Advanced Macroeconomics II
Shanghai University of Finance and Economics
Professor Kevin X.D. Huang
Course Description
This course builds on Advanced Macroeconomics I and contains three interconnected
parts. The first part reviews key stylized facts. We will study both time-series and crosscountry evidence in eight related areas: (1) growth; (2) real business cycle; (3) monetary
business cycle; (4) macro-finance; (5) micro-pricing; (6) inequality; (7) consumption and
saving; and (8) technology adoption. The second part uses these facts as a guidance to
construct and evaluate various modern macro models to provide a parsimonious
description of the real world. The goal here is to learn to construct and use a variety of
models that can be used to give quantitative answers to a variety of economic questions.
These models can be used to produce time series that can be meaningfully related to the
data. The third part uses the fact-consistent models to conduct economic policy analysis.
Particular attention will be given to the role of money, banking, financial markets, and
monetary and fiscal policy in macroeconomics, and the feedback between the real and
financial sectors. Over the course, we will develop models with financial frictions that are
necessary for understanding a variety of monetary and financial issues facing the private
sectors and policymakers, such as the external finance premium, balance sheet constraints
on borrowing and lending, liquidity crisis, and credit crunch. We will then apply these
models and techniques to study the implications of money and finance for economic
growth and business cycles.
As the course progresses, both analytical and numerical techniques for solving and
estimating stochastic dynamic general equilibrium macro models that have been taught in
Advanced Macroeconomics I will be used, so it is useful for students to review those
materials before taking this course. Students should come to each lecture prepared to
participate in the discussions of related materials. Class discussions are important, and the
intention is to have them elaborate and expand upon the materials covered in the class
lectures, rather than having the lectures simply replicate these materials.
Reference Books
Though no official textbook is required for this course, the various books listed below
can serve as very useful references. We shall also rely on research articles. The reading
list below provides you with a good starting point, though articles that are not currently
included in the list can be added on later. Required readings are marked with an asterisk.
1
Note that some of the book chapters are covered in Advanced Macroeconomics I, so it is
useful for students to review those materials before coming to the lectures.
1. Sargent, 1987, Dynamic Macroeconomic Theory (Harvard University Press)
2. Stokey and Lucas with Prescott, 1989, Recursive Methods in Economic Dynamics
(Harvard University Press)
3. Blanchard and Fisher, 1989, Lectures on Macroeconomics (MIT Press)
4. Mankiw and Romer, 1991, New Keynesian Economics (MIT Press)
5. Hamilton, 1994, Time Series Analysis (Princeton University Press)
6. Kamien and Schwartz, 1995, Dynamic Optimization (North Holland)
7. Barro and Sala-i-Martin, 1995, Economic Growth (McGraw-Hill)
8. Lucas, 1995, Studies in Business-Cycle Theory (MIT Press)
9. Cooley, 1995, Frontiers of Business Cycle Research (Princeton University Press)
10. Aghion and Howitt, 1998, Endogenous Growth Theory (MIT Press)
11. Taylor and Woodford, eds., 1999, Handbook of Macroeconomics 1.
12. Marimon and Scott, 1999, Computational Methods for the Study of Dynamic
Economies (Oxford University Press)
13. Ljungqvist and Sargent, 2000, Recursive Macroeconomic Theory (MIT Press)
14. Romer, 2001, Advanced Macroeconomics (McGraw-Hill, the Second Edition)
15. Evans and Honkapohja, 2001, Learning and Expectations in Macroeconomics
(Princeton University Press)
16. Woodford, 2003 Interest and Prices: Foundations of a Theory of Monetary Policy
(Princeton University Press)
17. Walsh, 2003, Monetary Theory and Policy (MIT Press, 2nd edition)
18. Gali, 2008, Monetary Policy, Inflation, and the Business Cycle: An Introduction
to the New Keynesian Framework (Princeton University Press)
19. Wickens, 2008, Macroeconomic Theory: A Dynamic General Equilibrium
Approach (Princeton University Press)
Readings
1. Multi-Sector Models
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Lucas and Prescott, 1974, “Equilibrium search and unemployment,” Journal
of Economic Theory 7, 188-209.
Lilien, 1982, “Sectoral shifts and cyclical unemployment,” Journal of
Political Economy 90, 777-793.
Abraham and Katz, 1986, “Cyclical unemployment: sectoral shifts or
aggregate disturbances?” Journal of Political Economy 94, 507-522.
Long and Plosser, 1987, “Sectoral vs. aggregate shocks in the business cycle,”
American Economics Association Papers and Proceedings 77, 333-336.
Rogerson, 1987, “an equilibrium model of sectoral reallocation,” Journal of
Political Economy 95, 824-834.
Basu, 1995, Intermediate goods and business cycles: Implications for
productivity and welfare,” American Economic Review 85, 512-531.(*)
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2.
Hornstein and Praschnik, 1997, “Intermediate inputs and sectoral comovement
in the business cycle,” Journal of Monetary Economics 40, 573-595.
Horvath, 1998, “Cyclicality and sectoral linkages: Aggregate fluctuations
from independent sector-specific shocks,” Review of Economic Dynamics 1,
781-808.(*)
Dupor, 1999, “Aggregation and irrelevance in multi-sector models,” Journal
of Monetary Economics 43, 391-409.(*)
Huffman and Wynne, 1999, “The role of intratemporal adjustment costs in a
multi-sector economy,” Journal of Monetary Economics 601-652.
