CREI Macroeconomics Summer School

Course Overview

This course provides an overview of sovereign debt crises from theoretical, empirical and policy points of view. It covers both traditional and new theories that emphasize the interplay between international and domestic financial markets, and the relevant empirical evidence. It discusses the distinction between liquidity and solvency crises and the appropriate policy responses. The last part of the course is devoted to an analysis of the European crisis.

The course is aimed at both students and practitioners. It provides a formal analysis of some of the main theoretical models and empirical studies in sovereign debt academic literature. At the same time, the presentation is accessible as it emphasizes conceptual understanding and policy implications.

Course Outline

1. What are the costs of sovereign default? Reputation and sanctions
2. Market structure and defaults: Secondary markets and collateral damage
3. Rollover crises: Lender of last resort and moral hazard
4. Solvency crises: Debt overhang, buybacks and restructuring
5. Lessons from Europe

References

• Acharya, V., I. Drechsler, and P. Schnabl (2014), “A pyrrhic victory? Bank bailouts and sovereign credit risk,” Journal of Finance
• Aguiar, M. and G. Gopinath (2006), “Defaultable debt, interest rates and the current account,” Journal of International Economics
• Arellano, C. (2008), “Default risk and income fluctuations in emerging economies,” American Economic Review
• Arellano, C. and A. Ramanarayanan (2012), “Default and the maturity structure in sovereign bonds,” Journal of Political Economy
• Broner, F., A. Erce, A. Martin, and J. Ventura (2014), “Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects,” Journal of Monetary Economics
• Broner, F., G. Lorenzoni and S. Schmukler (2013), “Why do emerging economies borrow short term?” Journal of the European Economic Association
• Broner, F., A. Martin and J. Ventura (2010), “Sovereign risk and secondary markets,” American Economic Review
• Broner, F. and J. Ventura (2016), “Rethinking the effects of financial globalization,” Quarterly Journal of Economics
• Cole, H. and T. Kehoe (2000), “Self-fulfilling debt crises,” Review of Economic Studies
• Cruces, J. and C. Trebesch (2013), “Sovereign defaults: The price of haircuts,” AEJ: Macroeconomics
• Gennaioli, N., A. Martin and S. Rossi (2014), “Sovereign default, domestic banks, and financial institutions,” Journal of Finance
• Obstfeld, M. and K. Rogoff (1996), Foundations of International Macroeconomics, Ch. 6.1
• Obstfeld, M. and K. Rogoff (1996), Foundations of International Macroeconomics, Ch. 6.2
• Reinhart, C. and K. Rogoff (2011), “From financial crash to debt crisis,” American Economic Review
• Reinhart, C., V. Reinhart, and K. Rogoff (2012), “Public debt overhangs: Advanced-economy episodes since 1800,” Journal of Economic Perspectives
• Reinhart, C. and B. Sbrancia (2015), “The liquidation of government debt,” Economic Policy
• Reinhart, C. and C. Trebesch (2016), “Sovereign debt relief and its aftermath,” Journal of the European Economic Association
• Rose, A. (2005), “One reason countries pay their debts: Renegotiation and international trade,” Journal of Development Economics

About the Instructor

Fernando Broner ​is a Senior Researcher at the Center for Research in International Economics (CREI), an Adjunct Professor at Universitat Pompeu Fabra, a Research Professor at the BSE and a Research Fellow at the CEPR (London). He is Co-Director of the Master’s in International Trade, Finance and Development at the BSE and coordinator of Macroeconomics teaching in the UPF PhD program. He received his PhD in Economics from MIT in 2000.

Professor Broner was Visiting Professor at MIT and LBS, Assistant Professor at University of Maryland, Co-Editor of the Journal of International Economics, Advisor at Bank of Spain’s Division of International Economics, and Visiting Scholar at the IMF and the World Bank. He was awarded a European Research Council Starting Grant in 2010 for the project “International Capital Flows and Emerging Markets.”

His work has appeared in the American Economic Review, the Quarterly Journal of Economics, the Review of Economic Studies, the Journal of the European Economic Association, and the Journal of Monetary.

