This course builds on ECO201 to go beyond the competitive equilibrium setting and introduce new causes of market failures. We aim to study how the presence of incomplete and asymmetric information affects the standard analysis of microeconomic theory. The starting point is that asymmetric information leads to market failures, which opens the question of how to regulate and appropriately design markets to solve or reduce these failures. We will present the basics of two important theories and methods which have been the core of the modern microeconomic analysis since 1970: signaling games and mechanism design. The students will learn new tools to analyze markets and interactions in the presence of incomplete and asymmetric information. They will also learn how to develop policy tools and design markets that mitigate the issues induced by the information structure.
The mathematical treatment is rigorous, but not as much as fr a graduate-level course. This course will be thus most useful as a preparation for formal graduate studies in economics.
This course will cover fluctuations, unemployment, economic crises, and macroeconomic stabilization policies through the lens of the “New Keynesian” model that has developed over that past couple of decades and now guides short-run macroeconomic analysis. After reviewing the building blocks of the short-run macroeconomic model (namely, aggregate demand and supply), we will cover conventional monetary and fiscal policies, and then turn to the unconventional policies that are put in place during “liquidity traps”, i.e. situations wherein conventional monetary policy is unable to efficiently restore aggregate demand (as is currently still the case in the euro area). We will occasionally look into the historical record - from the Great Depression to the Japanese experience, to the worldwide Great Recession - and structure the evidence by means of a simple macroeconomic model with price rigidities. We will discuss the effectiveness of unconventional monetary policies (forward guidance, quantitative easing), as well as the unconventional effects of fiscal policies, during liquidity traps. Finally, we will examine whether the current trap follows from a serious but temporary shock or reflects a “secular stagnation" episode of persistently low aggregate demand and growth.
Prerequisite
Intermediate Macroeconomics course (Bachelor, Year 2)
Readings
Main text: Edouard Challe, Macroeconomic Fluctuations and Policies, MIT Press, 2019
A complementary reading list of policy and accessible research papers will be provided in due time.
