Bloomsbury PhD Programme Topics in Applied Macroeconomics

Suitable for: Mphil /PhD students. Prerequisites: Knowledge of macro, micro and econometrics at the MSc level. Aims: This course aims to provide an overview of a wide array of advanced level research topics that are currently popular in applied macroeconomics and macroeconomic policymaking. Topics that will be covered include specification and estimation/calibration of small scale macroeconomic models, selected issues on model uncertainty and global coordination games in macroeconomics. The course aims to help research students interested in applied macroeconomics to formulate or deepen their research question. Some programming issues in matlab/dynare will also be addressed. Teaching: There will be 14 lectures and presentations Tuesday or Thursday afternoons, 2.00 - 4.00pm, Room 745.

Tentative Schedule: Yunus Aksoy: five weeks; starting 10th of November Peter Tinsley: four weeks; starting Tuesday 5th of January,2010. Anne Sibert: five weeks, second part of Spring term.

Assessment Assessment will be based on two components: (1) contributions to seminars, presentations of material for discussion, and so on; (2) TWO short (indicatively between three and five thousand words) written paper submitted on a topic related to some of the material covered in the course. Essays can be a survey of the related literature covered in the lectures or an original student paper on one of the topics discussed in the lectures. Both essays should be submitted by 1st of June, 2010. • •

Essay I weight: 50% Essay II weight: 50%

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Reading List The purpose of this is to give an initial indication of the material we might cover in the eighteen weeks of this course. Since the plan is to make use of presentations by participants, it seems sensible not to try to cover too much ground, and to look at some recent material in depth.

Spring Term: November 10,17,24, December 1, 8

Part I Lecturer: Yunus Aksoy (Five weeks) Lecture 1: Monetary Economics and Data Uncertainty Aruoba, B. (2005), Data Revisions are not Well-behaved, mimeo. Bernanke, B. S. and J. Boivin, “Monetary Policy in a Data-Rich Environment,” Journal of Monetary Economics, 50, April 2003, 525-546. Croushore, D. and C. Evans, (2006), Data Revisions and the Identification of Monetary Policy Shocks, Journal of Monetary Economics, 1135-60. Croushore, D. and T. Stark, (2001), A real-time data set for macroeconomists, Journal of Econometrics, pp. 111-30. Croushore, D. and T. Stark, (2003), A Real Time Dataset for Macroeconomists: Does the Data Vintage Matter? Review of Economics and Statistics, pp. 605-17. Faust, J., Rogers J.H. and Wright, J., (2005), News and Noise in G-7 GDP Announcements, Journal of Money, Credit, and Banking, 37, pp. 403-19. Faust, J., Rogers J.H. and Wright, J., (2003), Exchange Rate Forecasting: The Errors We've Really Made, Journal of International Economics, 60, pp. 35-59. Mankiw, N.G. and Shapiro, M.D. (1987), News or Noise? An Analysis of GNP Revisions, NBER Working Paper No. 1339, Cambridge MA. Mankiw, N.G., Runkle, D.E. and Shapiro, M.D. (1984) Are Preliminary Announcements of the Money Stock Rational Forecasts? Journal of Monetary Economics 14, pp. 15-27. Orphanides, A., (2001), Monetary Policy Rules Based on Real-Time Data, American Economic Review, 91, pp. 964-985. Orphanides, A., (2003), Monetary Policy Evaluation with Noisy Information, Journal of Monetary Economics, 50, pp. 605-631

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Orphanides, A. and van Norden, S., (2002), The Unreliability of Output Gap Estimates in Real Time, Review of Economics and Statistics, 84(4), pp. 569-583. Orphanides, A., (2000), The quest for prosperity without inflation, Journal of Monetary Economics, 50(3), 633-663. Orphanides, A., R. D. Porter, D. Reifschneider, R. Tetlow and F. Finan, 2000, Errors in the measurement of the output gap and the design of monetary policy, Journal of Economics and Business, 52, 117-143. Walsh, C. E., (2003), Implications of a Changing Economic Structure for the Strategy of Monetary Policy, in Monetary Policy and Uncertainty: Adapting to a Changing Economy, Jackson Hole Symposium, Federal Reserve Bank of Kansas City, 297-348.

