Syllabus and References

• Syllabus and References

  A file with this syllabus can be found in the "Teaching material" section below.

  
  

  1.   Monetary policy analysis and VAR models

  Lecture notes (available in the "Teaching material" section below):    VAR_notes_1 -   VAR_notes_2 -   VAR_notes_3  (to be used together with J. Cochrane 1994)
  

  Vector autoregressive (VAR) models  are one of the main tools of applied econometric analysis in macroeconomics. A general (non technical) introduction to the use of VAR models (with some reference to monetary policy) is:

   (*) Stock J. and M. Watson (2001) "Vector Autoregressions", Journal of Economic Perspectives, 15, 4, 101-115  - for replication: data used in the paper are available in EViews workfile format

  One of the main application of VAR techniques to monetary policy concerns the empirical analysis of the monetary policy transmission mechanism. The problem of "measuring" monetary policy actions and the associated empirical strategies fot identifying monetary policy impulses are extensively analyzed (with US applications) by:

  (*) Christiano L.J., M. Eichenbaum and C.L. Evans (2000) "Monetary policy shocks: what have we learned and to what end?'', in J. Taylor and W. Woodford (eds.), Handbook of Macroeconomics, North-Holland, Volume 1A, 65-148 - working paper version

  (*) Bernanke B.S. and I. Mihov (1998) "Measuring monetary policy'', Quarterly Journal of Economics, 113, 3, 869-902

  A general identification strategy based on long-run restrictions (that can be applied to monetary policy anaysis) is provided by:

  (*) Blanchard O. and Quah D. (1989) "The dynamic effects of aggregate supply and aggregate demand disturbances", American Economic Review, 79, 655-673 

  More recent and complete treatments of the identification strategies are provided by:

  Kilian L. (2013) "Structural vector autoregressions" in N. Hashimzade and M. Thornton (eds.), Handobook of Research Methods and Applications in Empirical Macroeconomics, Edward Elgar

  Ramey V. (2017) "Macroeconomic shocks and their propagation" in Handbook of Macroeconomics vol. 2, North-Holland, chapter 2 (working paper version)
  

  Insightful applications of VAR modelling (with cointegration) to the estimation of the permanent and transitory components in GDP and asset price fluctuations are given by:

  (*) Cochrane J. (1994) "Permanent and transitory components of GNP and stock prices", Quarterly Journal of Economics, 109, 1, 241-265  (note that  in the paper  Figure II and Figure III are misplaced)

  Lettau M. and S. Ludvigson (2004) "Understanding trend and cycle in asset values: reevaluating the wealth effect on consumption", American Economic Review, 94, 1, 276-299 - the correct Figure 4 of the paper can be found here
  
  The Nobel prize for Economics 2011 was awarded to T.J. Sargent and C.A. Sims for their contributions to empirical macroeconomics; for the latter economist, particularly for the development of Vector Autoregression techniques and their application to policy: here are the prize motivation and scientific background
  

  Further readings:   

  Bagliano F.-C. and C.A. Favero (1998) "Measuring monetary policy with VAR models: an evaluation'', European Economic Review, 42, 6, 1069-1112

  Bagliano F.-C. and C.A. Favero (1999) "Information from financial markets and VAR measures of monetary policy'', European Economic Review, 43, 6, 825-838

  Blanchard O.J. (1989) "A traditional interpretation of macroeconomic fluctuations", American Economic Review, 79, 5, 1146-1164

  Stock J. and M. Watson (1988) "Variable trends in economic time series", Journal of Economic Perspectives, 2, 3, 147-174

  King R., R. Plosser, J. Stock and M. Watson (1991) "Stochastic trends and economic fluctuations", American Economic Review, September

  
  

  2.   Empirical analysis of the term structure of interest rates

  Lecture notes (available in the "Teaching material" section below):  Term_notes_1 (to be used together with R. King and A. Kurmann 2002) - Term_notes_2 (to be used together with F. Diebold F.X. and C. Li 2006)

  The study of the links between interest rates on bonds with different maturities is crucial for monetary policy and the analysis of financial markets. In this course, the main modelling techniques and empirical estimation and forecasting of the term structure of interest rates will be presented in the perspective of the “expectations theory” of the term structure. Several empirical testing strategies of this theory have been implemented in the existing literature,  leading in many cases to statistical rejections but uncovering in the data several empirical regularities predicted by theory.

