Economics 375A (WR) Monetary Policy Bill English Fall 2016 Course Description and Goals This Is a Course in Advanced Macroeconom

Economics 375a (WR) Monetary Policy Bill English Fall 2016

Course Description and Goals This is a course in advanced macroeconomics, with a focus on monetary policy over the past decade or so. Key topics include:  A brief review of the macroeconomic stabilization models covered in intermediate macroeconomics. These models will be used as a starting point for a preliminary exploration of dynamic, stochastic, general equilibrium (DSGE) models – the workhorse models of modern monetary policy.  Using these models to examine some of the key issues facing monetary policymakers in recent years: o The appropriate monetary policy framework o The implications of the effective lower bound on nominal interest rates o The design and effects of unconventional monetary policy tools  We will also study the implications for monetary policy of financial crises, including: o The causes and consequences of financial crises o Central bank tools in a crisis o The broader links between monetary policy and financial stability. This course has three primary objectives:  Deepen your understanding of the macroeconomic models and the empirical evidence that lie behind current monetary policy debates  Help you to better understand the decisions of monetary policy makers and to judge the appropriateness of such decisions  Improve your ability to think and write critically on monetary policy issues With regard to the third objective, this is a WR course and an important goal is for you to gain skill and confidence in writing relatively short, analytical, policy-related essays (about five pages) with supporting material (tables, graphs, regressions). A great deal of the work at policymaking institutions is carried out through such documents, and considerable public debate is conducted this way as well (through blog posts, for example). Prerequisites The prerequisites for this course are intermediate level macroeconomics (Econ 122 or 126) and introductory econometrics (Econ 131 or 135). If you have questions about this, please see me.

Office Hours Your success in this course is important to me. I will be available during office hours to answer your questions about the course material and the assignments. If you have a conflict during office hours, please contact me by email to make alternative arrangements. Email: TBA Office: TBA Office hours: TBA In addition, there is a Teaching Assistant for this course who will be assisting me in preparing the materials for the class and grading the assignments. The TA is also available to help you with the material for the course and the assignments. Teaching Assistant: Email: Office: Office Hours:

Readings The classes for this course will be a mix of discussion and lecture, mostly focused on the readings and assignments. I will assume that you have a background in intermediate macroeconomics at the level of Macroeconomics by N. Gregory Mankiw, or other similar intermediate texts (for example: Abel, Bernake, and Croushore; Blanchard; Dornbusch, Fischer, and Startz; or Jones). It may be helpful to review material in your intermediate macro text book at times. The readings this class are in four categories:  Our review of models of economic fluctuations will follow Short-Run Fluctuations, a shared public document by David Romer available at http://eml.berkeley.edu/~dromer/papers/ISMP%20Text%20Graphs%202013.pdf.  I will also refer to portions of David Romer’s Advanced Macroeconomics when we are developing some of the ideas behind DSGE models  Research papers. Most of the topics we will cover will include one or more journal articles or working papers that we will examine and discuss in class. I will also assign sections from some other text books, as appropriate.  Speeches and other public documents. Policymakers give regular speeches and testimonies, and monetary policy committees generally issue public statements. These documents are often the best way to understand the issues that are of concern to policymakers and to interpret their policy intentions. Readings marked with a “*” will be discussed in some detail in class, and you will be responsible for their content on the final exam. The other listed readings may be mentioned in class, and may be of interest in writing your papers, but you will only be responsible on the exam for what I say about them in class.

