Monday, January 10, 2011

Shocking news from Denver: macro might make sense!

I've been taking the "New Developments in Fiscal and Monetary Policy" course with Martin Eichenbaum and Sergio Rebelo, both of Northwestern University. So far it's the single best macro course I've ever taken. E & R are doing an excellent job of sorting out the models and theories, and then connecting them to reality. I am rather pleased that this stuff is really making some real world sense; I've been in too many macro courses where this didn't hold.

Synopsis so far...Eichenbaum kicked off the lectures by developing the rationale for the models we're using (a simple New Keynesian model and a DSGE approach): plenty of technical stuff on vector autoregressions, analysis on various kinds of macro shocks, and the motivation for the models we're using. Today he developed the NK and DSGE models, going fairly carefully into how they work and demonstrating some applications, including analyses of booms, the Taylor principle, and how monetary policy might be a source of volatility.

Rebelo took over this afternoon, and began by developing a sort of empirically-based theory of sticky prices. He subsequently has used the NK and DSGE models that Eichenbaum developed to analyze the effects of monetary and fiscal policy under various conditions. Tomorrow we're going to be looking at government spending multipliers under the extreme case of the zero bound for interest rates. I'm looking forward to it.

The average non-economist reader (we have readers?) will likely get almost nothing from the two previous paragraphs. And frankly, until I've gone over this stuff a bit more, I won't be in a position to explain it in English or proffer opinions based on what I've learned. But for now, it'll do to simply report the shocking news that macro is actually making some sense!

I am your reader, but I skip posts like this one :-).
I am a reader too, and I have to research the background of that type of posting to make some sense of the topic. NV
You can't imagine my surprise -- shock, even -- that of all my recent posts this would be the one that would inspire comments!

I am traveling cross-country, but will try my hand at interpreting the course into plain language soon. Stay tuned!
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