  A survey of results is provided by:

  (*) King R. G. and A. Kurmann (2002) "Expectations and the term structure of interest rates: evidence and implications", Federal Reserve Bank of Richmond Economic Quarterly, 88, 4, 49-95

  A recent survey of terms structure analysis, with a focus on empirical anomalies with respect to the expectations theory are discussed by:

  Gurkaynak R.S. and J. H. Wright (2012) "Macroeconomics and the term structure", Journal of Economic Literature, 50, 2, 331-367

  On the empirical modelling and forecasting of the yield curve:

  (*) Diebold F.X. and C. Li (2006) "Forecasting the term structure of government bond yields", Journal of Econometrics, 130, 337-364

  
  

  Further readings:

  Campbell J.Y. and R.J. Shiller (1991) "Yield spreads and interest rate movements: a bird's eye view", Review of Economic Studies, 58, 495-514

  Nelson C.R. and J. Siegel (1987) "Parsimonious modelling of yield curves", Journal of Business, 60(4), 473-489

  
  

  3.   Financial returns, risk and consumption choices in a macroeconomic perspective

  Lecture notes (available in the "Teaching material" section below): ccapm_notes  (to be used together with Campbell 2003 and Mehra R. 2003)

  The analysis of financial returns, risk factors and the determinants of return differentials among financial assets are key themes of the literature developed from the Consumption Capital Asset Pricing Model (CCAPM). Recent empirical studies provided evidence in contrast with the implications of the basic theory, motivating several extensions. In this course, both the basic models and more recent extensions will be presented, with a focus on empirical methodologies and results.

  A thorough survey of theoretical models and empirical evidence is found in:

  (*) Campbell J.Y. (2003) "Consumption-based asset pricing", in G. Costantinides, M. Harris and R. Stulz (editors), Handbook of the Economics of Finance, Elsevier, Volume IB, chapter 13, 803-886

  A multifactor model of return premia (with empirical application) is provided by:

  (*) Campbell J.Y. (1996) "Understanding risk and return", Journal of Political Economy, 104, 2, 298-345
  

  Standard consumption-based asset pricing models and more recent extensions thereof are discussed by:
  

  Schwartzmann F. (2014) "How can consumption-based asset pricing models explain low interest rates?", Federal Reserve Bank of Richmond Economic Quarterly, 100, 3, 209-240

  
  

  Further readings:

  Campbell J.H., A.W. Lo and A.C. MacKinley (1997) The econometrics of financial markets, Princeton University Press, chapter 8

  Cochrane J.H. (2005) Asset Pricing, Princeton University Press, 2nd edition, chapters 9 and 21

  Cochrane J.H. (2011) "Presidential address: Discount rates", Journal of Finance, 66, 4,  1047-1108 

  Campbell J.H. (2000) "Asset pricing at the millennium", Journal of Finance, 55, 4, 1515-1567

  Fama E.F. and K.R. French (2002) "The equity premium", Journal of Finance, 57, 2, 637-659

  Mehra R. (2003) "The equity premium: why is it a puzzle?", Financial Analyst Journal, January/February, 54-69

  Mehra R. and E.C. Prescott (2003) "The equity premium in retrospect", in G. Costantinides, M. Harris and R. Stulz (editors), Handbook of the Economics of Finance, Elsevier, Volume IB, chapter 14, 887-936

  Campbell J.H. and J.H. Cochrane (1999) "By force of habit: a consumption-based explanation of aggregate stock market behavior", Journal of Political Economy, 107(2), 205-251

  An up-to-date overview of macro-finance models, addressing the links between asset prices and economic fluctuations is provided by:
  

  Cochrane J. (2017) "Macro-Finance", Review of Finance, 945-985

  
  

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  Additional readings (for class presentation):

  
  

  (1)  VAR models 

  Bernanke B.S. and I. Mihov (1998) "The liquidity effect and long-run neutrality", Carnegie-Rochester Conference Series on Public Policy (Journal of Monetary Economics)'', 49, 149-194

  Giordani P. (2004) "An alternative explanation of the price puzzle", Journal of Monetary Economics, 51, 1271-1296

