Macroeconomics II (Macroeconomic Policy)

The course builds on Macroeconomics I and applies dynamic stochastic general equilibrium models to the analysis of monetary and fiscal policy. It consists of four main parts. In the first part, we compare the inequality implications of a complete markets and a standard incomplete markets model when households face idiosyncratic income risk. Afterwards, we develop a basic competitive equilibrium framework which serves as the main building block for the course. The second part focuses on the role of fiscal policy. Here, effects of government spending, the role of public debt, and optimal taxation under commitment will be discussed. The third part introduces money into the framework and derives principles for optimal monetary policy under perfectly flexible prices. Further, the issues of monetary policy implementation and the determination of the price level will be addressed. The last part extends monetary policy analysis to the case where prices are imperfectly flexible. Within this framework optimal monetary policy under commitment and discretion will be examined.