall, R. E. & Milgrom, P. R. (2008), ‘The limited influence of unemployment on the wage bargain’, American
Economic Review 98(4), 1653–1674.
‐ Mortensen, D. & Pissarides, C. (1994), ‘Job creation and job destruction in the theory of unemployment’,
Review of Economic Studies 61, 397–415.
‐ Nagypal, E. & Mortensen, D. (2007), ‘More on unemployment and vacancy fluctuations’, Review of Economic
Dynamics 10(3), 327–347.
‐ Pissarides, C. (2009), ‘The unemployment volatility puzzle: is wage stickiness the answer?’, Econometrica
77(5), 1339–1369.
‐ Pissarides, C. (2000). Equilibrium Unemployment Theory. MIT Press.
‐ Shimer, R. (2005b). The Cyclical Behavior of Equilibrium and Vacancies Unemployment. American Economic
Review, 90(3), 482–498.
3. Unemployment in DSGE : Heterogeneity issues
‐ Andolfatto, D. (1996), ‘Business cycles and labor‐market search’, The American Economic Review (1), 112–
132.
‐ Aiyagari, S. R. (1994), Uninsured idiosyncratic risk and aggregate savings ,Quarterly Journal of Economics,
vol. 109, pp. 659‐684.
‐ Challe, E. and Ragot, X. (2014), “Precautionary saving over the business cycle.” Economic Journal.
‐ Christiano, L., Eichenbaum, M. & Trabandt, M. (2016), 'Unemployment and business cycles', Econometrica
84(4), 1523‐1569.
‐ Gertler, M., Sala, L. and Trigari, A. (2008), “An estimated monetary DSGE model with unemployment and
staggered nominal wage bargaining.” Journal of Money, Credit and Banking, 40, 1713–1764.
‐ Krusell, P., Mukoyama, T. and Sahin, A. (2011), Labor‐market matching with precautionary savings and
aggregate fluctuations, Review of Economic Studies, vol. 77 (4), pp. 1477‐1507.
‐ Krusell, P. and Smith, A.A. (1998), Income and wealth heterogeneity in the macroeconomy, Journal of
Political Economy, vol. 106(5), pp. 867‐89
‐ Merz, M. (1995). Search in the labor market and the real business cycle. Journal of monetary Economics,
36(2), 269–300.
‐ Ravn, M. and Sterk, V. (2013), “Job uncertainty and deep recessions.” London. Report, University College.
‐ Trigari, A. (2009), “Equilibrium unemployment, job flows, and inflation dynamics.” Journal of Money, Credit
and Banking, 41, 1–33.
4. Optimal monetary policy with unemployment
‐ Blanchard, O. and Galí, J. (2010), “Labor markets and monetary policy: A new Keynesian model with
unemployment.” American Economic Journal:Macroeconomics, 2, 1–30.
‐ Galí, J. (2010), “Monetary policy and unemployment.” In Handbook of Monetary Economics, Vol. 3, Chapter
10 (B. M. Friedman and M. Woodford, eds.), 487–546, Elsevier.
‐ Walsh, C. E. (2005), “Labor market search, sticky prices, and interest rate policies.” Review of Economic
Dynamics, 8, 829–849. [438, 441]
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019
MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY
International Macroeconomics
Jean Imbs
This course takes place on Monday
OBJECTIVES
This class purports to review recent developments in international macroeconomics. The range of topics we cover
corresponds to recent advances in the field, and is meant to give students a flavor of the current state of the art in
international macro: global imbalances, exchange rates, contagion, and capital flows.
COURSE STRUCTURE & REFERENCES
1. Global Imbalances ‐ The intertemporal approach to the current account, Dynamics of the current account, The
transfer problem, Valuation Effects, Credit Constraints.
‐ Obstfeld, M., and Rogoff K. (2005). “The Unsustainable US Current Account Position Revisited”, Brookings
Papers on Economic Activity , issue 1, 67‐123.
‐ Gourinchas, P.O. and Rey, H. (2007), “From World Banker to World Venture Capitalist: The US External
Adjustment and The Exorbitant Privilege”, in "G7 Current Account Imbalances: Sustainability and Adjustment",
Richard Clarida, editor, The University of Chicago Press, 2007, pp. 11‐55.
2. Exchange Rates
‐ Rogoff K. (1996) "The Purchasing Power Parity Puzzle", Journal of Economic Literature Vol. 34, No. 2. (Jun.,
1996), pp. 647‐668.
‐ Obstfeld M. and Rogoff, K. (2000) "The Six Major Puzzles in International Macroeconomics: Is There a
Common Cause?", NBER Macro Annual 2000, also NBER working paper 7777.