  Cover J.P., W. Enders and C. J. Hueng (2006) "Using the aggregate demand-aggregate supply model to identify structural demand-side and supply-side shocks: results using a bivariate VAR", Journal of Money, Credit and Banking, 38, 777-790 

  Souza J. and A. Zaghini (2008) "Monetary policy shocks in the Euro area and global liquidity spillovers", International Journal of Finance and Economics, 13, 205-218

  Faust J., E. Swanson and J. Wright (2004) "Identifying VARs based on high frequency futures data", Journal of Monetary Economics, 51, 1107-1131

  Bernanke B.S. and K.N. Kuttner (2005) "What explains the stock market reaction to Federal Reserve policy?", Journal of Finance, 60, 2, 1221-1257

  Bagliano F.-C. and C. Morana (2003) "Measuring US core inflation: a common trends approach", Journal of Macroeconomics, 25, 197-212

  Boivin J. and M. Giannoni (2002) "Assessing changes in the monetary transmission mechanism: a VAR approach", Federal Reserve Bank of New York Economic Policy Review, May, 97-111

  Ludvigson S., C. Steindel and M. Lettau (2002) "Monetary policy transmission through the consumption-wealth channel", Federal Reserve Bank of New York Economic Policy Review, May, 117-133

  Lettau M. and S. Ludvigson S.C. (2014) "Shocks and crashes", in NBER Macroeconomics Annual 2013, 293-354

  Beaudry P. and F. Portier (2006) "Stock prices, news and economic fluctuations", American Economic Review, 96, 4, 1293-1307
  

  D'Amico S. and M. Farka (2011) "The Fed and the stock market: an identification based on intraday futures data", Journal of Business and Economics Statistics, 29(1),  126-137
  

  Coibion O. (2012) "Are the effects of monetary policy shocks big or small?", American Economic Journal: Macroeconomics, 4(2), 1-32
  

  Barakchian S.M. and C. Crowe (2013) "Monetary policy matters: evidence from new shocks data", Journal of Monetary Economics, 60, 950-966
  

  Maio P. (2014) "Another look at the stock return response to monetary policy actions ", Review of Finance, 18, 321-371

  Gertler M. and P. Karadi (2015) "Monetary policy surprises, credit costs and economic activity", American Economic Journal: Macroeconomics, 7(1), 44-76

  
  (2) Term structure of interest rates 

  Ellingsen T. and U. Soderstrom (2001) "Monetary policy and market interest rates", American Economic Review, 91, 6, 1594-1607 (companion paper: "Monetary policy and the bond market", working paper, 2003 )

  Diebold F.X., G.D. Rudebusch and S.B. Aruoba (2006) "The macroeconomy and the yield curve: a dynamic latent factor approach", Journal of Econometrics, 131, 309-338

  Carriero A., C.A. Favero and I. Kaminska (2006) "Financial factors, macroeconomic information and the expectations theory of the term structure of interest rates", Journal of Econometrics, 131, 339-358

  Diebold F.X., C. Li and V.Z. Yue (2008) "Global yield curve dynamics and interactions: a dynamic Nelson-Siegel approach", Journal of Econometrics, 146, 351-363

  Afonso A. and M.M.F. Martins (2012) "Level, slope, curvature of the sovereign yield curve, and fiscal behaviour", Journal of Banking and Finance, 36, 1789-1807

  
  (3) Returns, risk and consumption choices 

  Campbell J.Y. and J.H. Cochrane (2000) "Explaining the poor performance of consumption-based asset pricing models", Journal of Finance, 55, 6, 2863-2878

  Lettau M. and S. Ludvigson (2001) "Consumption, aggregate wealth and expected growth returns", Journal of Finance, 56, 3, 815-849

  Bansal R. and A. Yaron (2004) "Risks for the long-run: a potential resolution of asset pricing puzzles", Journal of Finance, 59, 4, 1481-1509

  Bansal R. , R.F. Dittmar and C.T. Lundblad (2005) "Consumption, dividends and the cross-section of equity returns", Journal of Finance, 60, 4, 1639-1672

  Duffee G.R. (2005) "Time variation in the covariance between stock returns and consumption growth", Journal of Finance, 60, 4, 1673-1712

  Campbell J.Y., S.W. Giglio, C. Polk and R. Turley (2018) "An intertemporal CAPM with stochastic volatility", Journal of Financial Economics , 128, 207-233
  

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