Structural VARs have been extensively used in empirical macroeconomics during the last two decades, particularly in analyses of monetary policy. Existing Bayesian procedures for structural VARs are at best confined to a severly limited handling of cointegration restrictions. This paper extends the Bayesian analysis of structural VARs to cover cointegrated processes with an arbitrary number of c...

In the previous section we studied equilibrium in a particularly simple world – an endowment economy. This was useful for getting intuition about what determined the real interest rate, but lacked realism. In this section we endogenize supply. The concept of equilibrium is identical to before, but the set up is more interesting. Now we have firms that produce output using capital and labor, and...

The paper surveys the ‘old’ and ‘new’ political macroeconomics. In the former we consider how governments can be seen to manipulate the economy as to satisfy opportunistic or ideological motives, thereby creating opportunistic or partisan political business cycles. We examine how the macroeconomic revolution of the 1970s cast doubts on the ability of governments to freely and repeatedly create ...

Ideas taught at the Macroeconomics Principles level should satisfy two goals. First, they should be simple enough to be both understandable and memorable for the beginning student. Second, they should be consistent both with the modern economy and with the macroeconomic models of this econonly that are used in practice for policy evaluation. There is no necessary conflict between these two goal...

We show that a monetary policy rule uses the exchange rate to stabilize economy can outperform Taylor in managing macroeconomics fluctuations and achieving higher welfare. The differences between rules are driven by: (i) paths of nominal interest under each (ii) external habits consumption, which leads deviations from uncovered parity. These larger economies, very open, more exposed foreign sho...

In these notes, we discuss a dynamic stochastic general equilibrium (DSGE) economy with complete markets. This model serves as a useful benchmark and point of departure for many questions in macroeconomics. It also serves as a simple first pass at a positive model of business cycles or asset pricing in closedand open-economy contexts. You should familiarize yourself with all the salient feature...

A central problem ill empirical macroeconomics is to determine when and how much the exchange rate is misaligned. This paper clarifies and calculates the concept of’ the equilibrium real exchange rate, using a structural vector auto regression (VAR) model. By imposing long—run restrictions on a VAR model for Iran, lour structural shocks are identified: nominal demand, real demand, supply and oi...

1 Microeconomics is the study of how individual firms and households make decisions, and how they interact with one another. Microeconomic models of firms and households are based on principles of optimizationfirms and households do the best they can given the constraints they face. For example, households choose which goods to purchase in order to maximize their utility, whereas firms decide h...