Certificate in Advanced Macroeconomics

The aim of these modules is to make participants aware of the intellectual developments that have shaped current macroeconomic policy. It reviews both the recent theoretical and empirical literature and considers the agenda likely to influence policymakers in years to come. As well as reviewing these developments we will also provide an understanding of the key mathematical and econometric tools utilised in current macroeconomic research.

  • Role of macroeconomic policies in ensuring macroeconomic stability
  • Optimal fiscal and monetary policy
  • Demographic change and macroeconomic performance
  • Unemployment
  • Interaction between financial markets and the real economy
  • Political economy of economic reform
  • The link between economic integration, financial integration, and economic growth

Each module duration: one day.

Delegates may attend individual modules. Those attending the whole programme will be awarded a certificate of attendance, confirming that each module is taught at Masters level. 

Learning Outcomes
  • Knowledge of theoretical underpinnings and empirical findings and their influence on current policy
  • Understanding main drivers of economic growth
  • Understanding interaction between real and financial variables
  • Explanation of changing business cycle patterns and labour market evolution
  • Competence with dynamic techniques required to understand modern macroeconomic literature
  • Familiarity with recent econometric developments in time series

Calculus and basic statistics course. An Undergraduate Economics degree is expected, but no specific economics course is necessary.


Module 1 – Aggregate Demand & Financial Markets

Consumption and Investment. Role of fiscal policy. Ricardian equivalence and impact of fiscal policy. Bond and equity markets.

This module develops a model of consumer behaviour, asset pricing and interest rates, to provide an understanding of the impact of fiscal policy on the economy. We begin by considering Hall's (1978) model of the consumer and its famous prediction that consumption should follow a random walk. We show how to use this result to derive a consumption function and consider the different perspective provided by Euler equations and the consumption function. Key to this result will be derivation of the consumer's intertemporal budget constraint. We move away from the restrictive assumption of quadratic utility and allow for risk aversion and consider Hansen and Singleton's approach to consumer optimisation. We review the empirical evidence on the validity of this approach and consider extensions to allow for borrowing constraints, risk aversion and habits.

The consumer's Euler equation is key to most modern macroeconomics and we show how it can be used to derive expressions for the term structure of interest rates. We also use it as a basis for pricing equity using Lucas' asset pricing tree. We review the empirical evidence in support of this macroeconomic approach to financial variables and in particular focus on the case of the equity premium puzzle and the large number of suggested solutions it has inspired.

Having developed a model of consumer behaviour we can then investigate the impact of fiscal policy on the economy. We start by constructing the government's intertemporal budget constraint and then combine this with our consumption function to establish Barro's Ricardian Equivalence result that fiscal deficits should not impact the economy. We show how this result is a special case by considering, inter alia, risk aversion and liquidity constraints. We review the empirical evidence on the issue of Ricardian equivalence and how government instruments effect the economy.


Module 2 – Crises

Crises in History. Models of banking and financial crises. Prevention and resolution.The Euro crisis.

The purpose of this module is to help understanding the key facts and basic mechanisms about financial crises. The module will mix empirics with theory. The empirical facts will provide a long run perspective on the recurrence of different types of financial crises. The theory will be introduced through very simple canonical models, putting the emphasis on intuition and insight. The module will be concluded by a special focus on the Euro crisis.

1. Financial Crises throughout history
Key Issue: how often do we see crises of each type? What are their costs in the short and in the long run?

2. Key Crisis Models
Key Issue: how much are crisis driven by fundamentals and/or by panic behavior?

3. Micro / Macro-Prudential Regulation and Policy Interventions during Crises.
Key Issue: How can we best prevent crises and how shall we react to their incidence?

4. The Euro Crisis
Key Issue: Do Monetary Unions make crises more severe and recoveries more difficult to achieve?


Module 3* – The Macroeconomics of Employment and Unemployment 

Wage formation. Frictions on the labor market. Job creation, job destruction and regulation of the labor market. Unemployment over the business cycle. Unemployment policy.

