Introduction
The course will provide students with an understanding about relationship between financial markets and the macro economy. The course will study how financial markets affect macroeconomic variables and, conversely, how the macro economy influences financial markets. Special emphasis will be placed on connecting theory to real-world data.
Course content
Following are the main topics covered in the course:
- Business cycle facts: macroeconomic and financial variables
- Decision making under uncertainty
- Preferences and risk
- Consumption, saving and portfolio choice
- A macroeconomic model with asset pricing
- Households and firms, preferences and technology, resource constraints and general equilibrium
- Fundamentals of asset pricing
- Relative versus absolute pricing
- State pricing, non-arbitrage, the pricing kernel and risk premia, risk-neutral probabilities
- Monetary policy and the term-structure of interest rates
- Incomplete financial markets, precautionary saving and macroeconomic fluctuations
- Financial frictions, financial crises and the macro economy