Università Roma Tre

Part I: The first part of the course deal with the basic concepts needed to define and measure
economic growth and the business cycle. To derive a set of short and long-term stylised facts,
we will review essential notions about the trend-cycle decomposition of historical series, the
filtering procedures and the theory of stochastic processes.
Then, we will derive the neoclassical growth model (Solow model) and its micro-founded
version with complete and perfectly competitive markets and perfect information (RamseyCass Koopmans).
We will see that, in the long run, the trend component of the technological progress causes
the growth of the real variables, whereas, in the short run, random components in the
technological progress will trigger the cycle.

Part II: This second part of the course will focus on several extensions of the canonical RBC
model. We will keep adding more and more elements to the model to bring the results of
simulations closer to empirical evidence. The main extensions that we will see are the
indivisible labour model, habit in consumption, variable capital utilization, capital and
investment adjustment cost and preference shocks.

Part III: The third part of the course will focus on fiscal policy in the RBC models. In particular,
on the effects of increases in public spending financed by either lump-sum or distortionary
taxation and debt accumulation, emphasizing the theoretical foundations and the match with
the empirical evidence.

Part IV: The last part will focus on monetary policy issues. We will see that the introduction
of money in a Walrasian model implies results that are at odds with the empirical evidence.
Then we will focus on the New-Keynesian approach, which shares the same methodological
approach as the RBC theory. Still, the micro-foundation is based on monopolistic competitive
markets and sticky prices. These two hypotheses make money non-neutral and give the
monetary policy an active role. Furthermore, price stickiness also affects the responses to
real shocks that differ, to some extent, from those obtained in the RBC model. In this way, we
will see how it is possible to reproduce both the unconditional and the conditional evidence
to the realization of both real and nominal shocks.

Teaching material:
There is no single assigned textbook for the course. Instead, class lectures and handouts, drawn on my typed notes, will be available online.
The teaching material is based on the following textbooks and scientific papers:
Textbooks
Gali, Jordi. Monetary Policy, Inflation, and the Business Cycle.
Romer, David. Advanced Macroeconomics
Walsh, Carl. Monetary Theory and Policy.
Marchetti, Enrico. Teorie del Ciclo Economico