Course Overview

What are bubbles? What are their effects on the economy? How should policymakers deal with them? In this course, we address these questions from a macroeconomic perspective. We first review the stylized evidence on credit and asset bubbles. We then develop a workhorse model to think about bubbles and their macroeconomic effects. In particular, we focus on the effects of credit and asset bubbles on business cycle models. We conclude by using the model to shed light on two key debates regarding bubbles: (i) How should monetary policy respond to asset bubbles?; (ii) What roles do bubbles play in driving credit booms and busts?

This course is intended for students, researchers, and practitioners who want to become familiar with the state of knowledge on the origins and macroeconomic effects of bubbles.

Prerequisites

Basic knowledge of dynamic models is recommended.

Course Outline

• A review of the empirical evidence on bubbles
• Introduction to the theory of rational bubbles
• Credit and asset bubbles in business cycle models
• Policy design (I): bubbles and monetary policy
• Policy design (II): bubble, credit booms, and information depletion

References

• Asriyan, V., L. Fornaro, A. Martin, and J. Ventura, Monetary Policy for a Bubbly World, Review of Economic Studies, forthcoming.
• Asriyan, V., L. Laeven, and A. Martin, Collateral Booms and Information Depletion, Review of Economic Studies, forthcoming.
• Abel, A., N. Mankiw, L. Summers and R. Zeckhauser, Assessing Dynamic E¢ ciency: Theory and Evidence, Review of Economic Studies, 1989.
• Carvalho, V., A. Martin and J. Ventura, Bubbly Business Cycles, American Economic Review, 2012.
• Gali, J., Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations, American Economic Journal: Macroeconomics.
• Guerrón-Quintana, P., Hirano, T. and R. Jinnai, Recurrent Bubbles and Growth, Boston University mimeo, 2021.
• Hiraona, T., M. Inabab, and N. Yanagawa, Asset Bubbles and Bailouts, Journal of Monetary Economics, 2015
• Leroy, S., Rational Exhuberance, Journal of Economic Literature, 2004.
• Martin, A. and J. Ventura, Theoretical Notes on Bubbles and the Current Crisis, IMF Economic Review, 2011.
• Martin, A. and J. Ventura, Economic Growth with Bubbles, American Economic Review, 2012.
• Martin, A. and J. Ventura, Managing Credit Bubbles, Journal of the European Economic Association, 2016.
• Martin, A. and J. Ventura, The Macroeconomics of Rational Bubbles: A User’s Guide, Annual Review of Economics, 2018.
• Tirole, J., Asset Bubbles and Overlapping Generations, Econometrica, 1985.

About the Instructor

Alberto Martin earned his PhD in Economics from Columbia University in 2005. He is currently a Senior Researcher at the Center for Research in International Economics (CREI), an Adjunct Professor at Universitat Pompeu Fabra, a Research Professor at the Barcelona School of Economics (BSE), and a Research Fellow at the Center for Economic Policy Research. He also serves as Deputy Director for Research at the Barcelona School of Economics and as an Associate Editor at the Journal of International Economics. He earned his PhD in Economics from Columbia University in 2005.

Professor Martin has held positions at the European Central Bank, the International Monetary Fund and the Argentine Ministry of Economics, as well as visiting positions at various policy institutions and universities. He has also served as a member of the Board of Editors of the Review of Economic Studies and as a Member of the Panel at Economic Policy. Prof. Martin has been awarded the Fulbright Fellowship, the Lamfalussy Fellowship from the European Central Bank, and Consolidator and Advanced Research Grants from the European Research Council in 2014 and 2022, respectively.

His work has appeared in The American Economic Review, The Review of Economic Studies, and The Journal of Finance, among others. His research interests include macroeconomics, finance and international economics. 

Course Overview

This course introduces state-of-the-art models and empirical methods to analyze key macroeconomic policy challenges confronting the world economy. We will consider monetary and fiscal policy in open economies, capital flows and international financial crises, macroprudential policies and capital controls, exchange rate policy, financial globalization, and international macroeconomic dependence. Substantial attention will be devoted to current policy debates, such as the ongoing global rise in inflation, global imbalances and the 2008 global financial crisis, the past, and future of the euro area, secular stagnation, and the global productivity slowdown. Participants will learn how to use simple, yet rigorous, macroeconomic models to think about current policy-relevant debates. The course is thus suited for practitioners, especially those working in policy institutions, and graduate students.

Course Outline

• Current macroeconomic outlook: the global rise in inflation.
• The world in secular stagnation.
• The Euro and its crisis.