Horvath, 2000, “Sectoral shocks and aggregate fluctuations,” Journal of
Monetary Economics 45, 69-106.(*)
Bergin and Feenstra, 2000, “Staggered price setting, translog preferences, and
endogenous persistence,” Journal of Monetary Economics 45, 657-680.
Rogerson, 2005, “Sectoral shocks, specific human capital and displaced
workers,” Review of Economic Dynamics 8, 89-105.
Ngai and Pissarides, 2007, “Structural change in a multi-sector model of
growth,” American Economic Review 97(1): 429–443.(*)
Ngai and Samaniego, 2006, “An R&D-based model of multi-sector growth.”
Nakamura and Steisson, 2006, “Monetary non-neutrality in a multi-sector
menu cost model.” Quarterly Journal of Economics, forthcoming (*)
Bachmann and Burda, 2007, “Sectoral transformation, turbulence, and labor
market dynamics in Germany.”
Ngai and Pissarides, 2007, “Trends in hours and economic growth.”
Iacoviello, Schiantarelli, and Schuh, 2009, “Input and output inventories in
general equilibrium.”
Micro Pricing
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Klenow and Kryvtsov, 2003, “State-dependent pricing or time-dependent
pricing: does it matter for recent U.S. inflation?”
Bils and Klenow, 2004, “Some evidence on the importance of sticky prices,”
Journal of Political Economy 112, 947-985.(*)
Baharad and Eden, 2004, “Price rigidity and price dispersion: evidence from
micro data,” Review of Economic Dynamics 7, 613-641.
Midrigan, 2005, “Is firm pricing state or time-dependent? evidence from US
manufacturing and general equilibrium implications.”(*)
Dhyne, et al., 2005, “Price setting in the euro area: some stylized facts from
individual consumer price data,” ECB Working Paper 524.
Fabiani, et al., 2005, “The pricing behavior of firms in the euro area: new
survey evidence,” ECB Working Paper 535.
Alvarez, et al., 2005, “Sticky prices in the euro area: a summary of new micro
evidence,” ECB Working Paper 563.
Klenow and Willis, 2007, “Real rigidity and nominal price changes,” Journal
of Monetary Economics forthcoming.(*)
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3.
Nakamura and Steinsson, 2007, “Five facts about prices: a reevaluation of
menu cost models.”(*)
Kehoe and Midrigan, 2007, “Sales and the real effects of monetary policy.”(*)
Levy, Chen, Ray, and Bergen, 2007, “Asymmetric price adjustment in the
small,” Kiel Working Paper 1356.
Zbaracki, Levy, and Bergen, 2007, “The anatomy of a price cut: Discovering
organizational sources of the costs of price adjustment.”
Bewley, 2007, “Report on an ongoing field study of pricing as it relates to
menu costs.”
Campbell and Eden, 2007, “Rigid prices: evidence from the U.S. scanner
data.”
Vermeulen, et al., 2007, “Price setting in the euro area: some stylized facts
from individual producer price data,” ECB Working Paper 727.
Optimal Monetary/Fiscal Policy
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Woodford: Chapters 2-4.(*)
Lucas and Stokey, 1983, “Optimal fiscal and monetary policy in an economy
without capital,” Journal of Monetary Economics 12, 55-93.(*)
Chari, Christiano, and Kehoe, 1991, “Optimal fiscal and monetary policy:
Some recent results.” Journal of Money Credit and Banking 23, 519-539.(*)
Goodfriend and King, 1997, “The new neoclassical synthesis and the role of
monetary policy,” in: Bernanke and Rotemberg, eds., NBER Macroeconomics
Annual, 493-530.
Chari and Kehoe, 1999, “Optimal fiscal and monetary policy,” in: Taylor and
Woodford, eds., Handbook of Macroeconomics 1, 1671-1745.(*)
Woodford, 1999, “Optimal monetary policy inertia,” NBER Working Paper
7261.
Erceg, Henderson, and Levin, 2000, “Optimal monetary policy with staggered
wage and price contracts,” Journal of Monetary Economics 46, 281-313.
Aoki, 2001, ``Optimal monetary policy responses to relative-price changes,''
Journal of Monetary Economics 48, 55-80.
Benigno and Woodford, 2003, “Optimal monetary and fiscal policy: A linearquadratic approach,” NBER Macroeconomics Annual.
Khan, King, and Wolman, 2003, “Optimal monetary policy,” Review of
Economic Studies 70, 825-860.(*)
Woodford, 2003, “Optimal interest-rate smoothing,” Review of Economic
Studies 70, 861-886.
Schmitt-Grohe and Uribe, 2004, “Optimal fiscal and monetary policy under
imperfect competition,” Journal of Macroeconomics 26, 183-209.
Schmitt-Grohe and Uribe, 2004, “Optimal fiscal and monetary policy under
sticky prices,” Journal of Economic Theory 114, 198-230.
Benigno and Woodford, 2004, “Optimal stabilization policy when wages and
prices are sticky: The case of a distorted steady state,” NBER Working Paper
10839.
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4.
