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):


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!

  1. 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.
  2. Problem set 2. You might benefit the simple example how to get from the infinite sum into recursive form.
  3. 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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