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Program Content

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The PSE summer school macroeconomics program introduces participants to cutting-edge research on the topics listed below, and familiarizes them with the relevant methods needed to analyze them (econometric analysis, dynamic modelling). The objective of the course is to equip the participants with the background and tools that are needed to both contribute to these dynamic fields in terms of research, as well as to perform policy design and evaluation.


  • Fiscal Policy – Axelle Ferrière, Francesco Pappada
  • Labor Macroeconomics – Jean-Olivier Hairault
  • Fiscal Rules and Macroprudential Policy – Facundo Piguillem
  • Heterogeneous-Agents Models – Tobias Broer
  • Bubbles – Gilles Saint-Paul

Fiscal Policy – Axelle Ferrière, Francesco Pappada

Fiscal policy is an important field of analysis in macroeconomics, which has recently evolved and advanced. In this part of the PSE summer school in macroeconomics we will analyze the optimal design of fiscal policy in closed and open economies, with a particular focus on capital taxes, and on the determinants of sovereign debt and default. All these will be treated in reference to the frontier research on the topic.

Course structure
Macro Public Finance (Axelle Ferriere)
1. Optimal Labor Income-Tax Progressivity
2. Optimal Capital Taxes
Open Economies (Francesco Pappadà)
3. International Dimensions of Fiscal Policy
4. Sovereign Debt and Default

Key references
Part 1
- Heathcote, Jonathan, Kjetil Storesletten and Giovanni L. Violante (2017). « Optimal Tax Progressivity : An Analytical Framework », The Quarterly Journal of Economics.
- Ferriere, Axelle, Philipp Gruebener, Gaston Navarro and Oliko Vardishvili (2021). « Larger transfers financed with more progressive taxes ? On the optimal design of taxes and transfers », Centre for Economic Policy Research.
Part 2
- Chamley, Christophe (1986). “Optimal taxation of capital income in general equilibrium with infinite lives”, Econometrica.
- Straub, Ludwig and Ivan Werning (2020). “Positive Long-Run Capital Taxation : Chamley-Judd Revisited”, The American Economic Review.
- Conesa, Juan Carlos, Sagiri Kitao and Dirk Krueger (2009). “Taxing capital ? Not a bad idea after all !” The American Economic Review.
- Fagereng, Andreas, Luigi Guiso, Davide Malacrino and Luigi Pistaferri (2020). “Heterogeneity and Persistence in Returns to Wealth”, Econometrica.
- Guvenen, Fatih, Gueorgui Kambourov, Burhan Kuruscu, Sergio Ocampo-Diaz and Daphne Chen (2019). “Use It or Lose It : Efficiency Gains from Wealth Taxation”, National Bureau of Economic Research.
Part 3
- Acconcia Antonio, Giancarlo Corsetti and Saverio Simonelli, 2014, Mafia and Public Spending : Evidence on the Fiscal Multiplier from a Quasi-experiment, The American Economic Review, vol. 104(7), pages 2185-2209, July.
- Auerbach Alan J. and Yuriy Gorodnichenko, 2012, Fiscal Multipliers in Recession and Expansion, NBER Chapters, in : Fiscal Policy after the Financial Crisis, pages 63-98, NBER.
- Gali, Jordi, 2015, Monetary Policy, Inflation, and the Business Cycle, 2nd edition, Princeton University Press. Chapter 8.
- Ilzetzki, Ethan, Enrique G. Mendoza and Carlos Vegh, 2013, How big (small ?) are fiscal multipliers ?, Journal of Monetary Economics, vol. 60(2), pages 239-254.
- Nakamura Emi and Jon Steinsson, 2014, Fiscal Stimulus in a Monetary Union : Evidence from US Regions, The American Economic Review, vol. 104(3), 753-792, March.
Part 4
- Arellano, Cristina, 2008, Default Risk and Income Fluctuations in Emerging Economies, The American Economic Review, 98 (3) : 690-712.
- Bianchi, Javier, Pablo Ottonello and Ignacio Presno, 2019, Fiscal Stimulus Under Sovereign Risk, NBER Working paper 26307.
- Bocola Luigi and Alessandro Dovis, 2019, Self-Fulfilling Debt Crises : A Quantitative Analysis, The American Economic Review, vol. 109(12), pages 4343-4377, December.
- Born Benjamin, Gernot Muller and Johannes Pfeifer, 2020, Does Austerity Pay Off ?, The Review of Economics and Statistics, MIT Press, vol. 102(2), pages 323-338, May.
- Pappadà, Francesco and Yanos Zylberberg, 2021, Sovereign default and imperfect tax enforcement, PSE Working Papers, halshs-03142208, HAL.