All readings for the class will be available through the course web site or on reserve at the library. In addition, I will discuss current macroeconomic events in class on a regular basis. You should follow these events by reading some combination of the Wall Street Journal, the Financial Times, and the Economist. (Note that you can get free electronic access to the Financial Times and the Economist through the Yale Libraries. Copies of the physical Wall Street Journal are available in the periodical room at Sterling Library.) A number of public websites provide useful sources of information that we may use from time to time in this course:  The Council of Economic Advisers (https://www.whitehouse.gov/administration/eop/cea) o Their Economic Indicators are a useful summary (https://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ECONI&br owsePath=2016%2F04&isCollapsed=false&leafLevelBrowse=false&ycord=0)  The Congressional Budget Office (https://www.cbo.gov/)  The Board of Governors of the Federal Reserve System (http://www.federalreserve.gov/) o Including the Federal Open Market Committee (http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm)  The Federal Reserve Banks o The St Louis Bank has two useful resources: . FOMC Speak, which links to speeches by members of the Federal Open Market Committee, many of which are on monetary policy issues (https://www.stlouisfed.org/fomcspeak) . FRED, which provides easy access to a very wide range of economic and financial data (https://research.stlouisfed.org/fred2/) o The New York Bank provides up-to-date information on the economy: . U.S. Economy in a Snapshot https://www.newyorkfed.org/research/snapshot/index.html . Nowcast for GDP growth https://www.newyorkfed.org/research/policy/nowcast.html . Periodic Economic Forecasts https://www.newyorkfed.org/aboutthefed/ag_economic.html Empirical Modeling This is not an econometrics course, but we will estimate and use simulations of a simple, dynamic macroeconomic model to test our thinking during the semester. This work will be discussed in class, and programs will be provided. In addition, some of the assignments will ask you to extend the in-class results. The empirical work will be conducted in EViews, a standard time-series econometrics package.

Class Website Information about the course, and links to publicly available materials will be on the course website. I will post updates to the class materials from time to time. These changes will also be announced in class. Course Requirements 1. There will be four problem sets during the first half of the semester to help develop your skills in using macroeconomic models to address monetary policy issues and also to give you experience in analyzing macroeconomic data. 2. There will be three paper assignments distributed during the semester (for timing, see the course outline below). Each assignment will allow for some choice of subject and will involve reading and reacting to research papers and public documents using models and data. Because rewriting is an important part of writing, you will also be asked to rewrite one of your three papers (your choice) by the end of the semester. If you are not sure how to revise the paper, please come to office hours so that we can discuss the comments you received on the first version. Help is available on completing your writing assignments successfully through the writing tutoring programs that the university has established. These include a writing tutor affiliated with each of the Residential Colleges, as well as drop-in “writing partners.” For more information, see http://ctl.yale.edu/writing/tutoring 3. There will be a final examination on the date scheduled by the university. I will follow the University rules regarding rescheduling the final exam for students with conflicts.

A Word about Plagiarism You must document all of the source material used in your papers. If you take any text from somebody else, you must make it clear that the text is being quoted and where the text comes from. You must also cite any sources from which you obtain numbers, charts, model results, or other material. If you have any questions about what does or does not constitute plagiarism, please ask me or the TA! I take plagiarism seriously; fortunately, it is easy to avoid, and if you are careful about giving credit where credit is due, you should not run into any problems.

Grading Problem Sets and class participation: 15 percent Papers: 12.5 percent each (including the rewrite): 50 percent total Final exam: 35 percent

The problem sets will be graded coarsely: 1, 2, or 3 points. The purpose is to give you a chance to test your skills and learn, rather than necessarily to get everything right the first time. But you are required to attempt all of the problem sets in a serious way. You can work on the problem sets with other students – indeed I encourage that – but each of you should work on all of the problems (no dividing up the problems and sharing answers). Students must hand in their own responses – you cannot copy and paste an answer prepared by another student. Please note on your problem set the names of any other students with whom you conferred while working on the problem set. Class participation will be based on an assessment of the quality and quantity of your contributions to the class discussion. Note that a smaller number of constructive and sensible contributions will be more successful than a larger number of less helpful comments. Fair warning: All written assignments must be turned in at the beginning of class on the day they are due. (If you have to be absent on that day, you should submit your assignment via email, still by the start of class.) I will subtract one-third of a letter grade for each day a paper is late; that is, an A paper that is a day late will receive a grade of A-, an A paper that is two days late will receive a grade of B+, and so on. Similarly, I will mark down the grade on a problems set by one notch (from a 3 to a 2, and so on) for each day it is late.