‐ Meese, R. and Rogoff, K. (1983) “Empirical Exchange Rate Models of the 70s: Do They Fit Out Of Sample?”,
Journal of International Economics.
‐ Gourinchas, P.O. and H. Rey, “International Financial Adjustment”, Journal of Political Economy, August 2007.
‐ Bacchetta P. and van Wincoop, E. (2006) "Can Information Heterogeneity Explain the Exchange Rate
Determination Puzzle?", American Economic Review, June 2006.
3. Contagion and capital flows
‐ Backus, D. and Smith, G. (1993) "Consumption and Real Exchange Rates in Dynamic Economies with
Nontraded Goods", Journal of International Economics, 25.
‐ Lewis, K. (1996), "What can explain the apparent lack of consumption risk sharing?" Journal of Political
Economy 104 (April): 267‐97.
‐ Gourinchas P‐O. and Jeanne, O. (2006) "The Elusive Gains from International Financial Integration", Review of
Economic Studies, July 2006
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.eu
PSE SUMMER SCHOOL 2019
MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY
Bubbles
Gilles Saint‐Paul
This course takes place on Tuesday
OBJECTIVES
This course is the introduction to the literature on asset bubbles. A bubble is a deviation of an asset price from its
fundamental value. We want to understand the conditions under which bubbles arise as well as their allocative
consequences. The course will start with the analysis of rational bubbles in partial equilibrium. It will then examine the
possibility of bubbles in general equilibrium models with overlapping generations, where they are similar to a Ponzi
game and their sustainability depends on whether or not the autarkic economy is dynamically inefficient, i.e. involves
excess savings. We will then move on to a more recent literature, studying the consequences of bubbles for long‐term
growth, their role in models of financial accelerators, and the conditions for bubbles to arise in models with boundedly
rational agents. We will conclude with recent papers on the effects of monetary policy on bubbles.
COURSE STRUCTURE & REFERENCES
1. Rational bubbles in partial equilibrium
‐ Barlevy, G. (2007) "Economic theory and asset bubbles", Federal Reserve Bank of Chicago Eco. Perspectives
‐ Blanchard, O. J., and Watson, M. W. (1982): Bubbles, Rational Expectations, and Financial Markets, in Crisis in
the Economic and Financial Structure, ed. by P. Wachtel, pp. 295ñ315. Lexington, Lexington, MA.
‐ Froot, K. and Obstfeld, M. (1991): "Intrinsic bubbles: the case of stock prices" American Economic Review
81(5) 1189‐1124
‐ Shiller, R. J. (1981): “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?”
American Economic Review, 71, 421— 436.
2. Bubbles in overlapping Generations models and dynamic inefficiency
‐ Abel, A., Mankiw, N. G.; Summers, L. H. and R. J. Zeckhauser (1989): "Assessing Dynamic Efficiency: Theory
and Evidence" Review of Economic Studies
‐ Cass, D. (1972), "On Capital Overaccumulation in the Aggregative Neoclassical Model of Economic Growth: A
Complete Characterization", Journal of Economic Theory, 4, 200‐223.
‐ Tirole, J., 1985 "Asset bubbles and overlapping generations", Econometrica
‐ Tirole, J. (1982): "On the Possibility of Speculation under Rational Expectations" Econometrica, 50, 1163‐1182
3. Bubbles in endogenous growth models
‐ Olivier, J., (200) "Growth‐enhancing bubbles", International Economic Review, 41, 1, 133‐151
‐ Saint‐Paul, G. (1992) "Fiscal policy in an endogenous geowth model", Quarterly Journal of Economics
‐ Saint‐Paul, G. (2005), "Fiscal Policy and Economic Growth: the Role of Financial Intermediation", Review of
International Economics, vol. 13, n° 3, 2005.
4. Bubbles as collateral: Financial accelerator
‐ Caballero, R. and Krishnamurthy A. (2006) "Bubbles and capital flow volatility: Causes and risk management",
Journal of Monetary Economics, 53, 35‐53
‐ Farhi, E. Tirole and J. (2011), "Bubbly liquidity" Review of Economic Studies
‐ Kocherlakota, N. (2009), "Bursting bubbles: Consequences and Cures" Federal Reserve Board of Minneapolis
Working Paper
‐ Martin, A. and Ventura, J. (2012), "Economic growth with bubbles", American Economic Review, 102 (6),
2012, 3033‐3058
‐ Martin, A. and Ventura, J. (2011), "Theoretical notes on bubbles and the current crisis", IMF Economic
Review 59 (1), 2011, 6‐40
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.euPSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY
5. Learning bubbles by boundedly rational agents
‐ Marcet A. & Nicolini J.P. (2008), "Stock Market Volatility and Learning"
‐ Brock, W. A., and Hommes C. H. (1998): “Heterogeneous Beliefs and Routes to Chaos in a Simple Asset
Pricing Model,” Journal of Economic Dynamics and Control, 22, 1235—1274.
