The development of the macro economy around its long-run trend is driven by a mix of shocks and their propagation on the one hand and by policy actions and reactions on the other. As a consequence, we observe irregular cyclicality in some of the main economic indicators like output, unemployment, interest rates and inflation in the short and medium run, sometimes with large costs to society. In this course we use modern macroeconomic theory and actual economic policymaking to shed light on the factors behind the observed cyclicality and on whether, to what extent and how policymakers can improve macroeconomic outcomes.

Both the business cycle and the financial cycle pose important challenges for macroeconomic policy. For an adequate policy strategy, it is crucial to know what the dominant underlying economic shocks are and what determines the speed and efficiency with which the economy is able to stabilize itself. In this course, we modern macroeconomic theory to focus on a number of important factors in this debate such as the existence and degree of real distortions, the degree of wage and price stickiness, the way expectations are formed and the role of heterogeneity across agents. In parallel, we show and discuss the stylized characteristics that one can see in macroeconomic data to see how they match theory. We also pay attention to the challenges and limitations in actual economic policy. Examples are the zero lower bound on interest rates and QE for monetary policy, the trade-off between short-run stabilization and long-run sustainability for fiscal policy, and the role exchange rate policy in addressing cross-country imbalances.

- W. Carlin and D.Soskice, Macroeconomics: Institutions, Instability and the Financial System, 3rd edition, 2014, Oxford University Press, selected chapters.
- Selected articles

Exchange students need to have a BSC degree with a major in (Quantitative) Economics.