Professor Mark Gertler

NYU, Fall 2015

Advanced Macroeconomics Part I: Reading List and Course Outline
Advanced Macro I is the …rst of a two course sequence in applied macroeco-
nomics, which special emphasis on business cycles, in‡ation, monetary and …scal
policy and …nancial crises. Virgiliu Midigran will teach the second part, Advanced
Macro II, in the spring.
Recommended Background Text Books:
Gali, Jordi, 2008, Monetary Policy, Business Cycles and In‡ation (Princeton
University Press)
Romer, David, 2011, Advanced Macroeconomics, (McGraw-Hill).
Course Web Page
Lecture notes and other course materials will be available at the current link,
which can also be found on my web page: https://sites.google.com/a/nyu.edu/advanced-
macroeconomics-i/
Currently on the page are materials from last year. I will update as we go
along.
Course Assignment
For both Advanced Macro I and II, students are required to write a paper
which demonstrates pro…ciency in quantiative macro modeling. The assignment
is designed to give students experience in writing papers. We are not looking for
a major breakthrough (though of course we would be delighted if you were able
to do so!). Rather, we would like to see you (i) pose an interesting and tractable
question; (ii) execute the analysis using the start of the art methods that we teach
you; and (iii) exposit you analysis as cleanly and sharply as possible. An example
of what would work would be to take a paper from the reading list, reproduce the
results, and examine a slight variation if the question posed in the paper or of the
model used (to check robustness). Of course we won’t discourage you from doing
more than this, so long as what you aim to do is tractable.
We emphasize that the paper must bear some direct relationship to a topic
covered in the course. It is not acceptable to hand in a paper written for another
course. Not later than March 11 you must submit a one page proposal to me and
Professor Midrigan about you plan to do. The paper is then due May 9. We will
not accept papers on topics we did not approve.
Topics:

1. Real Business Cycle Theory and Business Cycle Accounting

Gali, chs., 1,2.

Gali, Jordi, Mark Gertler, and David Lopez-Salido, 2007, “Markups, Gaps
and the Welfare Costs of Business Cycles,” Review of Economics and Sta-
tistics.

Chari, VV, Patrick Kehoe and Ellen McGratten, 2007, "Business Cycle Ac-
counting," Econometrica

Shimer, Robert, 2009, "Convergence in Macroeconomics: The Labor Wedge,"

American Economic Journal of Macroeconomics

Bils, Mark, Pete Klenow and Ben Malin, 2014, "Resurrecting the Role of
Product Market Wedges in Recessions."

2. The Baseline New Keynesian Model

Gali, Jordi and Mark Gertler, 2007, "Macroeconomic Models for Monetary
Policy Evaluation," Journal of Economic Perspectives.

Gali, chs. 3,4,6.

Woodford, Michael, 2010, "Simple Analytics of the Government Expenditure

Multiplier", American Economic Journal: Macroeconomics

Eggertsson, Gauti and Paul Krugman, 2012, "Debt, Deleveraging and the
Liquidity Trap: A Fisher-Minsky-Koo Approach," Quarterly Journal of Eco-
nomics (forthcoming).

Mckay, Alisdair, Emi Nakamura and Jon Steinsson, 2015, "The Power of
Forward Guidance Revisited," mimeo

Werning, Ivan, 2015, "Incomplete Markets and Aggregate Demand," mimeo.

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3. Optimal Monetary Policy: Welfare, Tradeo¤s and Time Con-
sistency

Gali, ch.5.

Clarida, Richard, Jordi Gali and Mark Gertler, 1999, “The Science of Mon-
etary Policy: A New Keynesian Perspective,” Journal of Economic Litera-
ture, December.

Eggertsson, Gauti and Michael Woodford, 2003, "Optimal Monetary Policy

in a Liqudity Trap, ".Brookings Papers on Economic Activity

Werning, Ivan, 2012, "Managing A Liquidity Trap: Monetary and Fiscal

Policy," mimeo.

4. Quantitative Macroeconomic Models for Policy Evaluation

Christiano, Lawrence, Martin Eichenbaum, and Charles Evans, 2005, “Nom-

inal Rigidities and the Dynamic E¤ects of Monetary Policy Shocks, ”Journal
of Political Economy.

Smets, Frank and Raf Wouters, 2007,"Shocks and Frictions in U.S. Business
Cycle Models, American Economic Review.

Giorgio, Primiceri, Ernst Schaumberg and Andrea Tambalotti, 2010, "In-

vestment Shocks and Business Cycles," Journal of Monetary Economics

Giorgio, Primiceri, Ernst Schaumberg and Andrea Tambalotti, 2010, "In-

vestment Shocks and the Relative Price of Investment," Review of Economic
Dynamics.