Course outline: I. Introduction – Cyclical Fluctuations in the United States August 31 Readings: *Romer, Advanced Macroeconomics, Chapter 5, section 1. Blanchard, Olivier and Stanley Fischer (1988), Lectures in Macroeconomics, Chapter 1

II. Week 1 -- Review of the AS/AD/MP model September 2 Readings: *Romer, David, Short-run Fluctuations, sections I-II.

September 5 Readings: *Romer, David, Short-run Fluctuations, section III. *Romer, Christina, and David Romer (1989), “Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz,” NBER Macroeconomics Annual, vol. 4, pp. 121-161. (http://www.nber.org/chapters/c10964.pdf)

III. Weeks 2 and 3 -- From IS/LM to DSGE September 7 a. Utility maximization and the IS curve Readings: *Romer, Advanced Macroeconomics, Chapter 7, section 1. Mankiw, N. Gregory (1982), “Hall’s Consumption Hypothesis and Durable Goods,” Journal of Monetary Economics, vol. 19, pp. 417-425. Fuhrer, Jeffrey C. (2000), “Habit Formation in Consumption and Its Implications for Monetary Policy Models,” American Economic Review, vol. 90, pp. 367-390. (https://www.aeaweb.org/articles?id=10.1257/aer.90.3.367) Mankiw, N. Gregory and Matthew D. Shapiro (1986), “Risk and Return: Consumption Beta Versus Market Beta,” The Review of Economics and Statistics, vol. 68, pp. 452-459.

[Problem set 1 due]

September 12 b. Profit maximization, price setting, and the Phillips Curve Readings: *Romer, Advanced Macroeconomics, Chapter 7, sections 2-4. *Mankiw, N. Gregory (1985), “Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly,” Quarterly Journal of Economics,

vol. 100, pp. 529-539. (http://scholar.harvard.edu/files/mankiw/files/small_menu_costs.pdf) Solow, Robert, “Some Macroeconomic Consequences of Monopolistic Competition.” chapter 1 in Monopolistic Competition and Macroeconomic Theory, Cambridge: Cambridge University Press, 1992. Blanchard, Olivier (2016), “The US Phillips Curve: Back to the 60’s?” Peterson Institute Policy Brief, January. (https://piie.com/system/files/documents/pb16-1.pdf)

September 14 c. Monetary policy rules Readings: *Taylor, John B. (1993), “Discretion Versus Policy Rules in Practice,” Carnegie- Rochester Conference Series on Public Policy, vol. 39, pp. 195-214. (http://ac.els-cdn.com/016722319390009L/1-s2.0-016722319390009L- main.pdf?_tid=c5071d8c-1d43-11e6-9996- 00000aab0f26&acdnat=1463608938_0343914d802d5052177c3dd488ac2 2d1) Taylor, John B. and John C. Williams (2010), “Simple and Robust Rules for Monetary Policy,” Federal Reserve Bank of San Francisco Working Paper No. 2010-10, April.

[Problem set 2 due] September 19 d. Empirical exercise: Estimating and simulating a simple macro model Readings: *Romer, Advanced Macroeconomics, Chapter 7, sections 7-9.

IV. Weeks 4 and 5 – Systematic monetary policy September 21 a. Goals of monetary policy b. The importance of expectations c. Time consistency: Rules vs discretion Readings: *Federal Open Market Committee, “Statement of Longer-Run Goals and Monetary Policy Strategy” Mishkin, Fredrick (2016), The Economics of Money, Banking, and Financial Markets, Chapter 16. *Barro, Robert J. and David B. Gordon (1983), “Rules, Discretion and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics, vol. 12, pp 101-121.

[Problem set 3 due]

September 26 d. Inflation targeting Readings: *Bernanke, Ben, and Frederic Mishkin (1997). "Inflation Targeting: A New Framework for Monetary Policy?" Journal of Economic Perspectives, vol. 11, pp. 97-116. Kiley, Michael, Eileen Mauskopf, and David Wilcox (2007), “Issues Pertaining to the Specification of a Numerical Price-Related Objective for Monetary Policy, memorandum to the Federal Open Market Committee, March. (http://www.federalreserve.gov/monetarypolicy/files/FOMC20070312me mo01.pdf) Blanchard, Olivier, Giovanni Dell’Ariccia, and Paolo Mauro (2010), “Rethinking Macroeconomic Policy,” IMF Staff Position Note, February. (https://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf) Ball, Larry (2014), “The Case for a Long-Run Inflation Target of Four Percent,” IMF Working Paper, June. (https://www.imf.org/external/pubs/ft/wp/2014/wp1492.pdf)

