6314 - FINANCIAL MACROECONOMICS

The key lesson economists have learnt from the recent crisis is that macroeconomists and financial economists were living on different planets, speaking different languages, and ignoring the reciprocal interactions. This course is hence motivated by the essential need to integrate macroeconomics and finance. The course will emphasize the importance of credit market imperfections for aggregate economic activity and the conduct of monetary policy. Particular relevance will be given to the causes and the implications of the recent financial crisis. We expect financial macroeconomics to become a rapidly growing field in the near future.

• The global financial crisis: causes and implications.
• Shadow banking, leverage, and the financial crisis of 2008-09.
• Credit channel, bank lending channel, and economic activity.
• Credit rationing and the macroeconomy: (i) moral hazard, (ii) adverse selection, (iii) monitoring costs.
• Do financial imperfections matter for the business cycle? The financial accelerator hypothesis: principal-agent, costly state verification,and real activity.
• Moral hazard in the banking sector and credit crunches: the model of Holmstrom and Tirole.
• Financial panic and bank runs: the model of Diamond and Dybvig.
• Financial crisis vs. currency crisis vs. sovereign debt crisis: an international perspective.
• Monetary policy and asset prices. Conventional and unconventional monetary policy.

To be finalized

• Walsh C. Monetary Theory and Policy, 3rd edition, MIT Press (Chapter 7)
• Freixas X. and J.C. Rochet, Microeconomics of Banking, 2nd edition, MIT Press (Chapter 4-5-6)
• Handouts and slides will be made available