MRSyllabus_E0211.v1

MACROECONOMIC POLICY

Academic Year: 2012-2013 Semester: First

Instructor(s): João Sousa __________________________________________________________________________________

Course Description:

This course aims at providing the students with a sound theoretical and institutional knowledge that will allow them to critically assess the design and operation of modern macroeconomic policy. The course will go over the main debates facing different macroeconomic policies, from fiscal and monetary policy to macro-prudencial and global macroeconomic issues. __________________________________________________________________________________

Course Content:

The topics to be covered during the course are the following: 1. Introduction to macroeconomic policy - objectives and instruments of macroeconomic policy. The role of rules versus discretion. Economic policy and the political cycle. The limitations in the use of models for policy evaluation and the Lucas critique. Policy under uncertainty. 2. Monetary policy - the goals, instruments and channels of transmission of monetary policy. The monetary policy strategy of the ECB. The role of monetary policy rules. Optimal monetary policy. Conventional and unconventional monetary policy. 3. Fiscal Policy - goals and instruments of fiscal policy. Measuring the fiscal stance. Politics and policy. The discussion on the need for fiscal rules. Fiscal policy effectiveness and Ricardian equivalence. The risks of excessive debt. The consequences of ageing for social security sustainability. The debate on structural reform. The changing institutional background for fiscal policy in the EU: the EU semester and the fiscal compact. 4. Macro-prudential policy - goals and instruments of macroprudential policy and comparison with micro-prudential policy. The interaction between macro-prudential policy and monetary policy. 5. Global macroeconomic issues - The challenges posed by global imbalances and their link to exchange rate policies. The issue of international liquidity support and crisis resolution. The advantages and disadvantages of global policy coordination.

MRSyllabus_E0211.v1

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Course Objectives:

At the end of the course the students should be able to develop policy analysis and recommendations and effectively engage in discussions over macroeconomic policy issues. For example, the students should be able to actively debate, inter alia, the causes and policy responses to the Great Recession, the sovereign debt crisis, the conduct of monetary policy by the ECB, the challenges to global policy co-ordination and the main challenges concerning fiscal sustainability and financial stability in the EU.

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Grading:

The performance in the course will be assessed by a final exam (which will amount to 60% of the final grade) and assignments to be presented in class (40% of the final grade).

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Bibliography: Given the nature of the course, the course material will consist of policy papers together with specific chapters of relevant books. Other texts will be provided in addition to the references below, including relevant texts from the specialized press such as The Economist and the Financial Times. Blanchard, O. (2011), Macroeconomics, Pearson International Edition, (Chapters 24-26 and 28 - Back to policy). Dorrucci, E. and McKay, J. (2011), "The international monetary system after the financial crisis", Occasional Paper no. 123, European Central Bank. EC (2010), "Scoreboard for the surveillance of macroeconomic imbalances", European Economy. Occasional Papers no. 92, European Commission. ECB (2010), "The effectiveness of euro area fiscal policies", ECB Monthly Bulletin, July. ECB (2011), The Monetary Policy of the ECB, Third Edition, European Central Bank. IMF (2009), “Lessons of the global crisis for macroeconomic policy”, February 2009 Hanson, S. G., Kashyap, A.K. and Stein, J. C. (2011) "A Macroprudential Approach to Financial Regulation", Journal of Economic Perspectives, 25 (1), 3–28 Mankiw, N. G. (2011) Macroeconomics, McGraw-Hill, 7th Edition (Chapter 15 Stabilization Policy and Chapter 16 Government debt). OECD (2011), Economic Policy Reforms - Going for Growth. Walsh, C. E. (2010), Monetary Theory and Policy, Cambridge: MIT Press, Third Edition.

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Biography: João Sousa has a PhD in Economics and an MSc in Economics and Finance from Warwick University. He is currently Chief Economist in the Portuguese Finance Ministry. Previously he has worked in the Economics and Research Department of Banco de Portugal, where was Head of the Monetary Policy Division from 2005 to 2011. From 1997 to 2003 he worked at the European Monetary Institute (until June 1998) and its successor the European Central Bank where he was senior economist in the Monetary Policy Stance Division, DG Economics. Has publications in journals such as International Journal of Finance and Economics, Studies in Nonlinear Dynamics & Econometrics and Applied Economics. __________________________________________________________________________________

Contact(s) and Office hours: E-mail: 111000353@clsbe.lisboa.ucp.pt

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