September 28 e. “Optimal policy” Readings: *Yellen, Janet (2012), “The Economic Outlook and Monetary Policy,” speech at the Money Marketeers of New York University, April. (http://www.federalreserve.gov/newsevents/speech/yellen20120411a.pdf) *Brayton, Flint, Thomas Laubach, and David Reifschneider (2014), “Optimal- Control Monetary Policy in the FRB/US Model,” FEDS Note, November. (https://www.federalreserve.gov/econresdata/notes/feds- notes/2014/optimal-control-monetary-policy-in-frbus-20141121.html)

October 3 f. Risk management Readings: *Greenspan, Alan (2004), “Risk and Uncertainty in Monetary Policy,” Speech at the meetings of the American Economic Association, January. (http://www.federalreserve.gov/BoardDocs/speeches/2004/20040103/defa ult.htm) Yellen, Janet L. (2016), “Current Conditions and the Outlook for the U.S. Economy,” remarks at the World Affairs Council of Philadelphia, PA, June 6. (https://www.federalreserve.gov/newsevents/speech/yellen20160606a.htm )

V. Week 6 -- Some important complications October 5 a. The equilibrium real interest rate and the zero lower bound Readings: *Romer, Short-Run Fluctuations, section IV. Chung, Hess, Jean-Philippe Laforte, David Reifschneider, and John C. Williams, “Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?” Journal of Money, Credit and Banking, vol. 44, Issue Supplement s1, pp. 47-82. *Laubach, Thomas, and John Williams (2015), “Measuring the natural rate of interest redux,” Brookings Institution Working Paper #15, November. (http://www.brookings.edu/~/media/Research/Files/Papers/2015/10/30- laubach-williams/WP15-Laubach-Williams-natural-interest-rate-redux- 2.pdf?la=en) Hamilton, James D., Ethan S. Harris, Jan Hatzius, and Kenneth D. West, “The Equilibrium Real Funds Rate: Past, present, and future,” paper presented at the Chicago/Booth U.S. Monetary Policy Forum, February 27, 2015. (https://research.chicagobooth.edu/igm/usmpf/2015.aspx) Obstfeld, Maury and Linda Tesar (2015), “Long-Term Interest Rates: A Survey,” Mimeo, The White House, July. (https://www.whitehouse.gov/sites/default/files/docs/interest_rate_report_f inal.pdf) Bernanke, Ben S. “Why are Interest Rates So Low” Parts 1 and 3. (http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why- interest-rates-so-low) (http://www.brookings.edu/blogs/ben- bernanke/posts/2015/04/01-why-interest-rates-low-global-savings-glut)

[Paper 1 due]

October 10 b. Risk spreads, longer-term rates, and the expectations model of the yield curve Readings: *Romer, Short-Run Fluctuations, sections V. *Mishkin, Fredrick (2016), The Economics of Money, Banking, and Financial Markets, Chapter 6, pp. 124-135. *Romer, David, Advanced Macroeconomics, Chapter 11, section 2. King, Robert G. and Andre Kurmann (2002) “Expectations and the Term Structure of Interest Rates: Evidence and Implications,” The Federal Reserve Bank of Richmond Economic Quarterly, vol. 88, pp. 49-95.

October 12

c. Empirical exercise: Incorporating the zero bound and the long-term rate in a simple macroeconomic model October 17 d. Banks and other intermediaries e. Monetary transmission and the financial accelerator Readings: *Mishkin, Fredrick (2016), The Economics of Money, Banking, and Financial Markets, Chapter 9, pp. 186-191. *Bernanke, Ben and Alan Blinder (1988), “Credit, Money, and Aggregate Demand,” American Economic Review, vol. 78, pp. 435-439. Bernanke, Ben S. and Mark Gertler (1995), “Inside the Black Box: The Credit Channel of Monetary Policy Transmission,” Journal of Economic Perspectives, vol. 9, pp. 27-48. Woodford, Michael (2010), “Financial Intermediation and Macroeconomic Analysis,” Journal of Economic Perspectives, vol. 24, pp. 21–44.

