Prof. Dr. Alexander Kriwoluzky
Advanced Macroeconomic Analysis II
Part 1 - Monetary and Fiscal Policy
 

Aim
The analysis how monetary and fiscal policy affect the economy is a core area
of economics. Nowadays it appears to be more important than ever.
Consider first the policy response during the pandemic as a point in case:
while the Federal Reserve has cut its target rate drastically, the ECB has
adopted the Pandemic Emergency Purchase Programme. Both programs
have been designed to stimulate the economy and to avoid a deflationary
episode. Two years later, inflation in the US and the euro area has been skyrocketing
and both central banks are quite concerned with the fight against
inflation, while they have to consider the consequences of the war in Ukraine
on the economy as well.
This course aims at enabling students to analyze the effects of monetary
and fiscal policy. Therefore, a focus of the class will be the hands-on part.
In these parts, students will implement the tools themselves in Matlab and
Stata.

Time and Venue
April 19th, April 26th, May 3rd, May 10th, May 17th, May 24th, May 31st,
8 am - 12 am, Venue Karl-Popper room at the DIW Berlin
 

Grading
The grade in the class consists to 30 % of presentation of homework in the
class and to 20 % of class participation. In the end, every student is asked
to write a term paper. The term paper should address a research question
with one of the methods we have covered in the class. It does not have to
be very innovative, e.g. it could be to redo an existing paper with another
dataset or an updated data set. The term paper will count for 50 %.

Overview
Part 1
Identification in Macroeconomics (Nakamura and Steinsson (2018b))
• Narrative evidence on non-neutrality of monetary policy (Friedman and
Schwartz (1963); Goodfriend and King (2005); Mussa (1986))
• Narrative identification of monetary policy shocks (Romer and Romer
(2004); Coibion (2012); Ettmeier and Kriwoluzky (2019))
• Narrative monetary shocks in local projections (Ramey (2016); Jord`a
(2005))
• How to deal with the Covid-period data: Lenza and Primiceri (2021)
Further readings:
• Eichengreen (1992); Eggertsson (2008); Antol´in-D´iaz and Rubio-Ram´irez
(2018); Kilian (2009); Schreft (1990)
• Taylor (1993); Christiano et al. (1999); Uhlig (2005); Arias et al. (2019)
• Plagborg-Møller and Wolf (2021)
Part 2
Monetary policy and high-frequency identification
• High-frequency shocks - conventional and unconventional monetary
policy (Gertler and Karadi (2015); Altavilla et al. (2019); Swanson
(2021))
• Information shocks (Jaroci´nski and Karadi (2020); Miranda-Agrippino
and Ricco (2020))
• State-dependence of monetary policy (Tenreyro and Thwaites (2016))
Further readings:
• Kliem and Kriwoluzky (2013)
• G¨urkaynak et al. (2005); Barakchian and Crowe (2013)
• Nakamura and Steinsson (2018a); Bauer and Swanson (2020, 2022)
• Antol´in-D´iaz et al. (2021); Breitenlechner et al. (2021)
Transmission channels of monetary policy
• Interest-rate channel in New-Keynesian models (Walsh (2010))
• Bank-lending channel (Gertler and Karadi (2011); Altavilla et al. (2020))
• Redistribution channel (Auclert (2019); Kaplan et al. (2018); Coibion
et al. (2017); Bartscher et al. (2021))
Further readings:
• Smets and Wouters (2003, 2007)
• Andersen et al. (2020); Kuhn et al. (2020)
• Fagereng et al. (2020), Pf¨auti and Seyrich (2022)
Part 3
Fiscal policy, narratives, and transmission channels
• Timing restrictions on fiscal policy shocks (Blanchard and Perotti (2002);
Auerbach and Gorodnichenko (2012))
• Pre-announcement and Non-invertibility of a VAR model (Ramey (2011);
Kriwoluzky (2012))
• Narrative fiscal shocks on proxy VAR models (Ramey (2011))
• State-dependent fiscal multiplier (Auerbach and Gorodnichenko (2012,
2014); Ramey and Zubairy (2018); Barnichon et al. (2017))
• Transmission channels of fiscal policy (King and Baxter (1993); Gal´i
et al. (2007); Auclert et al. (2018); Hagedorn et al. (2019))
• Regional Multiplier (Nakamura and Steinsson (2014); Chodorow-Reich
(2019))
Further readings:
• Leeper et al. (2013)
• Mertens and Ravn (2013); Gechert et al. (2021)
• Born et al. (2019); Bernardini et al. (2020); Gabriel et al. (2021); Barnichon
et al. (2017)
• Christiano et al. (2011)
Part 4
Fiscal theory of the price level
• Introduction of FTPL: Leeper (1991, 2011); Leeper and Leith (2016)
• Empirical evidence: Kliem et al. (2016); Ettmeier and Kriwoluzky
(2020)
Further readings:
• Bianchi and Ilut (2017); Bianchi et al. (2020)
Part 5
War in the Ukraine: Embargo or not?
