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Home | Courses | Macroeconomics IV (Financial Frictions in Macroeconomics)

Macroeconomics IV (Financial Frictions in Macroeconomics)

  • Teacher(s)
    Xuan Wang, Yao Chen
  • Research field
  • Dates
    Period 5 - May 02, 2022 to Jul 15, 2022
  • Course type
  • Program year
  • Credits

Course description

With uncertainty, asymmetric information, and moral hazard, we do not live in a first-best world. Markets are incomplete and financial contracts lead to frictions in the macro-economy, and frictions offer the scope for policy to improve social welfare and risk-sharing. In Macro IV, we incorporate a suite of particular contractual frictions, i.e. financial and monetary frictions, into macroeconomic models and study their general equilibrium feedback effects.

Lecture 1 and Lecture 2 provide students with the background knowledge and essential building blocks for macro-financial issues, and they cover financial equilibrium with uncertainty, introduction to general equilibrium with incomplete markets and equilibrium default.

Lecture 3 to Lecture 6 build on the first two lectures to explore various yet related topics in macro-finance. These topics include debt overhang, sovereign default, liquidity and money in macroeconomics, financial frictions in DSGE models, and risk-centric macro-finance (search for yield, fire-sale, and risk shifting). Students will be introduced to both seminal work and state-of-the-art literature to think about macro-financial issues critically and constructively, assess the scope for policy, and develop a learned view on the history and evolution of macro-finance literature in the past few decades.

Course literature

Primary reading
- Selected papers.