Huang and Liu, 2005. “Inflation targeting: what inflation rate to target?”
Journal of Monetary Economics 52(8), 1435-1462.
Yun, 2005, “Optimal monetary policy with relative price distortions,”
American Economic Review 95, 89-109.(*)
Schmitt-Grohe and Uribe, 2006, “Optimal fiscal and monetary policy in a
medium scale macroeconomic model,” in: Gertler and Rogoff, eds., NBER
Macroeconomics Annual 20.
Benigno and Woodford, 2006, “Optimal inflation targeting under alternative
fiscal regimes.”
Lorenzoni, 2008, “Optimal monetary policy with uncertain fundamentals.”
Curdia and Woodford, 2008, “Credit frictions and optimal monetary policy.”
New Dynamic Optimal Taxation
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5.
Golosov, Kocherlakota, and Tsyvinski, 2003, “Optimal indirect and capital
taxation,” Review of Economic Studies 70, 569-88.
Kocherlakota, 2005, “Zero Expected Wealth Taxes: A Mirrlees Approach to
Dynamic Optimal Taxation,” Econometrica 73, 1587-1621.
Battaglini and Coate, 2005, “Pareto efficient income taxation with stochastic
abilities.”
Farhi and Werning, 2005 “Inequality, social discounting, and progressive
estate taxation.”
Kapicka, 2005, “Optimal taxation with human capital accumulation,” Mimeo.
Da Costa and Werning, 2005, “On the optimality of the Friedman rule with
heterogeneous agents and nonlinear income taxation.”
Albanesi and Sleet, 2006, “Dynamic optimal taxation with private
information,” Review of Economic Studies (forthcoming).
Golosov and Tsyvinski, 2006, “Optimal taxation with endogenous insurance
markets,” Quarterly Journal of Economics (forthcoming).
Golosov and Tsyvinski, 2006, “Designing optimal disability insurance: a case
for asset-testing,” Journal of Political Economy (forthcoming).
Acemoglu, Golosov, and Tsyvinski, 2006, “Markets versus governments:
Political economy of mechanisms.”
Time-Inconsistency Issues
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Romer: Chapter 10.(*)
Kydland and Prescott, 1977, “Rules rather than discretion: The inconsistency
of optimal plans,” Journal of Political Economy 85, 473-491.(*)
Barro and Gordon, 1983, “Rules, discretion, and reputation in a model of
monetary policy,” Journal of Monetary Economics 12, 101-121.(*)
Barro and Gordon, 1983, “A positive theory of monetary policy in a natural
rate model,” Journal of Political Economy 91, 589-610.
Canzoneri, 1985, “Monetary policy games and the role of private
information,” American Economic Review 75, 1056-1070.
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6.
Rogoff, 1985, “The optimal degree of commitment to an intermediate
monetary target,” Quarterly Journal of Economics 100, 169-190.(*)
Backus and Driffill, 1985, “Inflation and reputation,” American Economic
Review 75, 530-538.
Lohmann, 1992, “Optimal commitment in monetary policy: Credibility versus
flexibility,” American Economic Review 82, 272-286.
Taylor, 1993, “Discretion versus policy rules in practice,” Carnegie-Rochester
Conference Series on Public Policy 39, 195-214.(*)
Persson and Tabellini, 1993, “Designing institutions for monetary stability,”
Carnegie-Rochester Conference Series on Public Policy 39, 53-84.
Al-Nowaihi and Levine, 1994, “Can reputation resolve the monetary policy
creditability problem?” Journal of Monetary Economics 33, 355-380.
Walsh, 1995, “Optimal contracts for central bankers,” American Economic
Review 85, 150-167.(*)
Beetsma and Jensen, 1996, “Inflation targets and contracts with uncertain
central bank preferences,” Journal of Money, Credit, and Banking 30, 384403.
Sevensson, 1997, “Optimal inflation targets: ‘Conservative central bank and
linear inflation contracts,” American Economic Review 87, 98-111.
Fernández-Villaverde and Tsyvinski, 2002, “Optimal fiscal policy in a
business cycle model without commitment,” Mimeo.
Walsh, 2003, “Speed limit policies: The output gap and optimal monetary
policy,” American Economic Review 93, 265-278.(*)
Dixit and Lambertini, 2003, “Interactions of commitment and discretion in
monetary and fiscal policies,” American Economic Review 93, 1522-1542.
Alvarez, Kehoe, and Neumeyer, 2004, “The time consistency of optimal
monetary and fiscal policies,” Econometrica 72, 541-567.(*)
Athey, Atkeson, and Kehoe, 2005, “The optimal degree of discretion in
monetary policy” Econometrica 73, 1431-1475.(*)
Surico, 2008. “Measuring the time-inconsistency of U.S. monetary policy,”
Economica 75, 22-35.
Chari and Kehoe, 2008. “Time inconsistency and free-riding in a monetary
union,” Journal of Money, Credit, and Banking 40(7), 1329-1356.
Adam and Billi, 2008. “Monetary conservatism and fiscal policy,” Journal of
Monetary Economics 55 (8), 1376-1388.(*)
State-Dependent Pricing
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Danziger, 1999, “A dynamic economy with costly price adjustments,”
American Economic Review 89, 878-901.
