The first part covers introductory theory on VAR, and methods used in the literature to identify macroeconomic shocks (Cholesky, sign restrictions, use of high-frequency financial data). The VAR analysis provides the student with tools to empirically assess the interaction between monetary policy, financial variables and macroeconomic developments. First, with the use of financial variables (stock price, bond yields) in the identification of monetary policy transmission channels. Second, in the study of the effect of monetary news on financial markets and macro variables.
Lectures are then dedicated to the discussion of the Global Financial Crisis and to the financial extensions of the New Keynesian DSGE models that emerged in the post-GFC literature. A practical implementation of such a financial extension takes place in this second part of the course.