Labor 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.

Course structure
• Basic concepts and Facts
• Unemployment fluctuations in the canonical matching model : solving the Shimer’s Puzzle
• Beyond the canonical matching model
• Aggregate demand and unemployment interactions

Key references
- Blanchard, O. & Diamond, P. (1990). “The cyclical behovior of the gross flows of U.S. workers”, Brookings Papers on Economic Activity, 21(2), 85–156.
- Fujita, S. & Ramey, G. (2009). “The cyclicality of separation and job finding rates”, International Economic Review, 50(2), 415–430.
- Hairault, J. O., Le Barbanchon, T., & Sopraseuth, T. (2015). “The cyclicality of the separation and job finding rates in France”, European Economic Review.
- Gomme, P. & Lkhagvasuren, D. (2015), ’Worker search effort as an amplification mechanism’, Journal of Monetary Econmics.
- Hagendorn, M. & Manovskii, I. (2008), “The cyclical behavior of equilibrium unemployment and vacancies revisited”, American Economic Review 98(4), 1692–1706.
- Pissarides, C. (2000). Equilibrium Unemployment Theory. MIT Press.
- Shimer, R. (2005). “The Cyclical Behavior of Equilibrium and Vacancies Unemployment”, American Economic Review, 90(3), 482–498.
- Andolfatto, D. (1996), “Business cycles and labor-market search”, American Economic Review (1), 112–132.
- Krusell, P. and Smith, A. A. (1998), “Income and wealth heterogeneity in the macroeconomy”, Journal of Political Economy, vol. 106(5), pp. 867-89
- Ravn, M.O. and Sterk, V. (2017), “Job uncertainty and deep recessions”, Journal of Monetary Economics, 90, pp.125-141.

Fiscal Rules and Macroprudential Policy – Facundo Piguillem

In the last 20 years there has been a worldwide explosion on the number of governments imposing Fiscal Rules. This is true at the subnational, national, and supranational levels. In this part of the PSE summer school in Macroeconomics we analyze the optimal design of Fiscal Rules. We start by review the “usually suspected frictions,” leading to the need for rules and then we analyze the prescriptions for different environments. We conclude analyzing the optimal regulation of private borrowing and lending.

Course structure
• Frictions leading to over-spending and over-accumulation of debt.
• General insights about the structure of Fiscal Rules.
• Fiscal Rules and Risk of default
• Macro-Prudential regulation of

Key references
Part 1
- Alesina, Alberto, and Guido Tabellini. 1990. “A Positive Theory of Fiscal Deficits and Government Debt.” Review of Economic Studies 57(3) : 403–414.
- Azzimonti, Marina, Eva de Francisco, and Vincenzo Quadrini. 2014. “Financial Globalization, Inequality, and the Rising Public Debt.” American Economic Review 104(8) : 2267–2302.
- Battaglini, Marco, and Stephen Coate. 2008. “A Dynamic Theory of Public Spending, Taxation, and Debt.” American Economic Review 98(1) : 201–236.
- Jackson, Matthew O., and Leeat Yariv. 2015. “Collective Dynamic Choice : The Necessity of Time Inconsistency.” American Economic Journal : Microeconomics 7(4) : 159–178.
- Persson, Torsten, and Lars E.O. Svensson. 1989. “Why a Stubborn Conservative Would Run a Deficit : Policy with Time-Inconsistent Preferences.” Quarterly Journal of Economics 104(2) : 325–45.
- Yared, Pierre. 2019. « Rising Government Debt : Causes and Solutions for a Decades-Old Trend. » Journal of Economic Perspectives, 33 (2) : 115-40.

