International Macroeconomics & Finance - ECON 641

Spring 2016

Matteo Iacoviello

Federal Reserve Board
Course webpage:

Last updated: April 9, 2016. 

Course Description

This is a topics course in Macroeconomics. I will cover models with financial frictions, models with occasionally binding constraints, models with sticky prices, and econometric evaluation of DSGE models.

My complete set of lecture notes can be found here. Click.

Evaluation will be based on

1. Assignments.

Homework 1 (due February 27)

Homework 2 (due April 16)

2. Presentation (April 29)

3. Short Paper (due around May 15)

[ Grading by TBA ]

Calendar of Classes

(3.30 pm to 6 pm in ICC120, unless otherwise stated)

  1. January 15, Friday : DSGE Models, overview

  2. January 22, Friday: Dynare and Occbin

  3. January 29, Friday: Occbin, Applications

  4. February 5, Friday: Parameterized Expectations

  5. February 12, Friday: Money in Utility Models

  6. February 19, Friday: Sticky Price Models

  7. February 26, Friday: Sticky Price Models

  8. March 4, Friday: ZLB and Open Economy Extensions

    March 11 (NO CLASS / SPRING BREAK )

  9. March 15, Tuesday (Extra Class) TBA

  10. March 18, Friday: Pecuniary Externalities (Optional assignment here)

    March 25 (NO CLASS / SPRING BREAK )

  11. April 8, Friday: Banks

  12. April 15, Friday: Estimation of DSGE Models

  13. April 22, Friday : Asymmetries

  14. April 29, Friday : Presentations:  MH: Boissay, Collard, Smets; FG: Justiniano, Primiceri, Tambalotti;  YYW: Bocola; MC: Greenwald

Reading List

1. Solving Dynamic Equilibrium Models

* Uhlig, Harald (1997) A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily''

* Schmitt-Grohe, Stephanie and Martin Uribe. “Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function.” Journal of Economic Dynamics and Control 28 (January 2004): 755-75.

* Fernandez-Villaverde, Jesus, Juan F. Rubio-Ramirez and Frank Schorfheide (2015), Solution and Estimation Methods for DSGE Models

2. Models with Occasionally Binding Constraints: Methods

* Guerrieri, Luca and Matteo Iacoviello (2015), “Occbin: A Toolkit to Solve Models with Occasionally Binding Constraints Easily”, Journal of Monetary Economics

Occbin is available here

3. Models with Occasionally Binding Constraints: Applications

Dynare's User guide,

The codes I used in classes are linked below.

4. Alternative Solution Methods: PEA

* Marcet, Albert, and Guido Lorenzoni. "Parameterized expectations approach; some practical issues." (1998).

* Den Haan, Wouter “Lecture Notes on Projection Methods

* Judd, Kenneth L., Lilia Maliar, and Serguei Maliar. "Numerically stable and accurate stochastic simulation approaches for solving dynamic economic models." Quantitative Economics 2.2 (2011): 173-210.

5. Models with Money

* Walsh, Monetary Theory and Policy, MIT Press, Chapters 1 to 3

Addendum: some interesting readings on monetary policy implementation during times of crisis

Ennis, Huberto M., and Todd Keister (2008). "Understanding monetary policy implementation." FRB Richmond Economic Quarterly 94.3 (2008): 235-263.

San Francisco Fed (2013), Why did the Federal Reserve start paying interest on reserve balances held on deposit at the Fed? Does the Fed pay interest on required reserves, excess reserves, or both? What interest rate does the Fed pay?

Koning (2016), Does the Fed lack the technical means to dive into negative rate waters? 

Fettig (2008), The History of a Powerful Paragraph, Minneapolis Fed

6. New-Keynesian Models, closed and open Economy

* Gertler, Mark. A Dynamic New Keynesian Model with Capital. Lecture Notes, 2002.

* Galí, Jordi. Monetary Policy, inflation, and the Business Cycle: An introduction to the new Keynesian Framework. Princeton University Press, 2009.