References

• “Monetary Policy during Unbalanced Global Recoveries”, (with F. Romei) CREi working paper
• “A Theory of Monetary Union and Financial Integration”, The Review of Economic Studies, forthcoming.
• “The Paradox of Global Thrift”, (with F. Romei), American Economic Review, 109 (11), 2019, 3745-3779.
• “Stagnation Traps”, (with G. Benigno), The Review of Economic Studies, 85 (3), 2018, 1425-1470.
• “International Debt Deleveraging”, Journal of the European Economic Association, 16 (5), 2018, 1394-1432.
•  “Financial Crises and Exchange Rate Policy”, Journal of International Economics, 95 (2), 2015, 202-215.

About the Instructor

Course Overview

This course will cover state-of-the-art techniques to solve and simulate modern macroeconomic models, with specific applications to models used for fiscal and monetary policy analysis. Through a combination of theory classes and lab sessions, participants will learn the main methodologies, their pros and cons, and how to implement them in specific applications. Some examples are models to study the role of a zero-lower bound constraints on the nominal interest rate and forward-guidance policies, sovereign debt models, models with financial frictions, and heterogeneous agent models.

The course is designed for graduate students, researchers and practitioners in policy institutions who would like to upgrade their toolbox for solving and analyzing modern macroeconomic models, and for studying their policy implications.

Computer Lab Practicals

The course includes 5 hours of practical sessions to give participants the opportunity to familiarize themselves with the different routines described in class and will demonstrate their advantages and disadvantages in terms of accuracy and efficiency.

Prerequisites

No previous knowledge of numerical methods is required, but a basic knowledge of MATLAB (or another programming language) would be very helpful.

Course Outline

• Introduction to Local Solution Methods (Perturbation)
  Basic principles about solving and simulating dynamic models; linear and higher-order approximation of stochastic models (the perturbation method); 
• Fiscal and Monetary Policy Rules
  simple rules; regime-switches; the zero-lower bound.
• Optimal Fiscal and Monetary Policy
  the welfare criterion; optimal simple rules; optimal Ramsey policy; commitment vs. discretion.
• Solving models with Global Approximations
  models with borrowing constraints; sovereign default models.
• Heterogeneous Agent Models
  how to deal with idiosyncratic and aggregate uncertainty; a solution with perturbation methods; a solution with sequence-space Jacobian.

References

Main references (additional references will be provided during the course)

• Auclert, A., Bardóczy, B., Rognlie, M., & Straub, L. (2021), ”Using the sequence-space Jacobian to solve and estimate heterogeneous-agent models,” Econometrica, 89(5), 2375-2408.
• Fernandez-Villaverde J. and J. Rubio Ramirez (2016), “Solution and Estimation Methods for DSGE Models”, Handbook of Macroeconomics, Vol. 2.
• Guerrieri, L. and M. Iacoviello (2015), “OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily”, Journal of Monetary Economics, 70, 22-38.
• Debortoli, D., Galí, J., & Gambetti, L. (2020), “On the empirical (ir) relevance of the zero lower bound constraint,” NBER Macroeconomics Annual, 34(1), 141-170.
• Schmitt-Grohé, S., and M. Uribe (2005), "Optimal fiscal and monetary policy in a medium-scale macroeconomic model," NBER Macroeconomics Annual, 20, 383-425.

Software / Hardware

Sample codes and exercises will be provided in MATLAB.

About the Instructor

Davide Debortoli is a Professor of Economics at UPF, a Research Associate at CREI, an Affiliated Professor at the BSE and a Research Fellow at the CEPR. He has held an academic position at the University of California San Diego and visiting positions at the Norges Bank and Bocconi University. He has been awarded a Marie Curie Fellowship from the European Commission (2016), and the Wim Duisenberg Fellowship from the European Central Bank (2020). His research interests include Macroeconomics, Fiscal Policy, and Monetary Policy.

Course Overview

Firm behavior– the process of entry, innovation, and growth – shapes aggregate productivity, employment,  and output. This course presents a rigorous analysis on the mapping from firm-level frictions and shocks, to firm decisions, to industry-level and aggregate outcomes. We will illustrate the analytical tools necessary to solve and analyze firm dynamics models with frictions and misallocation, and the empirical tools to test their predictions. 