Part 2
- Amador, Manuel, Iván Werning, and GeorgeMarios Angeletos. 2006. “Commitment vs. Flexibility.” Econometrica 74(2) : 365–96.
- Amador, Manuel, and Kyle Bagwell. 2013. “The Theory of Optimal Delegation with an Application to Tariff Caps.” Econometrica 81(4) : 1541–99.
- Halac, Marina, and Pierre Yared. 2014. “Fiscal Rules and Discretion under Persistent Shocks.” Econometrica 82(5) : 1557–1614.
- Halac, Marina, and Pierre Yared. 2018. “Fiscal Rules and Discretion in a World Economy.” American Economic Review 108(8) : 2305–34.
- Felli, C. and F. Piguillem (2020) : “Fiscal Rules and Transfers in a Union,” Working paper

Part 3
- Alfaro, Laura and Fabio Kanczuk, 2017. « Fiscal Rules and Sovereign Default, » NBER Working Papers 23370, National Bureau of Economic Research, Inc.
- Felli, C., Piguillem, F. and Shi, L., 2021. « Fiscal Rules and Discretion with Risk of Default, » CEPR Discussion Papers 16211, C.E.P.R. Discussion Papers.
- Dovis, A. (2018) : “Efficient Sovereign Default,” Review of Economic Studies, 86, 282–312.
- Adam, K. and M. Grill (2017) : “Optimal Sovereign Default,” American Economic Journal : Macroeconomics, 9, 128–64.
- Hatchondo, J. C., L. Martinez, and F. Roch (2015) : “Fiscal rules and the Sovereign Default Premium,” CAEPR Working Papers 2015-010, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

Part 4
- Bianchi, J. 2011. “Overborrowing and Systemic Externalities in the Business Cycle.” American Economic Review, 101 (7) : 3400-3426.
- Bianchi, J. and E. G. Mendoza, 2018. “Optimal Time-Consistent Macroprudential Policy,” Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 588-634.
- Flemming, J. ; J.-P. L’Huillier and Facundo Piguillem, “Macro-prudential taxation in good times,” Journal of International Economics, Volume 121, 2019.
- Korinek, A., 2018. “Regulating capital flows to emerging markets : An externality view,” Journal of International Economics, Elsevier, vol. 111(C), pages 61-80.
- Ottonello, P. ; D. J. Perez and P. Varraso, 2021. “Are Collateral-Constraint Models Ready for Macroprudential Policy Design ?,” NBER Working Papers 29204, National Bureau of Economic Research.

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

The course consists of two lectures.
Assessment :
Prerequisites :
1 Recap : The standard New Keynesian model
2 Simple heterogeneous-agent New Keynesian models
• Campbell and Mankiw (1983)
• Bilbiie (2019)
• Bilbiie (2021)
• Broer et al. (2020)
3 Labor-market frictions and the cyclicality of risk
• Werning (2015)
• Ravn and Sterk (2021)
4 What we are missing : HANK vs TANK
• Kaplan, Moll, Violante (2018)

Key references
Bilbiie, Florin O. 2019. The New Keynesian cross, Journal of Monetary Economics forthcoming.
Bilbiie, Florin O. 2021. Monetary Policy and Heterogeneity : An Analytical Framework.
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.
Ravn, Morten O and Vincent Sterk. 2021. Macroeconomic Fluctuations with HANK & SAM : an Analytical
Approach, Journal of the European Economic Association 19, no. 2, 1162–1202.
Werning, Iv´an. 2015. Incomplete Markets and Aggregate Demand.

Bubbles – Gilles Saint-Paul

This course is the introduction to the literature on asset bubbles. 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 and their sustainability depends on whether or not the autarkic economy is dynamically inefficient, i.e. involves excess savings. 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.

1. Rational bubbles in partial equilibrium
Barlevy, Gadi (2007), « Economic theory and asset bubbles », Federal Reserve Bank of Chicago Economic Perspectives
Blanchard, O. J., and M. W. Watson (1982) : Bubbles, Rational Expectations, and Financial Markets, in Crisis in the Economic and Financial Structure, ed. by P. Wachtel, pp. 295ñ315. Lexington, Lexington, MA.
Froot, Kenneth and Maurice Obstfeld (1991) : « Intrinsic bubbles : the case of stock prices » American Economic Review 81(5) 1189-1124
Shiller, R. J. (1981) : “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends ?,” American Economic Review, 71, 421— 436.