[Problem set 4 due]

[October recess]

VI. Weeks 7 and 8 -- Financial crises

October 24 a. Booms and busts – financial crises Readings: *Galbraith, John Kenneth (1954), The Great Crash: 1929, Boston: Houghton Mifflin, 1954 (reprint 1988). Pp. 1-23, 88-107, and 108-113. *Summers, Lawrence H (1991), “Macroeconomic Consequences of Financial Crises: Planning for the Next Crisis,” in The Risk of Economic Crisis, Martin Feldstein, ed., NBER. Mishkin, Fredrick (2016), The Economics of Money, Banking, and Financial Markets, Chapter 12. Kindleberger, Charles P. (2005), Manias, Panics, and Crashes: A history of financial crises. New York: Wiley.

October 26 b. Bank runs Readings: *Diamond, Douglas W. “Banks and Liquidity Creation: A Simple Exposition of the Diamond-Dybvig Model,” Federal Reserve Bank of Richmond Economic Quarterly, Spring 2007, pp. 189-200.

Diamond, Douglas W. and Philip H. Dybvig (1983), “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy, vol. 91, pp. 401- 419.

October 31 c. Banks and shadow banks Readings *Pozsar, Zoltan, Tobias Adrian, Adam Ashcraft, and Hayley Boesky (2013), “Shadow Banking,” Federal Reserve Bank of New York Economic Policy Review, vol. 10, December. *Gorton, Gary and Andrew Metrik (2012), “Getting up to Speed on the Financial Crisis: A One-Weekend-Readers Guide,” NBER Working Paper No. 17778. January. (http://www.nber.org/papers/w17778) Shleifer, Andrei, and Robert Vishny (2011), “Fire Sales in Finance and Macroeconomics,” Journal of Economic Perspectives, vol. 25, pp. 29–48. Markus K. Brunnermeier (2009), “Deciphering the Liquidity and Credit Crunch 2007-2008,” The Journal of Economic Perspectives, vol. 23, pp. 77–100. Mishkin, Frederic S. (2011), “Over the Cliff: From the Subprime to the Global Financial Crisis,” Journal of Economic Perspectives, vol. 25, pp. 49–70. Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report, Washington, DC: U.S. Government Printing Office. (https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf)

November 2 d. Emergency lending Readings: *Bernanke, Ben S. (2012), “Some Reflections on the Crisis and the Policy Response,” speech at the Russell Sage Foundation and The Century Foundation Conference on "Rethinking Finance," New York, New York, April. (https://www.federalreserve.gov/newsevents/speech/bernanke20120413a.htm) *Madigan, Brian F. (2009), “Bagehot's Dictum in Practice: Formulating and Implementing Policies to Combat the Financial Crisis,” speech at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, Jackson Hole, Wyoming August. Bagehot, Walter (1873), Lombard Street. Available on line at: http://www.econlib.org/library/Bagehot/bagLom.html

[Paper 2 due]

VII. Weeks 9 and 10 – Crises, monetary policy, and the zero lower bound November 7 and November 9 a. Unconventional policy i. Forward guidance