• Bachmann et al. (2022), Bayer et al. (2022)

Altavilla, C., Brugnolini, L., G¨urkaynak, R. S., Motto, R., and Ragusa,
G. (2019). Measuring euro area monetary policy. Journal of Monetary
Economics.
Altavilla, C., Canova, F., and Ciccarelli, M. (2020). Mending the broken
link: Heterogeneous bank lending rates and monetary policy pass-through.
Journal of Monetary Economics, 110.
Andersen, A. L., Johannesen, N., Jørgensen, M., and Peydr´o, J. L. (2020).
Monetary Policy and Inequality.
Antol´in-D´iaz, J., Petrella, I., and Rubio-Ram´irez, J. F. (2021). Structural
scenario analysis with SVARs. Journal of Monetary Economics, 117.
Antol´in-D´iaz, J. and Rubio-Ram´irez, J. F. (2018). Narrative sign restrictions
for SVARs. American Economic Review.
Arias, J. E., Caldara, D., and Rubio-Ram´irez, J. F. (2019). The systematic
component of monetary policy in SVARs: An agnostic identification
procedure. Journal of Monetary Economics, 101.
Auclert, A. (2019). Monetary policy and the redistribution channel. American
Economic Review.
Auclert, A., Rognlie, M., and Straub, L. (2018). The Intertemporal Keynesian
Cross. National Bureau of Economic Research.
Auerbach, A. J. and Gorodnichenko, Y. (2012). Measuring the output responses
to fiscal policy. American Economic Journal: Economic Policy.
Auerbach, A. J. and Gorodnichenko, Y. (2014). Fiscal Multipliers in Recession
and Expansion. In Fiscal Policy after the Financial Crisis.
Bachmann, R., Baqaee, D., Bayer, C., Kuhn, M., L¨oschel, A., Moll, B.,
Peichl, A., Pittel, K., and Schularick, M. (2022). What if? the economic
effects for germany of a stop of energy imports from russia.
Barakchian, S. M. and Crowe, C. (2013). Monetary policy matters: Evidence
from new shocks data. Journal of Monetary Economics, 60(8):950–966.
Barnichon, R., Debertoli, D., and Matthes, C. (2017). Understanding the
Size of the Government Spending Multiplier: It’s in the Sign. Federal
Reserve Bank of Richmond Working Papers, 17(15):1–53.
Bartscher, A. K., Kuhn, M., Schularick, M., and Wachtel, P. (2021). Monetary
Policy and Racial Inequality. SSRN Electronic Journal.
Bauer, M. and Swanson, E. T. (2020). The Fed’s Response to Economic
News Explains the ‘Fed Information Effect’. SSRN Electronic Journal.
Bauer, M. D. and Swanson, E. T. (2022). A Reassessment of Monetary Policy
Surprises and High-Frequency Identification. CEPR Discussion Papers
17116, C.E.P.R. Discussion Papers.
Bayer, C., Kriwoluzky, A., and Seyrich, F. (2022). Stopp russischer energieeinfuhren
w¨urde deutsche wirtschaft sp¨urbar treffen, fiskalpolitik w¨are in
der verantwortung.