Lecture 2: Monetary Economics and Parameter Uncertainty Brainard, W. (1967), Uncertainty and effectiveness of policy, American Economic Review (papers and proceedings), 57 (2), pp. 411-425. Batini, Martin, Salmon (1999) Monetary Policy and Uncertainty, BoE Quarterly Bulletin. Giannoni, M.P., (2002), Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy in a Forward Looking Model, Macroeconomic Dynamics, 6, pp. 111-141. Giannoni, M.P., (2007). Robust optimal monetary policy in a forward-looking model with parameter and shock uncertainty. J. Appl. Econ. 22: 179–213. Levin, A, J.C. Williams (2003), Parameter Uncertainty and the Central Bank’s Objective Function, Federal Reserve Board of Governors, mimeo. http://www.bankofcanada.ca/fr/document_colloque/modele_dynamique2003/pdf/levinwilliams07-2003.pdf Onatski, A., Stock, J., (2002), Robust Monetary Policy under Model Uncertainty in a Small Model of the US Economy, Macroeconomic Dynamics, 6, pp. 85-110. Poole, W., “Optimal Choice of Monetary Policy Instrument in a Simple Stochastic Macro Model,” Quarterly Journal of Economics, 84(2), May 1970, 197-216 Rudebusch, G. (2001), Is the Fed Too Timid? Monetary Policy in an Uncertain World Review of Economics and Statistics 83(2), 203-217 Sack, B. (1998) Does the Fed Acts Gradually? A VAR Analysis, Fed Working Paper, No. 17.

Lectures 3-4: Model Uncertainty: Competing Monetary Models Clarida, R., J. Gali and M. Gertler (1999), The science of monetary policy: A new Keynesian perspective, JEL, 37 (4), pp. 1661- 1707.

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Rudebusch, G. and L. Svensson (1999), Policy rules for inflation targeting, In: Taylor, J.B., (ed.) Monetary Policy Rules, University of Chicago Press, pp. 203-253. Fuhrer, J., (2000), Habit formation in consumption and its implications for monetary policy models, AER, 90 (3), pp.367-390

Lecture 5: Robust Monetary Policy Design Giannoni, M.P., (2007). Robust optimal monetary policy in a forward-looking model with parameter and shock uncertainty. J. Appl. Econ. 22: 179–213. Giannoni, M.P., (2002), Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy in a Forward Looking Model., Macroeconomic Dynamics, 6, pp. 111-141. Levin, A., and J. Williams (2003), Robust monetary policy with competing reference models, JME, 50 , pp. 945-975. Levin, A., V. Wieland, and J. Williams (2003), The performance of forecast based monetary policy rules under model uncertainty, AER, 93(3)622-645. Levin, A., V. Wieland, and J. Williams (1999), Robustness of simple monetary policy rules under model uncertainty, In: Taylor, J.B., (ed.) Monetary Policy Rules, University of Chicago Press, pp. 263-299. Levin, A., Onatski, A., Williams, J., Williams, N., "Monetary Policy under Uncertainty in Microfounded Macroeconometric Models, In: NBER Macroeconomics Annual 2005, Gertler, M., Rogoff, K., eds. Cambridge, MA: MIT Press. McCallum, B,. (1988), Robustness properties of a rule for monetary policy, Carnegie Rochester Conference Series of Public Policy, 29, pp. 173-204. Onatski, A., Stock, J., (2002), Robust Monetary Policy under Model Uncertainty in a Small Model of the US Economy, Macroeconomic Dynamics, 6, pp. 85-110. Sargent, T., Hansen, L.P. (2001), Acknowledging Misspecification in Macroeconomic Theory, Review of Economic Dynamics 4, pp.519-535 Taylor, J. (1999), The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank, Journal of Monetary Economics 43 pp. 655-679.

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Spring Term: January 5, 2010- March 19, 2010 Part II Lecturer: Peter Tinsley (Four sessions) Lecture 1: Structural Change, Learning & Solving Structural Macro Models Adam, K., A. Marcet, and J. Nicolini. (2008) “Stock Market Volatility and Learning.” European Central Bank working paper 862. Anderson,G. and G. Moore. (1985) “A Linear Algebraic Procedure for Solving Linear Perfect Foresight Models,” Economic Letters, 247-52. Anderson, G. (2006) “Solving Linear Rational Expectations Models: A Horse Race,” FEDS working paper 2006-26. Boivin, J. (2006) “Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and real-time Data.” Journal of Money, Credit and Banking, 38(5), 1149-73. Carceles-Poveda, E. and C. Giannitsarou. (2007) “Adaptive Learning in Practice.” Journal of Economic Dynamics & Control, 31, 2659-697. Coddington, E. an N. Levinson. (1955) Theory of Ordinary Differential Equations. New York: McGraw-Hill. Evans, G. and S. Honkapohja. (2001) Learning and Expectations in Macroeconomics. Princeton, NJ: Princeton University Press. Golub, G. and C. Van Loan (1996) Matrix Computations, 3rd ed.. Baltimore, MD: John Hopkins Kozicki, S. and P. Tinsley. (2009) “Perhaps the 1970s FOMC Did What It Said It Did.” Journal of Monetary Economics. Laubach, T., R. Tetlow, and J. Williams. (2007) “Learning and the Role of Macroeconomic Factors in the Term Structure of Interest Rates.” Federal Reserve draft. Milani, F. (2007) “Expectations, Learning and Macroeconomic Persistence.” Journal of Monetary Economics, 54(7), 2065-82. Orphanides, A. and J. Williams. (2005) “The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations.” Journal of Economic Dynamics & Control, 29, 1927-50.