Dotsey, King, and Wolman, 1999, “State-dependent pricing and the general
equilibrium dynamics of money and output,” Quarterly Journal of Economics
114, 655-690.(*)
Golosov and Lucas, 2004, “Menu costs and Phillips curves,” NBER Working
Paper 10187.(*)
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7.
Dotsey and King, 2005, “Implications of state-dependent pricing for dynamic
macroeconomic models,” Journal of Monetary Economics 52, 213-242.
Dotsey and King, 2005, “Production, pricing and persistence,” Journal of the
European Economic Association (forthcoming).
Ahlin and Shintani, 2005, “Menu costs and Markov inflation: A theoretical
revision with new evidence,” Journal of Monetary Economics (forthcoming).
Burstein, 2005, “Inflation and output dynamics with state-dependent pricing
decisions,” Journal of Monetary Economics (forthcoming).
Burstein and Hellwig, 2007, “Prices and market shares in a menu cost model.”
Dhyne, et al., 2007, “Lumpy price adjustments: a microeconomic analysis.”
Gertler and Leahy, 2008. “A Phillips curve with an Ss foundation,” Journal of
Political Economy 116(3), 533-572. (*)
Alessandria, Kaboski and Midrigan, 2008, “Inventories, lumpy trade, and
large devaluations,” NBER Working Paper 13790 (forthcoming in AER) (*)
Midrigan, 2009, “Menu costs, multi-product firms, and aggregate fluctuations.”(*)
Sticky Price versus Sticky Information
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Mankiw and Reis, 2002, “Sticky information versus sticky prices: A proposal
to replace the new Keynesian Phillips curve,” Quarterly Journal of Economics
117, 1295-1328.(*)
Sims, 2003, “Implications of rational inattention,” Journal of Monetary
Economics 50, 665-690.
Ascari, 2004, “Staggered prices and trend inflation: some nuisances,” Review
of Economic Dynamics 7, 642-667.
Reis, 2005, “Inattentive consumers,” Journal of Monetary Economics 52, 703725.(*)
Dupor and Tsuruga, 2005, “Sticky information: The impact of different
information updating assumptions,” Journal of Money, Credit, and Banking
37, 1143-1152.(*)
Kiley, 2005, “A quantitative comparison of sticky-price and stickyinformation models of price setting.”
Laforte, 2005, “Pricing models: A Bayesian DSGE approach to the US
economy.”
Reis, 2006, “Inattentive producers,” Review of Economic Studies 73, 793821.(*)
Sims, 2006, “Rational inattention: Beyond the linear-quadratic case,”
American Economics Association Papers and Proceedings 96, 158-163.
Khan and Zhu, 2006, “Estimates of sticky-information Phillips curve for the
Untied States,” Journal of Money, Credit, and Banking 38, 195-208.
Easaw and Ghoshray, 2006, “Agent-based learning in 'islands' with 'sticky
information': An explanation for the persistence of real effects,” Journal of
Money, Credit, and Banking 38, 263-268.
Mankiw and Reis, 2006, “Pervasive stickiness.”
Mankiw and Reis, 2006, “Sticky information in general equilibrium.”
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8.
Mash, 2007, “Endogenous indexing and monetary policy models,” Kiel
Discussion Paper 2007-36.
Steinsson, 2008, “The dynamic behavior of the real exchange rate in sticky
price models,” American Economic Review 98, 519-533.
Dupor, Kitamura, and Tsuruga, 2009, “Integrating sticky prices and sticky
information.” Forthcoming in the Review of Economics and Statistics.
Technology Adoption and Cross-Country Comparison
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9.
Barro and Sala-i-Martin: Chapters 8 and 10-12.(*)
Aghion and Howitt: Chapter 10.(*)
Eaton and Kortum, 2002, “Technology, geography, and trade,” Econometrica
70, 1741-1779.(*)
Khan and Ravikumar, 2002, “Costly technology adoption and capital
accumulation,” Review of Economic Dynamics 5, 489-502.
Comin and Hobijn, 2004, “Cross-country technology adoption: making the
theories face the facts,” Journal of Monetary Economics 51, 39-83.(*)
Jovanovic, 2006, “the technology cycle and inequality.”(*)
Kim, 2006, “Financial institutions, technology diffusion and trade.”
Comin and Hobijn, 2006, “Five facts you need to know about technology
diffusion,” NBER Working Paper 11928.(*)
Comin and Hobijn, 2006, “World technology usage lags,” NBER Working
Paper 12677.(*)
Comin and Hobijn, 2007, “Implementing technology,” NBER Working Paper
12886.
Lahiri and Ratnasiri, 2007, “Concerning technology adoption and inequality.”
Consumption and Saving
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Blanchard and Fisher: Chapters 2 and 6.
Romer: Chapter 7.(*)
Nagatani, 1972, “Life cycle saving: theory and fact,” American Economic
Review 62, 344-353.
Hall, 1978, “Stochastic implications of the life cycle-permanent income
hypothesis: theory and evidence,” Journal of Political Economy 86, 971987.(*)
Hall and Mishkin, 1982, “The sensitivity of consumption to transitory income:
estimates from panel data on households,” Econometrica 50, 61-481.(*)
Browning, Deaton, and Irish, 1985, “A profitable approach to labor supply
and commodity demands over the life-cycle,” Econometrica 53, 503-543.(*)
Zeldes, 1989, “Consumption and liquidity constraints: an empirical
investigation,” Journal of Political Economy 97, 305-346.(*)
Cochrane, 1991, “A simple test of consumption insurance,” Journal of
Political Economy 99, 957-976.