‐ Carceles‐Poveda, E., and Giannitsarou, C. (2007): “Asset Pricing with Adaptive Learning,” Review of Economic
Dynamics
‐ Cecchetti, S., Lam, P.‐S. and Mark, N. C. (2000): “Asset Pricing with Distorted Beliefs: Are Equity Returns Too
Good to Be True?,” American Economic Review, 90, 787—805.
‐ Bullard, J., and Duffy, J. (2001): “Learning and Excess Volatility,” Macroeconomic Dynamics, 5, 272—302.
‐ Timmermann, A. (1993): “How Learning in Financial Markets Generates Excess Volatility and Predictability in
Stock Prices,” Quarterly Journal of Economics, 108, 1135—1145.
6. Bubbles and monetary policy
‐ Franklin A. and Gale, D. (2001), "Asset Price Bubbles and Monetary Policy", Wharton WP.
‐ Bernanke, B. S., and Gertler, M. (1999) "Monetary Policy and Asset Price Volatility" in New Challenges for
Monetary Policy, Kansas City: Federal Reserve Bank of Kansas City.
‐ Bernanke, B. S., and Gertler, M. (2001) "Should Central Banks Respond to Movements in Asset Prices?"
American Economic Review, May.
‐ Filardo F., Andrew J. (2000) "Asset Prices and Monetary Policy" Federal Reserve Bank of Kansas City
Economic Review, 3rd Quarter.
‐ Galí, J., "Monetary policy and rational asset price bubbles" NBER Working Paper 18806
http://www.nber.org/papers/w18806
‐ Gertler, M. (1998) "Asset Prices and Monetary Policy" in Bank for International Settlements, Asset Prices and
Monetary Policy: Four Views. Basle: BIS.
‐ Weil, P. (1987), "Confidence and the real value of money in an overlapping generations economy", Quarterly
Journal of Economics, 102, 1, 1‐22.
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.euPSE SUMMER SCHOOL 2019
MACROECONOMIC ANALYSIS AND POLICY MACROECONOMIC ANALYSIS AND POLICY
Financial Crises: A post‐2008 Perspective
Romain Rancière
This course takes place on Friday
OBJECTIVES
The purpose of this course is to provide a post‐2008 perspective on the key facts and mechanisms about financial
crises. The course will mix empirics with theory. The empirical facts will provide a long run perspective on the
recurrence of different types of financial crises and recap on how the 2008 is (or isn't) different. The theory will be
introduced through very simple canonical models, putting the emphasis on intuition and insight. The course will be
concluded by a special focus on Inequality and Crises.
TOPICS AND REFERENCES
1. Financial Crises throughout history
Key Issue: How often do we see crises of each type? What are their costs in the short and in the long run?
a. Definitions: banking crisis, currency crisis, and sovereign debt crises.
b. 800 hundred years of financial crisis
‐ Reinhart, C. and Rogoff, K. (2009) “This Time is Different: Eight Centuries of Financial Folly”. Princeton
U. Press
c. Systemic Banking Crises
‐ Laeven, L. and Valencia F. (2012) "Systemic Banking Crises Database: An Update," IMF Working
Papers 12/163, IMF
d. Frequency and Costs of Banking Crises.Crises and Long Run Growth
‐ Rancière, R. ; Tornell A. and Westermann F. (2008) "Systemic Crises and Growth," The Quarterly
Journal of Economics, MIT Press, vol. 123(1), pages 359‐406, 02
e. The 2008 crisis and ifs aftemaths: What more did we learn?
2. Key Crisis Models
Key Issue: How much are crisis driven by fundamentals and/or by panic behavior?
a. Panics and Bank Runs
‐ Diamond, D. and Dybvig, P. (1983) "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political
Economy, University of Chicago Press, vol. 91(3), pages 401‐19, June
b. Fundamental Crises
‐ Allen, F. and Gale, D. (2000) "Optimal currency crises," Carnegie‐Rochester Conference Series on
Public Policy, Elsevier, vol. 53(1), pages 177‐230, December
‐ Douglas, G. and Franklin, A. (1998) "Optimal Financial Crises," Journal of Finance, American Finance
Association, vol. 53(4), pages 1245‐1284, 08
c. The role of information in crises
‐ Morris, S. and Shin, H. S. (1998), “Unique Equilibrium in a Model of Self‐Fulfilling Currency Attacks,”
American Economic Review, 88, 587–597
d. Asymmetric Information and Market Freeze
‐ Kurlat, P. (2013) "Lemons Markets and the Transmission of Aggregate Shocks, "American Economic
Review
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.euPSE SUMMER SCHOOL 2019 MACROECONOMIC ANALYSIS AND POLICY
3. Micro / Macro‐Prudential Regulation and Policy Interventions during Crises
Key Issue: How can we best prevent crises and how shall we react to their incidence?
