Macro Course

Macroeconomics and International Finance
Julien Pénasse
Summer semester, 2024
E-mail: julien.penasse@uni.lu Web: https://sites.google.com/view/jpenasse

Office Hours: by appointment
Office: F 112
Course Description
This master-level course provides the foundations needed to understand how the macroecon-
omy operates, with a particular emphasis on the broad economic and financial movements in
the global economy. We will construct models to understand the determination of aggregate
output, unemployment, prices, interest rates, inflation, exchange rates, etc. We will focus on eco-
nomic dynamics in the short-run and the medium-run, with applications to European economies
and discussions of contemporary macroeconomic policy issues. The course will cover topics,
including:
• Microeconomic foundations of macroeconomics, including individual behavior and general

equilibrium concepts
• The effects of shocks on macroeconomic outcomes
• Money and inflation
• Fiscal and monetary policy
• The importance of financial intermediaries
• Asset prices and the economy
• International monetary systems and exchange rate determination
Throughout the course, students will engage with these topics through the use of contempo-
rary macroeconomic methods, including simplified versions of state-of-the-art dynamic stochas-
tic general equilibrium models. The course will focus on gaining a deeper understanding of the
key insights provided by these models, while also critically examining their empirical relevance.
While the course will aim to provide a clear and intuitive understanding of these models, it is
still rigorous and demanding, requiring students to work both in and outside of the classroom.
Students should be prepared to put in a significant amount of time and effort in order to fully
grasp the complex and nuanced concepts and theories covered in this course.
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Materials
• Course slides. Disclaimer: the slides serve as supporting material for the lectures and are
by design incomplete. You should expect to take notes, as everything that I say in class is
potentially examinable. The slides may also contain errors and approximations. If what I
say in class deviates from these notes, trust me over the notes. If you see any typos (or even
something that just could be clearer), please contact me through email or Moodle.
• Course exercises. After each class, I will upload a series of exercises with the included cor-
rection. These exercises are there to help you practice at home. They will not be corrected
in class, but I will be happy to answer your questions about the correction if necessary.
• The class loosely follows these two textbooks:
– Kurlat, Pablo (2020), A Course in Modern Macroeconomics,

https://sites.google.com/view/pkurlat/a-course-in-modern-macroeconomics
– Schmitt-Grohe, Stephanie, Uribe, Martin and Woodford, Michael (2022), International
Macroeconomics,
http://www.columbia.edu/~mu2166/UIM/index.html
• I also strongly encourage you to read the economics press. In particular, your library cards
gives you access to a paid subscription to the Financial Times.
• You will also find these additional references useful:
– Romer, D. (2011). Advanced macroeconomics, fifth edition.

– Krugman, P. R., Obstfeld, M., & Melitz, M. (2018). International Finance: Theory and
Policy, Global Edition. 11th Edition.
– Obstfeld, M., & Rogoff, K. (1996). Foundations of international macroeconomics. MIT
press.
– Terra, Cristina (2015), Principles of International Finance and Open Economy Macroeco-
nomics: Theories, Applications and Policies, Academic Press.
– Williamson, S. D. (2018). Macroeconomics, 6th.
• As the class develops, other references may be assigned for further advanced background
readings.
• Complementary material, including slides to be used in class, can be downloaded from the
course Moodle.
Course Objectives
Upon completion of the course, students will have a comprehensive understanding of the forces
shaping the global economy, rooted in microeconomic foundations, and be equipped to analyze
and address macroeconomic and financial challenges in the real world. Students will be able to
tackle questions such as:
• What determines output, consumption, investment?
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• What causes recessions?
• What causes financial crises?
• How do macroeconomics and finance interact?
• What is the relationship between fiscal deficit and current account deficit?
• What determines inflation?
• What are the factors accounting for the recurrent fluctuations in employment and output
called the business cycle?
• What factors account for exchange rate fluctuations?
We will not provide definitive answers to these questions. However, we will present a framework
for thinking about these questions and for reviewing the various sides in the debates.
Class etiquette
Computers and cell phones are not allowed in class. Many studies have shown that students
using their laptop in class are easily distracted and perform worse. They also tend to distract
others. Besides, actively taking notes on paper saves you time because it forces you to reformulate
what you’re hearing. It forces you to think harder and helps you memorize.
Course Outline
• Lecture 1: Consumption and Investment
– Kurlat, chap 6, 8.
• Lecture 2: The Real Business Cycle Model
– Kurlat, chap 9, 13.
• Lecture 3: Money and Inflation
– Kurlat, chap 10-11.

