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Financial Sector Policies

Virtual: Monetary and Fiscal Interactions in DSGE Models

Deadline passed

Session No.: CE 21.37V

Location: Kuwait City, Kuwait

Date: July 12-15, 2021 (1 week)

Primary Language: English

    Target Audience

    PhD students, economists in policy institutions (e.g. treasuries and central banks), and other professional economists interested in fiscal policy.

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    First year graduate-level macroeconomics or equivalent skills acquired through practical work.

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    Course Description

    This course, presented by the IMF's Monetary and Capital Markets Department, provides an introductory from intermediate to advanced level of training on the effects of various fiscal policy tools in alternative monetary environments.
    This course will: (a) go through the derivation of the workhorse closed-economy New Keynesian DSGE model in detail and how it is amended to account for open economy aspects, (b) make participants familiar with key transmission channels of fiscal policy in workhorse, New Keynesian closed and open economy general equilibrium models, (c) make participants understand the important interactions between fiscal and monetary policy in such models.
    These models will be used to analyze current challenges for fiscal policy, related to fiscal stimulus and consolidation in open economies with exchange rate pegs and floating exchange rates, and the interactions between fiscal and monetary policy in general and especially in atypical situations like liquidity traps.
    Sessions will provide theoretical foundations, but also focus on providing practical hands-on knowledge so that participants are actually able to use these models for policy analysis. by regulators and supervisors, as part of their daily supervisory activities. The sessions will be instructional, as well as interactive through group exercises.

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    Course Objectives

    Upon completion of this course, participants should be able to:

    • Understand the basics of monetary and fiscal policy in DSGE models.
    • Understand how transmission of various fiscal tools depends on monetary policy and the exchange rate arrangement (fixed vs. floating exchange rate)
    • Understand how government debt dynamics differs in normal times when monetary policy is unconstrained and in liquidity traps when the central bank policy space is limited.
    • Understand the implications of a low equilibrium interest rate environment for macroeconomic stabilization by fiscal and monetary policy.
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