ii. Balance sheet policies 1. The balance sheet of the Fed 2. Asset purchases 3. Maturity extension b. Alternative frameworks Readings: *Bernanke, Ben S. (2013), “Communications and Monetary Policy,” Herbert Stein Memorial Lecture, November. (https://www.federalreserve.gov/newsevents/speech/bernanke20131119a.p df) *Bernanke, Ben S. (2009), “The Federal Reserve’s Balance Sheet,” speech at the Federal Reserve Bank of Richmond 2009 Credit Markets Symposium, Charlotte, North Carolina, April. (https://www.federalreserve.gov/newsevents/speech/bernanke20090403a.h tm) *Carpenter, Seth, et al (2013), “The Federal Reserve’s Balance Sheet and Earnings: A primer and projections,” FEDS working paper No. 2013-01, September. (http://www.federalreserve.gov/pubs/feds/2013/201301/revision/201301pa p.pdf) *Asness, Cliff et al. Open Letter to Ben Bernanke (2011) (http://blogs.wsj.com/economics/2010/11/15/open-letter-to-ben-bernanke/) Bernanke, Ben S., Vincent R. Reinhart, and Brian P. Sack (2004), “Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment,” Brookings Papers on Economic Activity, vol. 2004:2. (http://www.brookings.edu/~/media/Projects/BPEA/Fall- 2004/2004b_bpea_bernanke.PDF) Federal Reserve Staff (2008), “Notes on Issues Related to the Zero Lower Bound on Nominal Interest Rates,” memorandum to the Federal Open Market Committee, December. (http://www.federalreserve.gov/monetarypolicy/files/FOMC20081212me mo22.pdf) Bernanke, Ben S. (2014), The Federal Reserve and the Financial Crisis, Princeton NJ: Princeton University Press. Chapter 3. (Also available as a video: “The Federal Reserve’s Response to the Financial Crisis” lecture at George Washington University: http://www.federalreserve.gov/newsevents/lectures/federal-reserve- response-to-the-financial-crisis.htm) *English, William, David Lopez-Salido, and Robert Tetlow (2014), “The Federal Reserve’s Framework for Monetary Policy—Recent Changes and New Questions,” paper presented at the 14th Jacques Polak Annual Research Conference, IMF, November 7-8. Section II only. (https://www.imf.org/external/np/res/seminars/2013/arc/pdf/english.pdf)

November 14 c. Empirical exercise: The effects of unconventional policies Readings: *Chung, Hess (2015), “The Effects of Forward Guidance in Three Macro Models,” FEDS Note, February. (https://www.federalreserve.gov/econresdata/notes/feds- notes/2015/effects-of-forward-guidance-in-three-macro-models- 20150226.html) *Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2011), “The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases,” International Journal of Central Banking, March. (http://www.ijcb.org/journal/ijcb11q1a1.pdf) Li, Canlin and Min Wei (2013), “Term Structure Modeling with Supply Factors and the Federal Reserve’s Large-Scale Asset Purchase Programs, International Journal of Central Banking, March. (http://www.ijcb.org/journal/ijcb13q1a1.pdf) *Engen, Eric M., Thomas Laubach, and David Reifschneider (2015). “The Macroeconomic Effects of the Federal Reserve’s Unconventional Monetary Policies,” Finance and Economics Discussion Series 2015-005. Washington: Board of Governors of the Federal Reserve System. (http://dx.doi.org/10.17016/FEDS.2015.005)

November 16 d. Policy normalization Readings: *Ihrig, Jane E., Ellen E. Meade, and Gretchen C. Weinbach (2015) “Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?” Journal of Economic Perspectives, vol. 29, pp. 177-198. (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.4.177) Anderson, Alyssa, et al (2016), “What Happened in Money Markets after the Fed’s December Rate Increase?” FEDS Notes, February. (https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/what- happened-in-money-markets-after-the-feds-december-rate-increase- 20160222.html) Potter, Simon (2015), “Money Markets and Monetary Policy Normalization,” speech to the Money Marketeers of New York University, April 15. (https://www.newyorkfed.org/newsevents/speeches/2015/pot150415.html)

[Paper 3 due]

[November recess]