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Mankiw and Zeldes, 1991, “The consumption of stockholders and
nonstockholders,” Journal of Financial Economics 29, 97-112.
Attanasio and Weber, 1993, “Consumption growth, the interest rate and
aggregation,” Review of Economic Studies 60, 631-649.(*)
Hubbard, Skinner, and Zeldes, 1994, “The importance of precautionary
motives in explaining individual and aggregate saving,” Carnegie-Rochester
Conference Series on Public Policy 40, 59-125.(*)
Carroll, 1994, “How does future income affect current consumption?”
Quarterly Journal of Economics 109, 111-147.(*)
Attanasio and Browning, 1995, “Consumption over the life cycle and over the
business cycle,” American Economic Review 85, 1118-1137.(*)
Attanasio and Weber, 1995, “Is consumption growth consistent with
intertemporal optimization? evidence from the consumer expenditure survey,”
Journal of Political Economy 103, 1121-1157.(*)
Attanasio and Davis, 1996, “Relative wage movements and the distribution of
consumption,” Journal of Political Economy 104, 1227-1262.(*)
Carroll, 1997, “Buffer-stock saving and the life cycle/permanent income
hypothesis,” Quarterly Journal of Economics 112, 1-55.(*)
Attanasio, 1998, “Cohort analysis of saving behavior by U.S. households,”
Journal of Human Resources 33, 575-609.
Attanasio, 1999, “Consumption,” Chapter 11 of the Handbook of
Macroeconomics, Vol 1, Taylor and Woodford (eds.), Elsevier Science
B.V.(*)
Attanasio, Banks, Meghir, and Weber, 1999, “Humps and bumps in lifetime
consumption,” Journal of Business and Economic Statistics 17, 22-35.
Browning and Crossley, 2001, “The life-cycle model of consumption and
saving,” Journal of Economic Perspectives 15, 3-22.(*)
Butler, 2001, “Neoclassical life-cycle consumption: a textbook example,”
Economic Theory 17, 209-221.
Gourinchas and Parker, 2002, “Consumption over the life cycle,”
Econometrica 70, 47-89.(*)
Ameriks, Caplin, and Leahy, 2002, “Retirement consumption: insight from a
survey,” NBER Working Paper 8735.
Laitner and Silverman, 2004, “Estimating life-cycle parameters from the
retirement-consumption puzzle.”
Modigliani and Cao, 2004. “The Chinese saving puzzle and the life-cycle
hypothesis.” Journal of Economic Literature 42(1), 145-170.(*)
Feigenbaum, 2005, “Can mortality risk explain the consumption hump?”
Journal of Macroeconomics (forthcoming).
Bullard and Feigenbaum, 2005, “A leisurely reading of the life-cycle
consumption data,” Journal of Monetary Economics (forthcoming).
Fernandez-Villaverde and Krueger, 2007, “Consumption over the life cycle:
facts from consumer expenditure survey data,” Review of Economics and
Statistics (forthcoming)
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10.
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11.
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Fernandez-Villaverde and Krueger, 2007, “Life-cycle consumption, debt
constraints, and durable goods.”
Zhang, 2008, “Identify EIS using correct portfolio weights.”
Wei and Zhang, 2009. “The competitive saving motive: Evidence from rising
sex ratio and saving rate in China.” NBER Working Paper 5093.
Chao, Laffargue, and Yu, 2010. “The Chinese saving puzzle and the life-cycle
hypothesis. A revaluation.”(*)
Monetary Policy and Asset Prices
Bernanke and Gertler, 1999, “Monetary policy and asset price volatility.”
KCFED Working Paper.
Bernanke and Gertler, 2001, “Should central banks respond to movements in
asset prices?”
Dupor, 2002, “Nominal price versus asset price stabilization.”
Filardo, 2001, “Should monetary policy respond to asset price bubbles? Some
experimental results.” KCFED Working Paper.
Bean, 2003, “Asset prices, financial imbalances, and monetary policy: are
inflation targets enough?” BIS Working Paper 140.
Filardo, 2006, “Asset price bubbles and monetary policy: a multivariate
extension.” BIS Working Paper.
Mester, 2009, “Central bank policies and asset prices.”
Basic Models with Financial Frictions
Scheinkman and Weiss, 1986, Borrowing constraints and aggregate economic
activity,” Econometrica 54, 23-45.
Bernanke and Gertler, 1989, “Agency costs, net worth, and business
fluctuations,” American Economic Review 79(1), 14-31.
Kiyotaki and Moore, 1997, “Credit cycles,” Journal of Political Economy
105, 211-248.
Kiyotaki and Moore, 1997, “Credit chains.”
Krishnamurthy, 2003, “Collateral constraints and the amplification
mechanism,” Journal of Economic Theory 111, 277-292.
Allen and Gale, 2004, “Financial fragility, liquidity, and asset prices,” Journal
of European Economic Association 2(6), 1015-1048.
Kiyotaki and Moore, 2005, “Liquidity and asset prices,” International
Economic Review 46, 317-349.