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Sims, C. (2002) “Solving Rational Expectations Models.” Computational Economics, 10, 120. Lectures 2, 3 and 4: Estimating & Solving Structural Macro Models: DIY (Hands-on learning with Matlab, Aim and Dynare coding of DSGE models) Beyer, A. and R. Farmer. (2008) “What We Don’t Know About the Monetary Mechanism and Why We Don’t Know It.” Macroeconomic Dynamics, 60-74. Brooks, A. and A. Gelman. (1998) “General Methods for Monitoring Convergence of Iterative Simulations.” Journal of Computational and Graphical Statistics, 7(4), 434-55. Cho, S. and A. Moreno. (2006) “A Small-Sample Study of the New-Keynesian Macro Model.” Journal of Money, Credit and Banking, 38(6), 1461-81. Dennis, R. (2007) “Optimal Policy in Rational Expectations Models: New Solution Algorithms.” Macroeconomic Dynamics, 11, 31-55. Finan, F. and R. Tetlow. (1999) “Optimal Control of Large, Forward-Looking Models,” FEDS working paper 1999-51 (rev. May 2000). Fuhrer, J. and G. Moore. (1995) “Monetary Policy Trade-offs and the Correlation Between Nominal Interest Rates and Real Output.” American Economic Review, 85(1), 219-39. Ireland, P. (2001) “Sticky-Price Models of the Business Cycle: Specification and Stability.” Journal of Monetary Economics, 47, 3-18. Ireland, P. (2007) “Changes in the Federal Reserve’s Inflation Target: Causes and Consequences.” Journal of Money, Credit and Banking, 1851-82. Koop, G. (2003) Bayesian Econometrics. Chichester, UK: John Wiley & Sons. Kulish, M. and D. Rees. (2008) “Monetary Transmission and the Yield Curve in a Small Open Economy.” Reserve Bank of Australia research discussion paper 2008-03. Johnson, N., S. Kotz, and N. Balakrishman. (1994) Continuous Univariate Distributions, vol 1. New York, NY: John Wiley & Sons. Magnus, J. and H. Neudecker. (1988) Matrix Differential Calculus with Applications in Statistics and Econometrics. Chichester, UK: John Wiley & Sons. McCallum, B. (2001) “Should Monetary Policy Respond Strongly to Output Gaps?” American Economic Review, 91(2), 258-62. Raferty, A. M. Newton, J. Satagopan, and P. Krivitsky. (2007) “Estimating the Integrated Likelihood via Posterior Simulation Using the Harmonic Mean Identity,” Bayesian Statistics, 1-45. Shafer, G. (1982) “Lindley’s Paradox,” Journal of the American Statistical Association, 32534.

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Part III Lecturer: Anne Sibert (Five weeks) Global Coordination Games and Macroeconomics Angeletos, G. (2006), "Socially Optimal Coordination: Characterization and Policy Implications," unpublished paper. Angeletos, G., Hellwig, C. and A. Pavan (2006), "Signalling in a Global Game," unpublished paper. Carlsson, H. and E. van Damme (1993), "Global Games and Equilibrium Selection," Econometrica, 61, pp. 989-1018. Cornand, C. and F. Heinemann (2004), "Optimal Degree of Public Information Dissemination," CESIfo Working Paper 1353. Crawford, V. P. and J. Sobel (1982), "Strategic Information Transmission," Econometrica, 50, pp. 1431 - 1451. Heinemann, F. and G. Illing (2002), "Speculative Attacks: Unique Sunspot Equilibrium and Transparency," Journal of International Economics, 58, pp. 429-450. Hellwig, C. (2005), "Heterogeneous Information and the Welfare Effects of Public Disclosures," unpublished paper. Hellwig, C. (2002), "Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory, 107, pp. 191-222. Metz, C. E. (2002), "Private and Public Information in Self-Fulfilling Currency Crises," Journal of Economics, 76, pp. 65-85. Morris, S. and H. S. Shin (2004), "Coordination Risk and the Price of Debt," European Economic Review, 48, pp. 133-153. Morris, S. and H. S. Shin (2002), "Social Value of Public Information," American Economic Review, 82, pp. 1521-1534. Roca, M. (2006), "Transparency and Monetary Policy with Imperfect Common Knowledge," Columbia University.

Contacts Yunus Aksoy: http://www.ems.bbk.ac.uk/faculty/aksoy/index_html Anne Sibert: http://www.ems.bbk.ac.uk/faculty/sibert/index_html Peter Tinsley: http://www.ems.bbk.ac.uk/faculty/tinsley/index_html

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