Macquarie University

ECON844: Monetary and Financial Policies

This unit examines a number of issues in monetary theory and policy. We begin with a quick refresher survey of the workhorse models in macroeconomics - ISLM, ASAD - and then develop these for intertemporal modelling. Issues in monetary and fiscal policy design are then discussed, particularly in regard to the global financial crisis of 2008-9. We study the key models of monetary economies in professional use today. They are based on what are known as dynamic stochastic general equilibrium (DSGE) models. These were first developed in the context of real business cycle models with flexible prices. The policy relevant ones include a variety of nominal rigidities, and are often referred to as New Keynesian models. These models are simulated in class to help understand how they respond to shocks like the global financial crisis.