Descriptif

Course description

This course will cover fluctuations, unemployment, economic crises, and macroeconomic stabilization policies through the lens of the “New Keynesian” model that has developed over that past couple of decades and now guides short-run macroeconomic analysis. After reviewing the building blocks of the short-run macroeconomic model (namely, aggregate demand and supply), we will cover conventional monetary and fiscal policies, and then turn to the unconventional policies that are put in place during “liquidity traps”, i.e. situations wherein conventional monetary policy is unable to efficiently restore aggregate demand (as is currently still the case in the euro area). We will occasionally look into the historical record - from the Great Depression to the Japanese experience, to the worldwide Great Recession - and structure the evidence by means of a simple macroeconomic model with price rigidities. We will discuss the effectiveness of unconventional monetary policies (forward guidance, quantitative easing), as well as the unconventional effects of fiscal policies, during liquidity traps. Finally, we will examine whether the current trap follows from a serious but temporary shock or reflects a “secular stagnation" episode of persistently low aggregate demand and growth.

Outline

Part I: Aggregate demand and supply (3 lectures)

Part II: Business cycles and unemployment (3 lectures)

Parti III: Conventional monetary and fiscal policies (3 lectures)

Part IV: the liquidity trap, unconventional policies, and secular stagnation (4 lectures)

Prerequisite

Intermediate Macroeconomics course (Bachelor, Year 2)

Readings

Main text: Edouard Challe, Macroeconomic Fluctuations and Policies, MIT Press, 2019

A complementary reading list of policy and accessible research papers will be provided in due time.