1. Employment, productivity, and wages
a. Productivity and living standards in the long run
b. The factor-price frontier
c. How do wages keep in line with productivity: the role of unemployment and wage formation
d. Interpreting movements in the labor income share

2. Labor market flows
a. Job creation and job destruction over the cycle
b. Incidence and duration of unemployment
c. The matching function and the Beveridge curve
d. Interpreting movements in the Bedveridge curve
e. Technical progress and labor reallocation

3. Labor market institutions and employment performance
a. A look at the cross-country evidence
b. The effect of employment protection
c. The role of wage bargaining
d. The role of unemployment benefits
e. Shocks vs. Institutions
f. What do we know about which reforms work?


Module 4 – Business Cycles and Stabilisation Policy

New Keynesian synthesis and the Phillips curve. Time inconsistency and monetary policy. Current issues: the zero lower bound, deleveraging. The multiplier of government spending in normal or abnormal times. Public debt. Interactions between fiscal and monetary policies.

We are still suffering from the aftermath of the Great Recession after the subprime/European crisis. In all countries, we observe the comeback of active public policies to stabilise the economy. Monetary policy is both active and innovative at the zero lower bound. The current debate about fiscal policy concerns the speed of the reduction of public deficit and the proper mix between spending cuts and tax increase. This module will present recent theories and tools to understand the tradeoffs and the complementarities. Empirical results will be presented together with the new theories.

1. Business Cycle Facts
a. Cycles and trends
b. What is the cycle? Filtering the data

2. Monetary Policy
a. What do we know about prices? Are prices sticky?
b. The "New Keynesian" (NK) framework: 

  • The NK Phillips curve, Aggregate Supply and Aggregate Demand
  • Taylor rules and macroeconomic stability
  • Optimal monetary policy

c. Current issues:

  • Zero lower bound and liquidity traps.
  • "Debt deflation" and deleveraging.

3. Fiscal Policy
a. What do we know about the effect of fiscal stimulus? The multiplier of government expenditure in "normal" times: evidence and theory.
b. Public debt:

  • Sustainability and "Ricardian Equivalence". 
  • Macroeconomic effects in "normal times". 

c. Public debt: Current issues.

  • Public debt as a substitute for private debt (deleveraging) in a crisis. 
  • Public debt default? 
  • Taxing times ? Who whould we tax and how? Unpleasant monetarist arithmetic 

d. Fiscal-monetary policy interactions: Fiscal stimulus at the zero lower bound.


Module 5 – Economic Growth

Empirical Facts on Growth. Solow Model and Ramsey-Cass-Koopmans. Endogenous growth theory – Romer/Lucas. Externalities. R&D and technological progress. Policy implications.

The purpose of this module is to present an overview of the current state of play in Economic Growth, at a Masters / advanced undergraduate level. The course is intended for economists, but is not overly technical. References to the main theories are introduced in as intuitive a way as possible, to pinpoint as rigorously as possible which ones withstand empirical scrutiny and why. Throughout the class, special attention is being paid to data, and to what empirical research has taught us about the effective determinants of economic growth.

The structure reflects the evolution of the discipline over the past 50 years: Growth economists have progressively shifted their focus from factor accumulation and technology to searching for the deeper factors that underlie all of the more proximate determinants of growth.

The module leaves room for group discussions, particularly as regards more recent developments on both empirical and theoretical fronts.

1. Economic Growth: the facts to be explained
This introductory section presents salient features of economic growth and cross-country differences in economic performance.

2. Proximate causes of economic growth
This section analyses the degree to which the process of economic growth and income variation among countries can be explained by variations in factor accumulation (physical capital, population growth, human capital) and technology.

3. Fundamentals
This section digs down into the deeper determinants that underlie differences in factor accumulation and technology across countries such as institutions, culture and geography.

4. Concluding remarks and interesting frontiers of research


Course Summary: 

  • Dates:
    Module 1:    6 June 2016
    Module 2:    TBA
    Module 3:    TBA 
    Module 4:    TBA
    Module 5:    TBA 
  • Price:
    All Modules: £1,800 + VAT
    Individual Modules: £440 + VAT

  • Codes:
    Module 1: MAMAC/1
    Module 2: MAMAC/2
    Module 3: MAMAC/3
    Module 4: MAMAC/4
    Module 5: MAMAC/5

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