Bernardini, M., De Schryder, S., and Peersman, G. (2020). Heterogeneous
government spending multipliers in the era surrounding the great recession.
Review of Economics and Statistics, 102(2).
Bianchi, F., Faccini, R., and Melosi, L. (2020). Monetary and Fiscal Policies
in Times of Large Debt: Unity is Strength. SSRN Electronic Journal.
Bianchi, F. and Ilut, C. (2017). Monetary/Fiscal policy mix and agents’
beliefs. Review of Economic Dynamics, 26.
Blanchard, O. and Perotti, R. (2002). An empirical characterization of the
dynamic effects of changes in government spending and taxes on output.
Quarterly Journal of Economics, 117(4).
Born, B., M¨uller, G. J., and Pfeifer, J. (2019). Does Austerity Pay Off? The
Review of Economics and Statistics.
Breitenlechner, M., Georgiadis, G., and Schumann, B. (2021). What Goes
Around Comes Around: How Large are Spillbacks from US Monetary
Policy? SSRN Electronic Journal.
Chodorow-Reich, G. (2019). Geographic cross-sectional fiscal spending multipliers:
What have we learned. American Economic Journal: Microeconomics,
11(2):1–34.
Christiano, L., Eichenbaum, M., and Rebelo, S. (2011). When is the government
spending multiplier large? Journal of Political Economy.
Christiano, L. J., Eichenbaum, M., and Evans, C. L. (1999). Chapter 2
Monetary policy shocks: What have we learned and to what end?
Coibion, O. (2012). Are the effects of monetary policy shocks big or small?
American Economic Journal: Macroeconomics, 4(2):1–32.
Coibion, O., Gorodnichenko, Y., Kueng, L., and Silvia, J. (2017). Innocent
Bystanders? Monetary policy and inequality.
Eggertsson, G. B. (2008). Great expectations and the end of the depression.
American Economic Review, 98(4).
Eichengreen, B. (1992). Golden Fetters: The Gold Standard and the Great
Depression, 1919-1939. Oxford University Press.
Ettmeier, S. and Kriwoluzky, A. (2019). Same, but different? Testing monetary
policy shock measures. Economics Letters, 184.
Ettmeier, S. and Kriwoluzky, A. (2020). Active, or Passive? Revisiting the
Role of Fiscal Policy in the Great Inflation. Technical report.
Fagereng, A., Holm, M. B., and Natvik, G. J. J. (2020). MPC Heterogeneity
and Household Balance Sheets. SSRN Electronic Journal.
Friedman, M. and Schwartz, A. J. (1963). A monetary history of the United
States, 1867-1960.
Gabriel, R. D., Klein, M., and Pessoa, A. S. (2021). The Effects of Government
Spending in the Eurozone. SSRN Electronic Journal.
Gal´i, J., L´opez-Salido, J. D., and Vall´es, J. (2007). Understanding the effects
of government spending on consumption. Journal of the European
Economic Association, 5(1).
Gechert, S., Paetz, C., and Villanueva, P. (2021). The macroeconomic effects
of social security contributions and benefits. Journal of Monetary
Economics, 117.
Gertler, M. and Karadi, P. (2011). A model of unconventional monetary
policy. Journal of Monetary Economics, 58(1):17–34.
Gertler, M. and Karadi, P. (2015). Monetary policy surprises, credit costs,
and economic activity. American Economic Journal: Macroeconomics,
7(1).
Goodfriend, M. and King, R. G. (2005). The incredible Volcker disinflation.
Journal of Monetary Economics.
G¨urkaynak, R. S., Sack, B. P., and Swanson, E. T. (2005). Do actions speak
louder than words? The response of asset prices to monetary policy actions
and statements. International Journal of Central Banking, 1(1):55–93.
Hagedorn, M., Manovskii, I., and Mitman, K. (2019). The Fiscal Multiplier.
National Bureau of Economic Research.
Jaroci´nski, M. and Karadi, P. (2020). Deconstructing monetary policy
surprises-The role of information shocks. American Economic Journal:
Macroeconomics, 12(2).