2. Bubbles in Overlapping Generations models and dynamic inefficiency
Cass, David (1972), « On Capital Overaccumulation in the Aggregative Neoclassical Model of Economic Growth : A Complete Characterization », Journal of Economic Theory, 4, 200-223.
Abel, A., N. G. Mankiw, L. H. Summers, and R. J. Zeckhauser (1989) : « Assessing Dynamic Efficiency : Theory and Evidence » Review of Economic Studies
Tirole, Jean, 1985 « Asset bubbles and overlapping generations », Econometrica
Tirole, J. (1982) : « On the Possibility of Speculation under Rational Expectations » Econometrica, 50, 1163-1182

3. Bubbles in endogenous growth models
Saint-Paul, Gilles « Fiscal policy in an endogenous geowth model », Quarterly Journal of Economics, 1992
Olivier, Jacques, « Growth-enhancing bubbles », International Economic Review, 41, 1, 133-151
Saint-Paul, Gilles (2005), « Fiscal Policy and Economic Growth : the Role of Financial Intermediation », Review of International Economics, vol. 13, n° 3, 2005.

4. Bubbles as collateral : financial accelerator
Caballero, Ricardo and A. Krishnamurthy (2006) « Bubbles and capital flow volatility : Causes and risk management », Journal of Monetary Economics, 53, 35-53
Farhi, E. and J. Tirole (2011), « Bubbly liquidity » Review of Economic Studies
Kocherlakota, Narayana (2009), « Bursting bubbles : Consequences and Cures » Federal Reserve Board of Minneapolis Working Paper
Martin, A. and J. Ventura (2012), « Economic growth with bubbles », American Economic Review, 102 (6), 2012, 3033-3058
Martin, A. and J. Ventura (2011), « Theoretical notes on bubbles and the current crisis », IMF Economic Review 59 (1), 2011, 6-40

5. Learning bubbles by boundedly rational agents
Adam, Marcet and Nicolini, « Stock Market Volatility and Learning », 2008
Brock, W. A., and C. H. Hommes (1998) : “Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model,” Journal of Economic Dynamics and Control, 22, 1235—1274.
Bullard, J., and J. Duffy (2001) : “Learning and Excess Volatility,” Macroeconomic Dynamics, 5, 272—302.
Timmermann, A. (1993) : “How Learning in Financial Markets Generates Excess Volatility and Predictability in Stock Prices,” Quarterly Journal of Economics, 108, 1135—1145.
Cecchetti, S., P.-S. Lam, and N. C. Mark (2000) : “Asset Pricing with Distorted Beliefs : Are Equity Returns Too Good to Be True ?,” American Economic Review, 90, 787—805.
Carceles-Poveda, E., and C. Giannitsarou (2007) : “Asset Pricing with Adaptive Learning,” Review of Economic Dynamics

6. Bubbles and monetary policy
Weil, Philippe (1987), « Confidence and the real value of money in an overlapping generations economy », Quarterly Journal of Economics, 102, 1, 1-22
Galí , Jordi, « Monetary policy and rational asset price bubbles » NBER Working Paper 18806
Allen Franklin and Douglas Gale (2001), « Asset Price Bubbles and Monetary Policy », Wharton WP.
Franklin Filardo, Andrew J. 2000. « Asset Prices and Monetary Policy » Federal Reserve Bank of Kansas City Economic Review, 3rd Quarter.
Gertler, Mark. 1998. « Asset Prices and Monetary Policy » in Bank for International Settlements, Asset Prices and Monetary Policy : Four Views. Basle : BIS.
Gertler, Mark, and Ben Bernanke. 1999. « Monetary Policy and Asset Price Volatility » in New Challenges for Monetary Policy, Kansas City : Federal Reserve Bank of Kansas City.
Ben S. Bernanke and Mark Gertler. 2001. « Should Central Banks Respond to Movements in Asset Prices ? » American Economic Review, May.

Contents - Macroeconomics