A special emphasis will be placed on financial frictions, and the course will answer questions such as:  How do we detect firm-level financial frictions? What are their real effects? Are they important to explain cross-country differences in productivity and output? Do financial shocks drive business cycles? Do financial frictions amplify the cyclical effects of other shocks?

Lab Practicals

Selected tools and applications (both simulating the models as well as some empirical applications) will be illustrated in detail during the practical sessions.

Course Outline

Session 1: Stylised facts on firm dynamics and introduction to misallocation
Lab practical session: Introducing Stata code to compute productivity and misallocation

Session 2: Dispersion in productivity, frictions, and misallocation of resources: theoretical framework and empirical evidence.
Lab Practical session: Stata code on misallocation, introducing Matlab code on firm dynamics.

Session 3: Micro foundation and empirical testing of firm-level financial frictions, and their aggregate implications.
Lab Practical session: Stata code on financial frictions and misallocation.

Session 4: Firm dynamics and financial frictions: models and applications.
Lab Practical session: Matlab code on firm dynamics with financial frictions.

Session 5: Finance, firm dynamics and the business cycle.
Lab Practical session: Matlab code on firm dynamics with financial frictions.

References

• Albert, C., and A. Caggese, Cyclical Fluctuations, Financial Shocks, and the Entry of Fast Growing Entrepreneurial Startups, The Review of Financial Studies, Volume 34, Issue 5, May 2021, Pages 2508–2548.
• Arellano, C., Yan, Bai, and Patrick Kehoe, 2019, Financial Frictions and Fluctuations in Volatility, Journal of Political Economy, Volume 127, Number 5
• Asker, John, Allan Collard-Wexler, and Jan De Loecker, Dynamic Inputs and Resource (Mis)Allocation, Journal of Political Economy 2014 122:5, 1013-1063.
• Bils, Mark, Peter J. Klenow, Cian Ruane, Misallocation or Mismeasurement?, Journal of Monetary Economics, Volume 124, Supplement, November 2021, Pages S39-S56.
• Buera, Francisco J., Joseph P. Kaboski, and Yongseok Shin. 2011. "Finance and Development: A Tale of Two Sectors." American Economic Review, 101(5).
• Caggese, Andrea, Vicente Cuñat, Daniel Metzger, Firing the wrong workers: Financing constraints and labor misallocation, Journal of Financial Economics, Volume 133, Issue 3, 2019, Pages 589-607.
• Caggese, A., and V. Cuñat, 2013, “Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity”, Review of Economic Dynamics, vol. 16(1), pages 177-193, January 2013.
• Caggese, Andrea. 2019. "Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity." American Economic Journal: Macroeconomics, 11 (2): 275-309.
• Crouzet, Nicolas, and Neil R. Mehrotra. 2020. "Small and Large Firms over the Business Cycle." American Economic Review, 110 (11): 3549-3601.
• David, Joel M., and Venky Venkateswaran. 2019. "The Sources of Capital Misallocation." American Economic Review, 109 (7): 2531-67.
• Decker, Ryan A., John Haltiwanger, Ron S. Jarmin, and Javier Miranda. 2020. "Changing Business Dynamism and Productivity: Shocks versus Responsiveness." American Economic Review, 110 (12): 3952-90.
• Farre-Mensa, Joan, and Alexander Ljungqvist. "Do Measures of Financial Constraints Measure Financial Constraints?" Review of Financial Studies 29, no. 2 (February 2016): 271–308.
• Haltiwanger, John, Ron S. Jarmin, Robert Kulick, Javier Miranda, High Growth Young Firms: Contribution to Job, Output, and Productivity Growth, Chapter in NBER book Measuring Entrepreneurial Businesses: Current Knowledge and Challenges (2017), John Haltiwanger, Erik Hurst, Javier Miranda, and Antoinette Schoar, editors (p. 11 - 62).
• Hsieh, C. and P.J. Klenow (2009). "Misallocation and Manufacturing TFP in China and India", The Quarterly Journal of Economics 124, 1403-1448.
• Lian, Chen, Yueran Ma, Anatomy of Corporate Borrowing Constraints, The Quarterly Journal of Economics, Volume 136, Issue 1, February 2021, Pages 229–291, https://doi.org/10.1093/qje/qjaa030
• Midrigan, Virgiliu, and Daniel Yi Xu. 2014. "Finance and Misallocation: Evidence from Plant-Level Data." American Economic Review, 104(2): 422-58
• Restuccia, Diego, and Richard Rogerson. 2017. "The Causes and Costs of Misallocation." Journal of Economic Perspectives, 31 (3): 151-74.
• Siemer, Michael, 2019. "Employment Effects of Financial Constraints during the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 16-29, March.

