SØK 1366 Macroeconomics II
The main focus of the course is short term macroeconomics and understanding the business cycle. The main aim of the course is to provide a deeper understanding of monetary and fiscal policy in a small open economy like the Norwegian, where international factors are relatively important for optimal national policy. Participants will also learn about the macroeconomic development of the Norwegian economy, economic effects of spending government petroleum revenues, and the flexible inflation targeting framework of monetary policy.
Other related themes which are important in this course are financial instability and government debt crises, nationally and internationally.
After completed course students shall know:
- How foreign exchange rates are formed under full international capital mobility and how monetary policy affects exchange rates.
- How monetary policy affects the demand for private consumption, gross fixed investment and net exports in the short run.
- Short and long-run Phillips curves and the effects of demand and supply shocks on the rate of inflation.
- Nominal anchors, monetary unions such as EMU, as well as advantages and disadvantages of joining EMU compared to retaining a national currency.
- Monetary policy trade-offs when inflation-targeting Central Banks set policy interest rates, based on theories of optimal monetary policy rules derived from minimization of loss functions.
- Fiscal policy goals and instruments in the short and medium run. Effects of spending of government petroleum revenues on the real exchange rate and industrial structure, which is also important for the understanding of long run sustainability.
After completing the course, students will:
- Understand macroeconomic contexts in mathematical form and to analyze policy effects in mathematical models in addition to the graphical shape considerations.
- Be able to analyze how exchange rates are determined under uncovered interest parity. They will master the so-called IS-MP model for a small open economy with a flexible exchange rate.
- Be able to analyze how different factors affect inflation by means of short-term and long-term macro offers functions and logic of so-called inflationary and deflationary spirals. Central to this, is the connection between expectations and a monetary policy that is sustainable in the long run.
- Understand the difference between inflation and price level for monetary policy.
- Have an insight into the logic behind the optimal monetary policy based on the minimization of a loss function.
- Be able to see the link between objectives and instruments of fiscal policy and conflict of goals between wealth creation and income distribution. It is also required that the students put into the model-based analysis of how the state's use of petroleum revenue will impact on the real exchange rate and to some extent on the industry structure.
- Have an overview of the historical macroeconomic developments in the Norwegian economy, and be able to explain the challenges of and the some of the main mechanisms behind financial crises and debt crises, like the one in Europe in the period 2007-2011.
After taking this course the students should be ethically conscious about the conflicts of interest and inherent goal conflicts and trade-offs in macroeconomic policy. They should be able to consider both national and international macroeconomic policy issues from different perspectives in regard to the interests of different groups in society. They should also have developed a critical attitude making them conscious of the difference between political ambitions behind announcements of goals and the real effects of macroeconomic policies in practice. The students should develop an intuitive understanding of the tradeoff between short run policy goals and long-run sustainability.
- Model based analysis of short-term effects of monetary and fiscal policy on aggregate employment and output.
- Monetary and fiscal policy under fixed and flexible exchange rates.
- Short and long run macro supply functions and Phillips curves.
- Nominal anchoring of an economy.
- The European Monetary Union.
- Monetary policy under flexible inflation targeting.
- Fiscal policy: Goals and policy instruments.
- Spending of petroleum revenues and the real exchange rate.
- Macroeconomic development of the Norwegian economy. Asset bubbles, financial and government debt crises.
The course consists of 36 hours of lectures and 6 hours of plenary exercises.
Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.
This course builds on SØK 1201 Macroeconomics I, and consequently knowledge of mathematics, statistics, microeconomics and business administration as Macroeconomics I requires.
|Exam category||Weight||Invigilation||Duration||Support materials||Grouping||Comment exam|
Form of assessment:
Internal and external examiner
Examination every semester
|Form of assessment:||Written submission|
|Support materials:|| |
|Resit:||Examination every semester|
Feedback activities and counselling
Student's own work with learning resources
Group work / Assignments
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.