FDPE Macroeconomic Theory: Part II, spring 2010 — Section 2: Monetary
Theory
This is the website of the section 2 of the part II of the FDPE course on
Macroeconomics. Hence, this contains information of the part of the
lectures that are given by Antti Ripatti. The course has the formal website,
where you may find information regarding the Part I
(lectured by Niku Määttänen) and the first section of Part II
(lectured by Markus Haavio). The part II syllabus.
Course forum (macro.freeforums.org)
I created a discussion forum.
Ideally, this would complement lectures and exercises by giving an
opportunity to discuss vague issues. If you ask me something by email,
I will try to reply here too. This is my first time in administering a
forum. Hence, please be patient. I will try to do my best to keep the
forum restricted to the students of the course. However, this is a free
forum site and my effors might be restricted by the features of the
site. I think the forum does not have a formal role. So, in principle,
you may ignore it. Lecture notes
I will rely on the following lecture notes. I will update these frequently and store all vintages. Please, check for the latest version in the previous day of a lecture.
Most probably there will be changes even in the previous night. The
lecture notes are released as a single package. Version history
(reverse order):
- 23 Mar 2010: P_{F,t} corrected (see forum).
- 14 Mar 2010: (size 2.5 MB) chapter 7 slides added. Typos here and there.
- 8 Mar 2010: Chapter 5 slides added. Gali's slides of chapter 7.
- 1 Mar 2010: some typos corrected.
- 14 Feb 2010: added discussion regarding substitution and wealth effect in the demand for labour (same slides 2 in 1; hopefully everything is present)
- 11 Feb 2010: marginal changes to chapter 3 slides.
- 7 Feb 2010: recompiling old slides. Contains most of the material of the first three lectures.
Exercises
Try to get the Galí's book. It is more complete than my slides. You
may encounter many practical problems in doing the exercises
(computation in particular). It is, however, necessary that you will
try hard. See the computing hints below!
- Problem set 1. The weights of the exercises are 30%, 20% and 50%. Note,
that in the
third exercise the monetary policy rule is the same as in the book
equation (41) (page 30). It is enough to outline the solution to 3 e)
and discuss the impulse response. Computation (with dynare) is not
necessary.
- Problem set 2. You might benefit the simple example how to get from the infinite sum into recursive form.
- Problem set 3: Exercise 5.4 in the book. Do not write
more than 200 words in c). Contrary to my previous post, I think you
will have enough fun with this exercise. The weights are equal for a),
b) and c).
Computing hints
A list of log-linearisation rules. These will help you in log-linearisation. Note, that the notation differs from Gali.
Many of the exercises contains computational exercises. Hence you need
a computer, dynare and Matlab or Octave (Octave is free). To install Octave follow the Dynare instructions to install Octave and Dynare website to install Dynare. I have tested both Windows and Ubuntu
(check the dynare wiki and forum for Ubuntu instructions) versions of
Octave/Dynare and both of them do the job. Ubuntu Octave is more
user-friendly. I will give limited support in the technical issues
regarding the installation. Contact my email.
In exercises, I will ask you to
log-linearise some equations. For computational purposes with dynare
this is not necessary. Note, however, that the model has to be
in stationary form in dynare, so get rid of the price level (ie write
the model in terms of inflation and real variables, eg real money
balances $m_t-p_t$). Dynare will then linearize the system
automatically (command stoch_simul(order=1,irf=20);)
and analytically. (This is different than log-linearisation, so your
results may deviate from log-linear version.) This helps you to get
some results.
The
idea in the Dynare is that you need to code the decision rules, the
budget constraints, and the equilibrium conditions. Then dynare use
this information to form the state-space representation of the model.
After this, it solves the model and computes policy functions (ie the
system of solved equation) and standard descriptive statistics of the
model. All of this means that provides you the solution of the
linearised model.
Oops, you need an editor to edit your model file. If you do not have your favourite editor, type edit filename.mod in Octave or Matlab (replace the filename.mod by the name you want; but use the .mod extension.).
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