a. Preventing Crises: Micro and Macro‐Prudential Regulation.
i. Deposit Insurance
‐ Freixas, X. and Rochet, J.C. (2008) The Microeconomics of Banking, 2nd Edition, Princeton
University Press
ii. Capital Requirement
‐ Freixas, X. and Rochet, J.C. (2008) The Microeconomics of Banking, 2nd Edition, Princeton
University Press
iii. The Role of Monetary Policy
‐ Stein, J. (2012) Monetary Policy as Financial‐Stability Regulation. Quarterly Journal of
Economics 127, no. 1: 57‐95
b. Resolving Crises:
i. Bailouts and Restructuring
‐ Tirole, J. (2012) "Overcoming Adverse Selection: How Public Intervention Can Restore Market
Functioning." American Economic Review, 102(1): 29‐59
ii. Liquidity Traps
‐ Cochrane, J. (2013) “The New‐Keynesian Liquidity Trap”, mimeo University of Chicago
c. Time Inconsistency Issues.
i. Balancing Ex‐ante Moral Hazard Risks and Ex‐Post Efficient Crisis intervention
‐ Keister, T. (2009) “Bank Runs and Institutions: The Perils of Intervention”, American
Economic Review
4. Inequality and Crises
Key Issue: Does Inequality cause Crises?
a. 1929 vs. 2008
b. Income Inequality, Wealth Inequality, and Consumption Inequality
c. Propensity to Save
d. Inequality Leverage and Crises
‐ Kumhof, M.; Rancière, R. and Winant, P. (2015) "Inequality, Leverage and Crises," American
Economic Review
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.euHOW TO APPLY TO THE PSE SUMMER SCHOOL 2019
Presentation
Our one‐week programmes are entirely conducted in English. You are expected to participate in all of the courses; you
can follow only one programme per week, but can apply to two consecutive ones. At the end of the programme, you
will receive a certificate. Each programme is equivalent to 3 ECTS (European Credit Transfer System). Students
interested in this transfer should contact their universities.
First week ‐ from June 17 to June 21 Second week ‐ from June 24 to June 28
CLIMATE MACROECO. MICROECO. BOUNDED DEVELOPMENT EXPERIMENTAL MIGRATION TRADE
CHANGE RATIONALITY ECONOMICS ECONOMICS
Participant profiles and selection
The PSE Summer School is aimed at professionals, researchers, and graduate students in Economics and Finance (Masters
and PhD). Undergraduate students in Economics will be considered if their profile is exceptionally strong.
Candidates are invited to submit their applications on a rolling basis at www.pse‐application.eu, including:
A current Curriculum Vitae in pdf format A photo of yourself [not used per se in the application process]
A copy of your most advanced degree For Students: proof of status
A short motivation text Optional ‐ Letter(s) of recommendation
Fees
Fees cover lunches and social events, as well as the welcome and farewell cocktails. They do not cover accommodation,
transport or any other services.
Early bird discount: A 10% discount applied for participants who paid before March 31, 2019.
Group discount: A 10% discount applies when a single employer or institution enrolls at least five (5) members
in the Summer School. The discount is offered to participants regardless of the course she or he selects and is
applied upon the signing of a training agreement between the employer and PSE.
Cancellation policy ‐ Confirmed participants who wish to cancel must do so in writing by email; your tuition fees will be
partially refunded as described online.
Any questions? summer‐school@psemail.eu
PSE SUMMER SCHOOL 2019 www.parisschoolofeconomics.euA SUMMER ON THE JOURDAN CAMPUS…
The 2019 Edition will take place at PSE in the 14th arrondissement of Paris. A new 12500 m² building
houses around 1500 researchers, students, and administrative teams of the PSE and the Ecole normale
supérieure. The 1-hectare Jourdan campus offers ideal conditions: numerous classrooms and working
spaces, a 300 places amphitheater, a library with more than 50000 books, a student home…
More (online) about the Jourdan Campus – google maps, gallery, videoSUMMER SCHOOL
2019, PARIS
www.parisschoolofeconomics.euYou can also read