Iacoviello and Minetti, 2006, “Liquidity cycles.”
Fostel and Geanakopolis, 2008, “Leverage cycles and anxious economy,”
American Economic Review 98(4), 1211-1244.
Rampini and Viswanathan, 2008, “Collateral, financial intermediation, and the
distribution of debt capacity.”
Hopenhayn and Werning, 2008, “Equilibrium default.”
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Lorenzoni, 2008, “Inefficient credit booms,” Review of Economic Studies
75(3), 809-833.
Allen and Carletti, 2008, “Mark-to-market accounting and liquidity pricing,”
Journal of Accounting and Economics 45, 358-378.
Allen and Carletti, 2008, :Financial system: shock absorber or amplifier?” BIS
Working Paper 257.
Allen, Carletti, and Gale, 2008, “Interbank market liquidity and central bank
intervention.”
Brunnermeier and Pedersen, 2009, “Market liquidity and funding liquidity,”
Review of Financial Studies 22(6), 2201-2238.
Brunnermeier and Yogo, 2009, “A note on liquidity risk management,”
American Economic Review 99(2), 578-83.
Gilchrist, Yankov, and Zakrasjek, 2009, “Credit market shocks and economic
fluctuations: evidence from corporate bond and stock markets.”
Caballero and Kurla, 2009, “Public-private partnerships for liquidity
provision.”
Acharya and Viswanathan, 2009, “Leverage, moral hazard, and liquidity.”
Acharya, Gale, and Yorulmazer, 2009, “Rollover risk and market freezes.”
Chapman, Chiu, and Molico, 2009, “Central bank haircut policy.”
Freixas, Martin, and Skeie, 2009, “Bank liquidity, interbank markets, and
monetary policy.”
Heider, Hoerova, and Holthausen, 2009, “Liquidity hoarding and interbank
market spreads: The role of counterparty risk.”
Diamond and Rajan, 2009, “Illiquidity and interest rate policy.”
12. More Advanced Models in Macro and Finance
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Fuerst, 1992, “Liquidity, loanable funds, and real activity,” Journal of
Monetary Economics 29, 3-24.
King and Levine, 1993, “Finance and growth: Schumpeter might be right,”
Quarterly Journal of Economics 108(3), 717-737.
Carlstrom and Fuerst, 1997, “Agency costs, net worth, and business
fluctuations: a computable general equilibrium analysis,” American Economic
Review 87, 893-910.
Holmstrom and Tirole, 1997, “Financial intermediation, loanable funds, and
the real sector,” Quarterly Journal of Economics 112(3), 663-691.
Kocherlakota, 1998, “the effect of moral hazard on asset prices when financial
markets are complete,” Journal of Monetary Economics 41, 39-56.
Bernanke, Gertler, and Gilchrist, 1999, “The financial accelerator in a
quantitative business cycle framework,” Handbook of Macroeconomics Vol.
1C, 1341-1393.
Levine, Loayza, and Beck, 2000, “Financial intermediation and growth:
causality and causes,” Journal of Monetary Economics 46, 31-77.
Wurgler, 2000, “Financial markets and the allocation of capital,” Journal of
Financial Economics 58, 187-214.
11
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Kocherlakota, 2000, “Creating business cycles through credit constraints,”
FED Minneapolis Quarterly Review 24(3), 2-10.
Beck and Levine, 2002, “Industry growth and capital allocation: does having a
market-or bank-based system matter,” Journal of Financial Economics
64,147-180.
Rampini, 2004, “Entrepreneurial activity, risk, and the business cycle,”
Journal of Monetary Economics 51, 555-573.
Christiano, Motto, and Rostagno, 2004, “The Great Depression and the
Friedman-Schwartz Hypothesis,” ECB Working Paper 326.
Almeida and Wolfenzon, 2005, “The effect of external finance on the
equilibrium allocation of capital,” Journal of Financial Economics 75,133164.
Iacoviello, 2005, “Housing prices, borrowing constraints, and monetary policy
in the business cycle,” American Economic Review 95(3), 739-764.
Gorton and Krishnamurthy,, 2005, “Equilibrium asset prices under imperfect
corporate control,” American Economic Review 95(2), 659-681.
Gomes, Yaron, and Zhang, 2006, “Asset pricing implications of firms’
financing constraints,” Review of Financial Studies 19(4), 1321-1356.
Goodfriend and McCallum, 2007, “Banking and interest rates in monetary
policy analysis: a quantitative exploration,” Journal of Monetary Economics
54(5), 1480-1507.
Faia and Monacelli, 2007, “Optimal interest rate rules, asset prices, and credit
frictions,” Journal of Economic Dynamics and Control 31(10), 3228-3254.
Lorenzoni and Walentin, 2008, “Financial frictions, investment, and Tobin’s
Q.”
Adrian and Shin, 2008, “Money, liquidity, and monetary policy.”
Kiyotaki and Moore, 2008, “Liquidity, business cycles, and monetary policy.”
De Graeve, 2008, “The external finance premium and the macroeconomy:
U.S. post-WW II evidence.”
Fecht, Huang, and Martin, 2008, “Financial intermediaries, markets, and
growth,” Journal of Money, Credit, and Banking 40(4), 701-720.