Software / Hardware

STATA and Matlab

About the Instructor

Andrea Caggese earned his PhD in Economics at the London School of Economics and Political Science in 2002. Currently he is an Associate Professor at Universitat Pompeu Fabra (UPF), an Affiliated Professor at Barcelona GSE, and a Research Associate at the Center for Research in International Economics (CREI). He is also the Coordinator of the Master of Research in Economics, Finance and Management at the Department of Economics and Business at Universitat Pompeu Fabra (UPF). His work has appeared in the American Economic Journals: Macroeconomics, Journal of Financial Economics, Review of Financial Studies, Journal of Monetary Economics, the Economic Journal, the Review of Economic Dynamics, and European Economic Review, among others. His research interests include Macro-Finance, Firm Dynamics, and Entrepreneurship and Innovation. He was recently awarded a grant from the European Investment Bank (2021-24) to study the relationship between Financial Factors, Intangibles, and Technology Diffusion.

Course Overview

Real-world policy decisions often result from analyzing different models and making judgment calls. This practical approach has benefits in terms of robustness, but a major downside is that it can be difficult to identify the most appropriate course of policy. For instance, using such an approach, how do we determine that the magnitude and timing of a fiscal package is well calibrated? or that the monetary stance is appropriate, e.g., in a range that best balances inflation and unemployment?   

In this course, participants will learn how modern econometric methods, in particular methods for impulse response estimation and forecasting, can be used as building blocks to evaluate and improve practical macroeconomic policy decisions.  The methodology allows participants to combine insights from multiple economic models, qualitative evidence, and judgment to reach optimal policy decisions in complex and data-rich macroeconomic environments. 

The course is designed for monetary and fiscal policymakers, their staff members, and researchers, and PhD students interested in the econometrics of policymaking.

Prerequisites

Participants should be familiar with basic macroeconometric models and methods. In case of doubt please contact the instructor directly.

Course Outline

The course provides a bottom-up approach to explain the econometrics of policy making. 

After a review of the state-of-the-art techniques for causal inference and forecasting in macroeconomics, the course will cover modern methods for:

(i) Testing the optimality of policy decisions

(ii) Optimizing policy decisions

(iii) Communicating policy decisions (either internally to fellow decision-makers or externally to the general public)

(iv) Evaluating and ranking the systematic conduct of policy, i.e., formally evaluating the performance of policymakers. 

Participants will be exposed to a variety of real-time policy problems and learn how to analyze policy decisions using minimal assumptions. Implementation material is provided for all methods and practical assignments allow to develop a quick understanding of implementing.

References

• Barnichon, R. & Mesters, G., A Sufficient Statistics Approach for Macro Policy Evaluation, R&R American Economic review, 2022. 
• Barnichon, R. & Mesters, G., The Phillips Multiplier, Journal of Monetary Economics, 2021.
• Brownlees, C. & Mesters, G. Detecting Granular Time Series in Large Panels, Journal of Econometrics, 2021.
• Barnichon, R. & Mesters, G., Identifying modern macro equations with old shocks, The Quarterly Journal of Economics, 2020.
• Barnichon, R. & Mesters, G., On the Demographic Adjustment of Unemployment, The Review of Economics and Statistics, 2018

Software / Hardware

Empirical implementation code is provided in Matlab and R.

About the Instructor

Geert Mesters is an Associate Professor at Universitat Pompeu Fabra, Research Professor at the BSE and an Associate Researcher at CREI. He holds a PhD from the Tinbergen Institute and VU Amsterdam. He has been awarded a Starting Grant from the European Research Council, a VENI research grant from the Netherlands Ministry of Science, and a Ramon y Cajal fellowship from the Spanish Ministry of Science. He received the Arnold Zelner thesis award from the American Statistical Association and the Christian Huygens award. His research has been published in the Quarterly Journal of Economics, Journal of Econometrics, The Review of Economics and Statistics, and the Journal of Monetary Economics. His research interests include macroeconomics, econometrics and statistics.