– Ihrig, J. E., Meade, E. E., & Weinbach, G. C. (2015). Rewriting monetary policy 101:
What’s the fed’s preferred post-crisis approach to raising interest rates? Journal of
Economic Perspectives, 29(4), 177-198.
• Lecture 4: The New Keynesian Model
– Kurlat, chap 14.
• Lecture 5: Monetary and Fiscal Policy
– Kurlat, chap 15.
• Lecture 6: Financial Intermediation
3/4
– Romer, D. (2011). Advanced macroeconomics, fifth edition, chap 10,
https://eml.berkeley.edu/~dromer/papers/SampleChapter.pdf, sections 10.2, 10.6.
• Lecture 7: Asset Markets
– Romer, D. (2011), section 10.4

– Barucci, E., & Fontana, C. (2003). Financial Markets Theory. Springer-Verlag, section
8.5
• Lecture 8: The Current Account and Global Imbalances
– Schmitt-Grohé-Uribe-Woodford, chap 1-3, 5, 7.

– Obstfeld, M., & Rogoff, K. (1996). Foundations of international macroeconomics. MIT
press, chap 1.
• Lecture 9: Exchange rates and international currency markets
– Schmitt-Grohé-Uribe-Woodford, chap 8-10.
• Lecture 10: Monetary and Fiscal Policy
– Krugman, P. R., Obstfeld, M., & Melitz, M. (2018), chap 8

– Obstfeld, M., & Taylor, A. M. (2017). International Monetary Relations: Taking Finance
Seriously. Journal of Economic Perspectives, 31(3), 3–28.
– Williamson, chap 15-16.
– Terra, chap 7.
Assessment
• Problem set 25%. The problem set consists of a series of exercises that must be completed
in groups of three or four and submitted at home. I usually assign this exercise set midway
through the course.
• Final 75%. The exam will assess your understanding of the empirical regularities and
models we’ve explored in class, in the form of exercises, questions about course content,
and questions asking you to analyze current or past events. The primary format is multiple-
choice questions (MCQs). While there are no negative points in the MCQs, there are often
multiple possible answers and frequently more than four options to choose from. You are
not allowed to use any external materials, but you may bring a two-sided hand-written
cheat sheet and a calculator. It is important to note that everything covered in class may
be tested on the exam. I frequently explain concepts on the board or orally, which may be
assessed in the exam. Conversely, what is on the slides but I did not have time to cover in
class is not examinable.
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Macroeconomics and International Finance

Summer semester, 2024

E-mail: julien.penasse@uni.lu Web: https://sites.google.com/view/jpenasse

• Microeconomic foundations of macroeconomics, including individual behavior and general

• The effects of shocks on macroeconomic outcomes

• Money and inflation

• Fiscal and monetary policy

• The importance of financial intermediaries

• Asset prices and the economy

• International monetary systems and exchange rate determination

• The class loosely follows these two textbooks:

– Kurlat, Pablo (2020), A Course in Modern Macroeconomics,

• You will also find these additional references useful:

– Romer, D. (2011). Advanced macroeconomics, fifth edition.

• What determines output, consumption, investment?

• What causes financial crises?

• How do macroeconomics and finance interact?

• What determines inflation?

• What factors account for exchange rate fluctuations?

• Lecture 2: The Real Business Cycle Model

– Kurlat, chap 9, 13.

• Lecture 3: Money and Inflation

– Kurlat, chap 10-11.

• Lecture 4: The New Keynesian Model

– Kurlat, chap 14.

• Lecture 5: Monetary and Fiscal Policy

– Kurlat, chap 15.

• Lecture 6: Financial Intermediation

• Lecture 7: Asset Markets

– Romer, D. (2011), section 10.4

• Lecture 8: The Current Account and Global Imbalances

– Schmitt-Grohé-Uribe-Woodford, chap 1-3, 5, 7.

• Lecture 9: Exchange rates and international currency markets

– Schmitt-Grohé-Uribe-Woodford, chap 8-10.

• Lecture 10: Monetary and Fiscal Policy

– Krugman, P. R., Obstfeld, M., & Melitz, M. (2018), chap 8

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