* Fernández-Villaverde, Jesús, et al. Nonlinear adventures at the zero lower bound. No. w18058. National Bureau of Economic Research, 2012.

* Leeper, Eric M. "Equilibria under ‘active’and ‘passive’ monetary and fiscal policies." Journal of monetary Economics 27.1 (1991): 129-147.

* Lubik, Thomas, and Frank Schorfheide. "A Bayesian look at the new open economy macroeconomics." NBER Macroeconomics Annual 2005, Volume 20. MIT Press, 2006. 313-382.

* Gali, Jordi, and Tommaso Monacelli. "Monetary policy and exchange rate volatility in a small open economy." The Review of Economic Studies 72.3 (2005): 707-734.

* Monacelli, Tommaso. "Into the Mussa puzzle: monetary policy regimes and the real exchange rate in a small open economy." Journal of International Economics 62.1 (2004): 191-217.

* Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2010. "Optimal Monetary Policy in Open Economies," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 16, pages 861-933 Elsevier.

7. Models with Banks

* Iacoviello, Matteo (2015), “Financial Business Cycles”, Review of Economic Dynamics

* Gertler, Mark & Karadi, Peter, (2011). "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.

* Queralto, Albert (2013), “A Model of Slow Recoveries from Financial Crises”, mimeo, Federal Reserve Board

* Bianchi, Javier. 2011. "Overborrowing and Systemic Externalities in the Business Cycle." American Economic Review, 101(7): 3400-3426.

8. Econometric Applications

* Guerrieri and Iacoviello (2014), “Collateral Constraints and Macroeconomic Asymmetries”, mimeo, Federal Reserve Board

9. Estimation of DSGE Models

* Dejong and Dave, Structural Macroeconometrics, second edition, Princeton University Press (Chapter 8)

* Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.

10. Models for Policy Analysis

* Iacoviello, Matteo, and Stefano Neri (2010), “Housing Market Spillovers: Evidence from an Estimated DSGE Model,AEJ Macro

* Iacoviello, Matteo (2005), “House Prices, Borrowing Constraints and Monetary Policy in the Business Cycle, American Economic Review, May

* Campbell, Jeff, and Zvi Hercowitz (2006), “The Role of Collateralized Household Debt in Macroeconomic Stabilization”

* Eggertsson and Krugman (2012), "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach"

* Midrigan, Virgiliu, and Thomas Philippon (2016), Household Leverage and the Recession, working paper, NYU

Addendum 1. Some Useful Codes

Link for all codes:

1. Code for solving RBC model using Dynare

2. Code for solving simple asset price model using Dynare+Occbin

3. Code for solving borrowing-housing model using Dynare+Occbin

4. Code for solving Lucas asset pricing model using parameterized expectations

5. Code for solving New-Keynesian model using Dynare+Occbin

6. Code for solving 3-equation New-Keynesian model at ZLB

7. Codes for estimating the DSGE models discussed in Chapter 9 of the lecture notes

Addendum 2. Papers for presentation

Note: if paper is already published, discuss the published version. If not, make an effort (author's webpage, typically) to discuss the latest vintage.

1. Greg Kaplan, Benjamin Moll, and Gianluca Violante, “Monetary Policy According to HANK

2. Erik Hurst, Benjamin J. Keys, Amit Seru, and Joseph S. Vavra, Regional Redistribution through the U.S. Mortgage Market

3. Mian, Atif, Amir Sufi and Emil Verner, Household Debt and Business Cycles Worldwide

4. Greenwald, Dan, "The Mortgage Credit Channel of Macroeconomic Transmission: A Tale of Two Constraints"

5. Frédéric Boissay, Fabrice Collard, and Frank Smets “Booms and Banking Crises”

6. Luigi Bocola, The Pass-Through of Sovereign Risk

7. Jermann, Urban, and Vincenzo Quadrini. Macroeconomic effects of financial shocks. AER

8. Primiceri, Giorgio, Andrea Tambalotti, and Alejandro Justiniano. "Credit Supply and the Housing Boom."

9. Midrigan, Virgiuliu, and Thomas Philippon. "Credit Supply and the Housing Boom."