Jermann and Quadrini, 2008, “Financial innovation and macroeconomic
volatility.”
Gilchrist, Ortiz, and Zakrasjek, 2009, “Credit risk and the macroeconomy:
evidence from an estimated DSGE model.”
Monacelli, 2009, “New Keynesian models, durable goods, and collateral
constraints,” Journal of Monetary Economics 56(2).
De Fiore and Tristani, 2009, “Optimal monetary policy in a model of the
credit channel,” ECB Working Paper 1043.
Shleifer and Vishny, 2009, “Unstable banking.”
Christiano, Motto, and Rostagno, 2009, “Financial factors in economic
fluctuations.”
Gertler and Karadi, 2009, “A model of unconventional monetary policy.”
Gerali, Neri, Sessa, and Signoretti, 2009, “Credit and banking in a DSGE
model of the Euro area.”
12
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Gertler and Kiyotaki, 2009, “Financial intermediation and credit policy in
business cycle analysis.”
13. Empirical Evidence on the Credit Channel
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Bernanke, 1983. “Nonmonetary effects of the financial crisis in the
propagation of the Great Depression.” American Economic Review 73(3),
257-276.
King, 1986. “Monetary transmission: Through bank loans or bank liabilities?”
Journal of Money, Credit, and Banking 18(3), 290-303.
Gertler, 1988. “Financial structure and aggregate activity: An overview.”
Journal of Money, Credit, and Banking 20(3), 559-588.
Romer and Romer, 1990. “New evidence on the monetary transmission
mechanism.” Brookings Papers on Economic Activity 1, 149-198.
Bernanke and Lown, 1992. “The credit crunch.” Brookings Papers on
Economic Activity 2, 205-239.
Gertler and Gilchrist, 1993. “The role of credit market imperfections in the
monetary transmission mechanism: Arguments and evidence.” Scandinavian
Journal of Economics 95(1), 43-64.
Gertler and Gilchrist, 1994. “Monetary policy, business cycles and the
behavior of small manufacturing firms.” Quarterly Journal of Economics
109(2), 309-340.
Ramey, 1993. “How important is the credit channel in the transmission of
monetary policy?” Carnegie-Rochester Conference Series on Public Policy
39, 1-45.
Kashyap, Stein, and Wilcox, 1993. “Monetary policy and credit conditions:
Evidence from the composition of external finance.” American Economic
Review 83(1), 78-98.
Kashyap and Stein, 1994. “Monetary policy and bank lending.” In: Mankiw
(ed.), Monetary Policy (University of Chicago Press), 221-256.
Kashyap, Lamont, and Stein, 1994. “Credit conditions and the cyclical
behavior of inventories.” Quarterly Journal of Economics 109(3), 565-592.
Federal Reserve Bank of New York, 1994. Studies on Causes and
Consequences of the 1989-92 Credit Slowdown.
Hubbard, 1995. “Is there a credit channel for monetary policy?” Federal
Reserve Bank of St. Louis Review 77(3), 63-77.
Peek and Rosengren (eds.), 1995. Is Bank Lending Important for the
Transmission of Monetary Policy? Federal Reserve Bank of Boston
Conference Series No. 39.
Bernanke, Gertler, and Gilchrist, 1996. “The financial accelerator and the
flight to quality.” Review of Economics and Statistics 78(1), 1-15.
Oliner and Rudebbusch, 1995. “Is there a bank lending channel for monetary
policy?” Federal Reserve Bank of San Francisco Economic Review, 3-20.
Oliner and Rudebbusch, 1996. “Is there a broad credit channel for monetary
policy?” Federal Reserve Bank of San Francisco Economic Review, 3-13.
13
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Oliner and Rudebbusch, 1996. “Monetary policy and credit conditions:
Evidence from the composition of external finance: Comment.” American
Economic Review 86(1), 300-309
14. Knightian Uncertainty and Higher-Order Beliefs
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15.
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Epstein and Wang, 1994. “Intertemporal asset pricing under Knightian
uncertainty,” Econometrica 62(2), 283-322.
Liu, 1998, “Heterogeneous agent economy with Knightian uncertainty.”
Chen and Epstein, 2002, “Ambiguity, risk, and asset returns in continuous
time,” Econometrica 70(4), 1403-1443.
Fukuda, 2007, “Infrequent changes of policy target: stop-go monetary policy
under Knightian uncertainty.”
Angeletos and La’O, 2009, “Higher-order beliefs and the business cycle.”
Angeletos and La’O, 2009, “Incomplete information, higher-order beliefs and
price inertia.”
Bounded Rationality and Learning
Evans and Honkapohja.
Sargent, 1999, The conquest of American inflation, Princeton University
Press.
Williams, 2003, “Adaptive learning and business cycles.”
Marcet and Nicolini, 2003, “Recurrent hyperinflation and learning,” American
Economic Review 93, 1476-1498.
Evans and Honkapohja, 2003, “Adaptive learning and monetary policy
design,” Journal of Money, Credit, and Banking 35, 1045-1072.(*)
Tetlow and von zur Muehlen, 2004, “Avoiding Nash inflation: Bayesian and
robust responses to model uncertainty,” Review of Economic Dynamics 7,
869-899.(*)
Bullard and Duffy, 2004, “Learning and structural change in macroeconomic
data,” St. Louis Fed Working Paper 2004-016A.
