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The Macroeconomic Analysis and Policy module is made of courses dealing with topics at the frontier of policy‐relevant research: monetary and fiscal policy; heterogeneous households, inequality and redistribution (“HANK” models); financial crises; bubbles; labor markets and unemployment; and international linkages. The courses are taught by leading research and teaching figures in their respective fields. Emphasis is put on introducing tools and developing intuition. All courses review core, standard models useful for understanding crises and recessions, and the role of policy therein. Each course contains at least one part that deals with recent research at the frontier


  • Simple Heterogeneous - Agents Models – Tobias Broer
  • Labor markets and Macroeconomics – Jean-Olivier Hairault
  • Fiscal policy in open economies – Francesco Pappada
  • Optimal taxes in an unequal world – Axelle Ferrière
  • Asset Bubbles and Real Activity – Gilles Saint-Paul

Simple Heterogeneous - Agents Models – Tobias Broer

This course will introduce students to the analysis of income and wealth heterogeneity in macroeconomic models, highlighting their role for the levels and dynamics of asset prices, aggregate demand, and the effects of policies. The focus will be on simple, tractable models.

Labor markets and Macroeconomics – Jean-Olivier Hairault

This class reviews recent developments in labor macroeconomics. We will review the core ideas and mechanisms of the standard search and matching model and then uses this framework to study the unemployment volatility issue. We will start with an empirical investigation of the relative contribution of separation and hiring to unemployment volatility and then present different extensions dealing with the Shimer’s puzzle (the inability of the standard model to explain the observed unemployment volatility). We will discuss the standard explanations given to the observed high unemployment volatility, i.e., wage rigidity, search complementarities, aggregate demand and unemployment interactions.

Fiscal policy in open economies – Francesco Pappada

The objective of this lecture is to study the effects of fiscal policy in open economies. We will analyze the fiscal transmission mechanism in a state-of-the-art business cycle model of the open economy. First, we will explore the impact of a public expenditure shock under flexible vs fixed exchange rate regimes in a New-Keynesian open economy model à la Gali-Monacelli, and we then discuss recent empirical findings on the estimation of local multipliers. Second, we will depart from balanced budget policy, and include budget deficit and sovereign debt for the analysis of twin deficits, sovereign risk, self-fulfilling debt crises and fiscal policy under additional distortions (imperfect tax enforcement).

Optimal taxes in an unequal world – Axelle Ferrière

Rising inequality has become a major concern in the policy debate. Incomes at the top have grown substantially in the U.S. over the past forty years, whereas below-median incomes have stagnated. Wealth has also become more concentrated. In this context, how should a government design a tax-and-transfer system to reduce inequality while promoting growth? A large literature in macroeconomics has thought about optimal taxes in the context of Ramsey plans, where governments choose optimal tax systems within a narrow class of fiscal tools. We will first revisit the standard theoretical results on optimal taxes in macro models. Then, we will discuss the recent quantitative literature which uses realistically calibrated heterogeneous-agent general-equilibrium models to quantify optimal fiscal policy.

Asset Bubbles and Real Activity – Gilles Saint-Paul

A bubble is a deviation of an asset price from its fundamental value. We want to understand the conditions under which bubbles arise as well as their allocative consequences. The course will start with the analysis of rational bubbles in partial equilibrium. It will then examine the possibility of bubbles in general equilibrium models with overlapping generations, where they are similar to a Ponzi game ; we show that their sustainability depends on whether or not the autarkic economy is dynamically inefficient, i.e. is such that there is capital overaccumulation. We will then move on to a more recent literature, studying the consequences of bubbles for long‐term growth, their role in models of financial accelerators, and the conditions for bubbles to arise in models with boundedly rational agents. We will conclude with recent papers on the effects of monetary policy on bubbles, if time permits.

Selected key references
- Broer, Tobias, Niels-Jakob Harbo Hansen, Per Krusell, and Erik Oberg, (2020), “The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective”, The Review of Economic Studies 87, no. 1, 77–101.

- Bocola Luigi and Alessandro Dovis, (2019), “Self-Fulfilling Debt Crises: A Quantitative Analysis”, American Economic Review, American Economic Association, vol. 109(12), pages 4343-4377, December.

- Ravn, M.O. and Sterk, V, (2017), “Job uncertainty and deep recessions”, Journal of Monetary Economics, 90, pp.125-141.

- Martin, A. and J. Ventura, (2012), “Economic growth with bubbles”, American Economic Review, 102 (6), 2012, 3033-3058.

Contents – Macroeconomics