VIII. Week 11 – Long-lived Effects of Financial Crises

November 28 a. Protracted effects of crises b. Could we run out of monetary policy tools? i. Negative interest rates ii. Helicopter money Readings: *Reinhart, Carmen and Kenneth Rogoff (2014), “Recovery from Financial Crises: Evidence from 100 Episodes,” American Economic Review: Papers and Proceedings, vol. 104, pp. 50-55. Romer, Christina and David Romer (2015), “New Evidence on the Impact of Financial Crises an Advanced Countries,” NBER Working Paper No. 21021. (http://www.nber.org/papers/w21021) Reifschneider, David, William Wascher, and David Wilcox (2015), “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy,” IMF Economic Review, vol. 63, pp. 71-109. Hall, Robert E., 2011, “The Long Slump,” American Economic Review, vol. 101, pp. 431–69. Bullard, James (2010), “Seven Faces of “The Peril,” Federal Reserve Bank of St. Louis Review, vol. 92, pp. 339-52. (https://research.stlouisfed.org/publications/review/10/09/Bullard.pdf) Romer, Christina and David Romer (2013), “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter,” American Economic Review: Papers and Proceedings, vol. 103, pp. 55-60. *Bernanke, Ben S. (2016), “What Tools Does the Fed Have Left? Part 1: Negative interest rates,” blog post, Brookings Institution. (http://www.brookings.edu/blogs/ben-bernanke/posts/2016/03/18-negative- interest-rates) Burke, Chris, et al (2010), “Reducing the IOER Rate: An Analysis of Options,” memorandum to the Federal Open Market Committee, August. (http://www.federalreserve.gov/monetarypolicy/files/FOMC20100805memo0 5.pdf) Haldane, Andrew (2015), “How Low Can You Go?” Speech given at the Portadown Chamber of Commerce, Northern Ireland, September. (http://www.bankofengland.co.uk/publications/Pages/speeches/2015/840.aspx ) Turner, Adair (2015), “The Case for Monetary Finance – An Essentially Political Issue,” paper presented at the 16the Jacques Polak Annual Research Conference, IMF, November 5-6. (https://www.imf.org/external/np/res/seminars/2015/arc/pdf/adair.pdf) *Bernanke, Ben S. (2016), “What Tools Does the Fed Have Left? Part 3: Helicopter money,” blog post, Brookings Institution. (http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicopter- money)

November 30 c. Secular stagnation Readings: *Summers, Larry (2014), “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound,” Business Economics, vol. 49, pp. 65-73. (http://larrysummers.com/wp-content/uploads/2014/06/NABE-speech- Lawrence-H.-Summers1.pdf) *Bernanke, Ben S. (2015), “Why are Interest Rates So Low, Part 2: Secular stagnation,” blog post, Brookings Institution. (http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/31-why- interest-rates-low-secular-stagnation) *Summers, Larry (2015), “On Secular Stagnation: Larry Summers responds to Ben Bernanke,” blog post, Brookings Institution. (http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/01-larrysummers-response)

IX. Week 12 -- Monetary policy and financial stability December 5 a. Reaching for yield and excessive risk taking. b. Prudential and macroprudential tools Readings: *Borio, Claudio and William White (2004), “Whither monetary and financial stability? The implications of evolving policy regimes,” BIS Working Papers No. 147. (http://www.bis.org/publ/work147.pdf) *Fischer, Stanley (2015), “Macroprudential Policy in the U.S. Economy,” remarks at the Federal Reserve Bank of Boston conference Macroprudential Monetary Policy, October 2. (http://www.federalreserve.gov/newsevents/speech/fischer20151002a.pdf) Adrian, Tobias, Daniel Covitz, and Nellie Liang (2013), “Financial Stability Monitoring,” Federal Reserve Bank of New York Staff Report No. 601, February.

December 7 c. QE and the debate over financial stability d. “Leaning against the wind” Readings: *Bernanke, Ben S. (2015), “Should monetary policy take into account risks to financial stability?” blog post, Brookings Institution, April. (http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/07-monetarypolicy-risks-to-financial-stability)

*Mitch McConnell et al (2011), letter to Ben Benanke. (http://blogs.wsj.com/economics/2011/09/20/full-text-republicans-letter-to- bernanke-questioning-more-fed-action/) *Svensson, Lars E.O. (2014), "Inflation targeting and leaning against the wind" International Journal of Central Banking, vol. 10, pp. 103-114. Ajello, Andrea, Thomas Laubach, David Lopez-Salido, and Taisuke Nakata (2015), “Financial Stability and Optimal Interest-Rate Policy,” Mimeo, Federal Reserve Board, February. (http://www.frbsf.org/economic-research/files/1A- Ajello-Laubach-Lopez_Salido-Nakata.pdf) Liang, Nellie, and Tobias Adrian (2015), “Discussion of ‘Cost-Benefit Analysis of Leaning against the Wind’ by Lars Svensson,” mimeo, Federal Reserve Board. Hanson, Samuel G., Anil K. Kashyap, and Jeremy C. Stein (2011) “A Macroprudential Approach to Financial Regulation,” Journal of Economic Perspectives, vol. 25, pp. 3-28. (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.1.3) (https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr601.pdf)

[Paper rewrite due]