Sargent and Williams, 2005, “Impacts of priors on convergence and escapes
from Nash inflation,” Review of Economic Dynamics 8, 360-391.(*)
Sargent, Williams, and Zha, 2006, “Shocks and government beliefs: the rise
and fall of American inflation,” American Economic Review 96, 11931224.(*)
Sargent, Williams, and Zha, 2006, “The conquest of South American
inflation,” NBER Working Paper 12606.(*)
Milani, 2007, “Expectations, learning and macroeconomic persistence,”
Journal of Monetary Economics 54, 2065-2082. (*)
Edge, Laubach, and Williams, 2007, “Learning and shifts in long-run
productivity growth,” Journal of Monetary Economics 54, 2421-2438.(*)
Adam, Marcet, and Nicolini, 2007, “Stock market volatility and learning.”(*)
14
16. Exotic Preferences
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Ameriks, Caplin, and Leahy, 2003, “Wealth accumulation and the propensity
to plan,” Quarterly Journal of Economics 118, 1007-1047.
Ameriks, Caplin, Leahy, and Tyler, 2004, “Measuring self-control,” NBER
Working Paper 10514.
Angeletos, Laibson, Repetto, Tobacman, and Weinberg, 2001, “The
hyperbolic consumption model: calibration, simulation, and empirical
evaluation,” Journal of Economic Perspectives 15, 47-68.
Benhabib and Bisin, 2005, “Modelling internal commitment mechanisms and
self-control: a neuroeconomic approach to consumption-saving decisions,”
Games and Economic Behavior 52, 460-492.
Bernheim and Rangel, 2002, “Addiction and cue-conditioned cognitive
processes,” NBER Working Paper 9329.
DeJong and Ripoll, 2007, “Do self-control preferences help explain the
puzzling behavior of asset prices?” Journal of Monetary Economics 54, 10351050.
Epstein and Zin, 1989, “Substitution, risk aversion, and the temporal behavior
of consumption and asset returns: a theoretical framework,” Econometrica 57,
937-969.
Epstein and Zin, 1991, “Substitution, risk aversion, and the temporal behavior
of consumption and asset returns: an empirical analysis,” Journal of Political
Economy 99, 263-286.
Fang and Silverman, 2004, “Time inconsistency and welfare program
participation: evidence from the NLSY.”
Fernandez-Villaverde and Mukherji, 2006, “Can we really observe hyperbolic
discounting?”
Fudenberg and Levine, 2006, “A dual self model of impulse control,”
American Economic Review (forthcoming).
Fudenberg and Levine, 2007, “Self-control, risk aversion, and the Allais
Paradox.”
Gul and Pesendorfer, 2001, “Temptation and self-control,” Econometrica 69,
1403-1435.
Gul and Pesendorfer, 2004, “Self-control and the theory of consumption,”
Econometrica 72, 119-158.
Gul and Pesendorfer, 2004, “Self-control, revealed preference and
consumption choice,” Review of Economic Dynamics 7, 243-264.
Gul and Pesendorfer, 2005, “The revealed preference theory of changing
tastes,” Review of Economic Studies 72, 429-448.
Gul and Pesendorfer, 2005, “Harmful addiction,” Review of Economic Studies
(forthcoming).
Harris and Laibson, 2001, “Dynamic choices of hyperbolic consumers,”
Econometrica 69, 935-957.
15
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Kocherlakota, 2001, “Looking for evidence of time-inconsistent preferences
in asset market data,” Federal Reserve Bank of Minneapolis Quarterly Review
25, 13-24.
Krusell and Smith, 2003, “Consumption-savings decisions with quasigeometric discounting,” Econometrica 71, 365-375.
Krusell, Kuruscu, and Smith, 2002 “Time orientation and asset prices,”
Journal of Monetary Economics 49, 107-135.
Krusell, Kuruscu, and Smith, 2003, “Temptation and taxation,” Mimeo.
Laibson, 1996, “Hyperbolic discount functions, undersaving, and savings
policy,” NBER Working Paper 5635.
Laibson, 1997, “Golden eggs and hyperbolic discounting,” Quarterly Journal
of Economics 112, 443-477.
Laibson, Repetto, and Tobacman, 1998, “Self-control and saving for
retirement,” Brookings Papers on Economic Activity 1, 91-172.
Laibson, Repetto, and Tobacman, 2004, “Estimating discount functions from
lifecycle consumption choices.”
Paserman, 2004, “Job search and hyperbolic discounting: structural estimation
and policy evaluation.”
Benabou and Pycia, 2002, “Dynamic inconsistency and self-control: a
planner-doer interpretation,” Economics Letters 77, 419-424.
Rubinstein, 2003, “Economics and psychology? the case of hyperbolic
discounting,” International Economic Review 44, 1207-1216.
Backus, Routledge, and Zin, 2004, “Exotic preferences for macroeconomists,”
NBER Working Paper 10597.
Huang, Liu, and Zhu, 2006, “Temptation and self-control: some evidence and
applications,” Federal Reserve Bank of Minneapolis Staff Report 367.
Chade, Prokopovych, and Smith, 2006, “Repeated games with present-biased
preferences.”
16