Jord`a, ` O. (2005). Estimation and inference of impulse responses by local
projections. American Economic Review, 95(1).
Kaplan, G., Moll, B., and Violante, G. L. (2018). Monetary policy according
to HANK.
Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand
and supply shocks in the crude oil market. American Economic Review,
99(3).
King, R. and Baxter, M. (1993). Fiscal policy in general equilibrium. American
economic review, 83(3).
Kliem, M. and Kriwoluzky, A. (2013). Reconciling narrative monetary policy
disturbances with structural VAR model shocks? Economics Letters,
121(2):247–251.
Kliem, M., Kriwoluzky, A., and Sarferaz, S. (2016). Monetary-fiscal policy
interaction and fiscal inflation: A tale of three countries. European
Economic Review.
Kriwoluzky, A. (2012). Pre-announcement and timing: The effects of a government
expenditure shock. European Economic Review, 56(3):373–388.
Kuhn, M., Schularick, M., and Steins, U. I. (2020). Income and wealth
inequality in america, 1949–2016. Journal of Political Economy, 128(9).
Leeper, E. M. (1991). Equilibria under ’active’ and ’passive’ monetary and
fiscal policies. Journal of Monetary Economics, 27(1).
Leeper, E. M. (2011). Anchors Away: How Fiscal Policy Can Undermine
’Good’ Monetary Policy. SSRN Electronic Journal.
Leeper, E. M. and Leith, C. (2016). Understanding Inflation as a Joint
Monetary–Fiscal Phenomenon. In Handbook of Macroeconomics, volume 2.
Leeper, E. M., Walker, T. B., and Yang, S.-C. S. Y. (2013). Fiscal Foresight
and Information Flows. Econometrica, 81(3):1115–1145.
Lenza, M. and Primiceri, G. E. (2021). How to Estimate a VAR after March
2020. SSRN Electronic Journal.
Mertens, K. and Ravn, M. O. (2013). The dynamic effects of personal and
corporate income tax changes in the United States.
Miranda-Agrippino, S. and Ricco, G. (2020). The Transmission of Monetary
Policy Shocks. American Economic Journal: Macroeconomics.
Mussa, M. (1986). Nominal exchange rate regimes and the behavior of real
exchange rates: Evidence and implications. Carnegie-Rochester Confer.
Series on Public Policy, 25(C).
Nakamura, E. and Steinsson, J. (2014). Fiscal stimulus in a monetary union:
Evidence from US regions. American Economic Review.
Nakamura, E. and Steinsson, J. (2018a). High-frequency identification of
monetary non-neutrality: The information effect. Quarterly Journal of
Economics.
Nakamura, E. and Steinsson, J. (2018b). Identification in Macroeconomics.
Journal of Economic Perspectives.
Pf¨auti, O. and Seyrich, F. (2022). A Behavioral Heterogeneous Agent New
Keynesian Model. Technical report.
Plagborg-Møller, M. and Wolf, C. K. (2021). Local Projections and VARs
Estimate the Same Impulse Responses. Econometrica, 89(2):955–980.
Ramey, V. A. (2011). Identifying government spending shocks: It’s all in the
timing. Quarterly Journal of Economics.
Ramey, V. A. (2016). Macroeconomic Shocks and Their Propagation. NBER
Working Paper, (1):1–5.
Ramey, V. A. and Zubairy, S. (2018). Government spending multipliers in
good times and in bad: Evidence from US historical data. Journal of
Political Economy.
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Derivation and Implications. American Economic Review, 94(4):1055–
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Smets, F. and Wouters, R. (2003). An estimated dynamic stochastic general
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A Bayesian DSGE approach. American Economic Review, 97(3):586–606.
Swanson, E. T. (2021). Measuring the effects of federal reserve forward
guidance and asset purchases on financial markets. Journal of Monetary
Economics, 118.
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Rochester Confer. Series on Public Policy, 39(C).
Tenreyro, S. and Thwaites, G. (2016). Pushing on a string: Us monetary
policy is less powerful in recessions. American Economic Journal: Macroeconomics,
8(4).
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from an agnostic identification procedure. Journal of Monetary Economics,
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