BMSS 2006

This part of the course will provide an introduction to the baseline New Keynesian model, including an analysis of its implications for the optimal design of monetary policy, the evaluation of simple rules, and its predictions regarding the dynamics of inflation.

- A simple framework for monetary policy analysis
- Optimal monetary policy
- Simple monetary policy rules
- Inflation dynamics

- The world distribution of income
- Growth, poverty and inequality: the role of globalization
- Neoclassical growth theory: the power of diminishing returns
- The role of incentives
- Government, taxation, the Welfare State and growth
- Ideas and growth: R&D, patents. AIDS, malaria and generics
- The effectiveness of International Aid in promoting economic develpment
- The tragedy of Africa: Diagnostics and setting priorities.

This part of the course will take for granted the student's familiarity with the New Keynesian model, and will focus on several recent extensions of that framework, including labor market imperfections and open economy considerations.

- Sticky nominal wages
- Relal wage rigidities and other labor market frictions
- Monetary policy design for the small open economies
- Optimal fiscl and monetary policy in a currency union

- Finance and economic growth
- Institutions, geography, and trade as deeo deternubabts if economic development
- Human capital, comparative advantage, and technological catch up
- Learning about growth from growth regressions
- Are the externalities to human capital accumularion?

400 euros

A large amount of research on optimal dynamic policy is recently being developed, both in basic research and in research by governing institutions. The object of the course is to analyze the best policy that the government can implement, given how the market reacts to each policy, and given various institutional constraints, such as partial or full commitment, participation constraints, default or political equilibrium. We will discuss the methodology to study optimal policy, focusing on fiscal policy applications, and we will review some relevant papers in this literature along the way.

- Fiscal policy analysis in dynamic models
- Sustainability of debt
- Effects of constraints on fiscal policy (debt limits, balanced budgets ...)
- Debt management
- Stabilization policies
- Interaction with monetary policy
- Commitment versus discretion

- GMM and SMM
- Indirect Inference
- Maximum likelihood
- Bayesian methods

Lectures 17.00-19.00 (10 hours)
Practice Lab: 19.00-20.00 h (5 hours)

This course examines the effects of globalization on the workings of financial markets, focusing both on theoretical results and policy implications. The first part of the course focuses on the problems associated with sovereign risk, while the second part studies the sources and effects of asset bubbles. Both parts are self-contained and students can either enroll for the entire course or for only one part.

- Sovereign risk, default and restructuring
- What is the role of secondary markets for debt
- Application: how to structure the sovereign debt market

- Economic integration and the location of economic activity
- The formation of cities: developers and self-organization
- The motives for agglomeration: what generates aggregate increasing returns?
- Specialization and diversifiction in cities
- The distribution of city sizes

- Have financial crisis become more frequent or more severe in the last century? If so, why?
- Is there a need for international lender of last resort?
- What do we learn from the recent Argentine and Brazilian crises about designing a better "international financial architecture"?
- Noise traders, sophisticated investors, and the origins of bubbles
- How and when should central banks intervene to stop asset price bubbles?
- Contagion and its measurement

- Asset bubbles, investment and productivity growth
- Should goverments attempt to manage asset bubbles
- Application: the US current account deficit, sustainability and adjustment

09:00- 11:00 h