Gali, Jordi, Frank Smets and Raf Wouters, 2012, "Slow Recovories: A Struc-
tural Interpretation," Journal of Money, Credit and Banking.

Anzoategui, Diego, Diego Comin, Mark Gertler and Joseba Martinez, 2015,
"Endogenous Technology Adoption and R&D as Sources of Business Cycle
Persistence," mimeo.

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 5. Financial Market Frictions: Basic Concepts

Bernanke, Ben and Mark 1989, "Agency Costs, Net Worth and Business
Fluctuations," American Economic Review, 14-31.

Brunnermeier, Markus, Thomas Eisenbach andYuliy Sannikov, 2012, "Macro-

economics with Financial Frictions: A Survey," mimeo Princeton University.

Kiyotaki, Nobuhiro and John Moore, 2007, "Credit Cycles," Journal of Po-
litical Economy, 211-248.

Geanakoplos, John, 2009, "The Leverage Cycle"NBER Macro Annual, Daron

Acemoglu, Kenneth Rogo¤ and Michael Woodford, editors. vol 24 1-65.

Gilchrist, Simon and Egon Zakrasjek, 2012, "Credit Spreads and Business
Cycle Fluctuations: Evidence from Corporate Bond and Stock Markets,"
American Economic Review.

6. Incorporating Financial Factors in Quantitative Macroeconomic

Models

Bernanke, Ben, Mark Gertler and Simon Gilchrist, 1999, “The Financial
Accelerator in a Quantitative Business Cycle Framework,”in The Handbook
of Macroeconomics, Michael Woodford and John Taylor, editors.

Christiano, Lawrence, Robert Motto, and Massimo Rostagno, 2013 "Risk

Shocks" American Economic Review

Brunnermeier, Markus and Yuliy Sannikov, 2013, "A Macroeconomic Model

with a Financial Sector," American Economic Review.

Justiniano, Alejandro, Giorgio Primceri, and Andrea Tambalotti, 2014, "House-

hold Leveraging and Deleveraging,". mimeo.

Del Negro, Marco, Marc Giannon, and Frank Schorfheide, 2014, "In‡ation
in the Great Recession and New Keynesian Models."

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 7. Frictions in Financial Intermediation and Unconventional Mone-
tary Policy

Gertler, Mark and Peter Karadi, 2011, "A Model of Unconventional Mone-
tary Policy," Journal of Monetary Economics

Gertler, Mark and Nobuhiro Kiyotaki, 2011, "Financial Intermediaries and

Credit Policy in Business Cycle Analysis," Handbook of Monetary Eco-
nomics, Ben Friedman and Michael Woodford editors.

Curdia, Vasco and Michael Woodford, 2011, "The Central Bank Balance
Sheet as an Instrument of Monetary Policy," Journal of Monetary Eco-
nomics

Boccola, Luigi, 2014, "The Pass-Through of Sovereign Risk,"

8. Financial Vulnerability, Bailouts, and MacroPrudential Policy

Lorenzoni, Guido, 2008, "Ine¢ cient Credit Booms," Review of Economic

Studies

Korinek, Anton and Alp Simsek, 2014, "Liquidity Trap and Excessive Lever-
age," mimeo.

Chari, V.V. and Patrick Kehoe, 2013, "Bailouts, Time Consistency and
Optimal Regulation,"

Fahri, Emmanuel, and Jean Tirole, 2012, "Collective Moral Hazard, Matu-
rity Mismatch and Systematic Bailouts,"

Gertler, Mark, Nobuhiro Kiyotaki, and Albert Queralto, 2012 "Bank Risk
Exposure, Financial Crises and Government Financial Policy," Journal of
Monetary Economics

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9. Bank Runs in a Macroeconomic Framework

Diamond, Douglas and Philip Dybivg, 1983, "Bank Runs, Deposit Insurance
and Liquidity," Journal of Political Economy, 401-419

Cole, Hal, and Timothy Kehoe, 2000, "Self-Ful…lling Debt Crises," Review
of Economic Studies

Gertler, Mark and Nobuhiro Kiyotaki, 2013, "Banking, Liquidity and Bank
Runs in an In…nite Horizon Economy," mimeo

Gertler, Mark, Nobuhiro Kiyotaki and Andrea Prestipino, 2015, "Whole-

sale Banking and Banking in Macroeconomic Modeling of Financial Crises,"
mimeo.

Lorenzoni, Guido and Ivan Werning, 2014, "Slow Moving Debt Crises."