Business Cycles and Stabilization Policy

COURSE OBJECTIVE
The objective of the course is to introduce you to the theory and practice of macroeconomic and monetary policy, including regulation of the financial system. This course is complementary to the parallel course of Structural Policy. It is highly recommended to take both courses.

Specific learning outcomes upon completion of this course are:

• Ability to apply macroeconomic concepts and theories to analyze problems of employment and inflation;
• Capability to analyze the role macroeconomic policymakers in managing business cycles;
• An understanding of the policy problems facing central banks;
• Ability to interpret recent macroeconomic empirical work on economic crises and the effects of fiscal and monetary policy.

COURSE CONTENT
The course starts with discussing the historical development of macroeconomic theories explaining the origin of business cycles:

• Say’s law versus Malthus’ gluts;
• The Great Depression and the Keynesian revolution: Keynes, Hicks, Modigliani, Samuelson;
• Business cycle theory: Schumpeter, Austrians, Kuznets;
• Recent financial crises.

Next, the course continues with discussing the roles of different authorities in conducting macroeconomic policies. This part of the course includes the following topics:

• Money: creation, control of the money supply, interest rates, bank reserves, securitization;
• Central banking: Fed, ECB, independence, different targets; - Stabilizing role of Fiscal policy: automatic stabilizers, crowding out, budget deficits, effectiveness;
• Stabilizing role of Monetary policy: Taylor rules, quantitative easing, liquidity trap, effectiveness;
• The Debt-Driven Crisis: the Micro-explanation to the Great Recession.

The course concludes with discussing recent empirical work on economic crises and the effects of fiscal and monetary policy. This course is the sequel to the course Development of Macroeconomic Thought and is suggested to be taken together with the course of Structural Policy that runs in parallel.

TEACHING METHODS
Lectures, guest lectures and working groups

TYPE OF ASSESSMENT
Grade is average of problem sets (30 %) and written examination (70%), with written exam grade of at least 5.0. To those who participate into less than four compulsory tutorials and/or do not deliver their tutorial work, one point will be subtracted from the final grade.

ENTRY REQUIREMENTS
Basic knowledge of math and statistics, as provided in the academic core of any academic program at the Vrije Universiteit Amsterdam or equivalent.

RECOMMENDED BACKGROUND KNOWLEDGE
Development of Macroeconomic Thought