What are we doing each day

1. Monday, March 30th: We went over the syllabus, motivating why to study monetary theory and why we focus on business cycle models. We reviewed the empirical evidence about the Long-Run relations between Output, Inflation and Money [McCandless and Weber (1995), Barro (1998) and Bruno and Easterly (1997)].

2. Wednesday, April 1st: We reviewed the empirical evidence, showing the Short-Run non-neutrality of Money. We discussed the Narrative Approach [Friedman and Schwartz (1963), Romer and Romer (1989)] and the VAR approach, looking at different identification schemes like Cholesky decomposition, Long-Run restrictions [Blanchard and Quah (1988)], Hybrid Restrictions [Gali (1992)] and the Recursiveness Assumption [Christiano, Eichenbaum and Evans (1999)].

3. Monday, April 6th: We introduced money into a Neoclassical model, discussing different approaches like the Shopping-Time model [Clower 1967], the Cash-in-Advance constraint (CIA), and the Money-in-the-Utility-Function [Sidrauski (1967)]. We derived the optimality of the Friedman Rule and analyzed under which circumstances the Neutrality and Superneutrality of Money hold.

4. Wednesday, April 8th: We analyzed the dynamics of the Neoclassical model under different monetary policy rules. We described the evolution of inflation under two alternative interest rate rules and under an exogenous process of the monetary aggregate. We also looked at the relationship between money and the nominal interest rate. We then started describing the New Keynesian model.

5. Monday, April 13th: We derived the equilibrium conditions of the New-Keynesian model, showing what is the role played by monopolistic competition and price stickiness.

6. Wednesday, April 15th: After deriving the New-Keynesian Phillips Curve, we analyzed the equilibrium under alternative policy rules, showing the response of output, inflation, interest rate and money to a monetary policy shock and comparing the results with those obtained in the classical model.

7. Monday, April 20th: We discussed the equilibrium dynamics in response to a technology shock. We then derived the optimal policy and analyzed the performance of alternative simple rules, looking at some empirical evidence [Taylor (1993), Gali end Gertler (2000), Orphanides (2001)].

8. Wednesday, April 22nd: After discussing possible sources of tradeoff between output and inflation stabilization, we introduced a utility based welfare criterion and solved for the optimal policy problem under commitment.

9. Monday, April 27th: We solved the optimal policy problem under no-commitment and discussed the differences w.r.t. the commitment case. We then reviewed the main empirical shortcomings of the baseline New-Keynesian model, [Fuhrer and Moore (1995), Ball (1994)], and discussed the performance of medium-scale models [Christiano Eichenbaum and Evans (2005), Smets and Wouters (2007), Chari Kehoe and McGrattan (2009)]. We finally discussed alternative ways of modeling nominal rigidities, illustrating the main features of state dependent pricing models [Caplin and Spulber (1987), Golosov and Lucas (2004)].