UCL - Economic Fluctuations and Foundations of Macro Policy

[ECON2021]

[30h + 12h] 5 credits

Teacher(s): David De la Croix

Language: French

Level: Second

Aims
Main themes
Content and teaching methods
Other information (prerequisite, evaluation (assessment methods), course materials recommended readings, ...)

Aims

The objective of this macroeconomic course is to model the aggregate behavior of households and firms, to study the role of the government, to provide a toolbox to analyze the developed countries, and to evaluate the effects of macroeconomic policy. At the end of the course, students should have the following four competen-cies. (1) To understand some important tradeoffs agents face (consumption/leisure, consumption/saving, money holdings/bond holdings, investment by firms). (2) To know how these tradeoffs are modified by the fundamen-tal parameters of the economy, by expectations and by policies. (3) To be able to analyze the global conse-quences of individual choices and the determination of equilibrium. (4) TO understand how this equilibrium is affected by shocks.

Main themes

We start with an emprical part, in which we decompose macroeconomic time series into trend and cycle compo-nents. The inspection of cyclical parts gives then hints to build and evaluate subsequent theory. To study the key tradeoff mentionned above, we develop a two-period model which allows to introduce expectations in a simple way. The method the consists in analyzing the general equilibrium and its properties. We shall at least develop the following themes: Effect of productivity shocks, effect of fiscal policy and its financing, openess to trade, money and inflation, exchange rate regimes. We shall also compare the predictions of the neoclassical approach with the one with the Keynesian ISLM ones which have been seen in the BA course. We all compare with a multiple equilibria set-up. During the lectures, we shall establish numerous links with other courses (for exam-ple one can discuss the first welfare theorem, the theory of comparative advantages...)

Content and teaching methods

The building blocs
A - intro, B - measuring the cycle, C - the consumption - leisure tradeoff, D- firms, E - static general equilib-rium, F - the consumption - saving tradeoff, G - Ricardian equivalence

Fulfledged models
H - Dynamic general equilibrium, I - Money, J - Inflation, K - alternative model 1: IS-LM, L - alternative model 2: multiple equilibria

Extensions
M - International trade, N - capital mobility, O - Exchange rates

Application
P- the great depression

Other information (prerequisite, evaluation (assessment methods), course materials recommended readings, ...)

Prerequisite: Macroeconomics Analysis (eg book Blanchard)
Microeconomics
Support: transparent Portfolio
Book: Williamson, Macroeconomics, Pearson, 2005