This two-week course, organized jointly with the Swiss Finance Institute, focuses on recent developments in empirical finance.
Our goal is to introduce participants to modern financial tools used by central banks. By the end of the course, participants will for example be able to extract information about market expectations from option prices. Those expectations typically concern events of low probability but large magnitude and we place particular emphasis on expectations of financial crises. The participants will also learn how to measure extreme variations in financial time series. In a second part of the course, we focus on institutional aspects of financial markets and empirical aspects concerning financial stability.
First, we focus on financial options, i.e. derivative instruments whose price depends on some underlying asset. Valuing derivatives usually requires special assumptions on the underlying asset price processes, namely that they behave as a log-normal Brownian motion. Yet, volatility changes or jumps in the price of the underlying asset open the possibility of measuring market participants' views about the future without having to make such specific assumptions. We will show that option prices can serve as an early warning system for unusual future events.
The next part of the course relies on extreme value theory to study financial crises. Extreme value theory provides methods for assessing the magnitude and frequency of very large market fluctuations and to gauge systemic risk. An understanding of this theory is highly useful since it is in periods of extreme variations that central banks are particularly challenged. We show how to quantify extreme market variations and use them to predict future large variations. This approach allows one to get a better understanding of the credit crisis
Third, we focus on market-microstructure, the study of actual trading operations at an individual level. Microstructure is important since a central bank - as the ultimate supervisor of the financial market - must assure efficient pricing and thus, that no participant can trade on non-public information.
The last part of the course focuses on empirical aspects of financial stability. We will discuss how to construct leading indicators for financial crises focusing on banking as well as currency crises. Here we will also discuss how to measure default probabilities for companies and national entities using various financial instruments such as bonds as well as Credit Default Swaps. This will lead to a discussion of credit risk models in general.
Participants will learn to use Matlab to implement option pricing formulae and to recover information on financial market expectations from option prices. They will also learn how to estimate tail characteristics of probability distributions for extreme value analysis. Using the econometrics package Eviews, participants will investigate aspects of high-frequency data such as how the order book and bid-ask spreads evolve over a day.
This course is directed to research economists who are working on financial instruments and markets and have a strong quantitative background. Candidates with an advanced degree in finance or economics will be preferred. Prior knowledge of econometrics and finance is recommended. Programming skills in Matlab or Eviews are an advantage.
This three-week course reviews the basics of monetary policy in open economies and examines recent issues related to exchange rates, capital flows, and monetary policy in open economies.
The first part of the course reviews the basics of international monetary economics such as the link between exchange rates and prices, exchange rates and interest rates, exchange rate regimes, and international capital flows. We study the effects of monetary policy in the open economy and analyze the choice of exchange rate regimes. In the second part of the course, we examine in detail some recent topics related to exchange rates and monetary policy. These topics include financial crises, dollarization, global financial imbalances, and the performance of exchange rate regimes.
A sizable part of the course is dedicated to the usage of empirical techniques applied to specific issues related to exchange rates and monetary policy. In particular, the first week includes a review of statistical concepts and computational techniques, as well as an introduction to the software package Eviews. In addition, participants will be taught basic econometric methods ranging from ordinary least squares to more advanced techniques such as vector autoregression (VAR) analysis.
In addition to the general lectures, experts from the Swiss National Bank explain the conduct of monetary policy in Switzerland. The major topics are: the strategy of monetary policy and its economic effects, the role of the exchange rate for monetary policy, the practical implementation of monetary policy, and the management of foreign exchange reserves.
The course is designed for staff members in middle management positions of central banks. The ideal age is between 30 and 40 years. Some years of professional experience in the central bank are a precondition for attending the course. Applicants holding a university degree in economics are preferred. We expect participants to be familiar with elementary mathematics and statistics.
This three-week course reviews the economic rationale for bank regulation and supervision. In this course, the corresponding aspects are examined from an analytical and an institutional viewpoint. A major part of the course is to identify the sources of bank risk, such as interest rate, credit, liquidity, market or derivatives risk. For this purpose, the roles and functions of commercial banks will be thoroughly discussed.
While many of the risks are at the bank level, the macroeconomic environment also plays a role. A survey of the main macroeconomic factors for banks is therefore provided. The other crucial element of the course is the analysis of how regulation and monitoring can best be implemented and how it is done in practice. Measures such as capital requirements, deposit insurance, non-bank activity regulation will be carefully examined.
The lecturers will provide the analytical background through both formal lectures and exercises. In addition, practitioners from Swiss commercial banks will discuss the risks that banks face in practice. Finally, representatives from official institutions such as the Swiss Financial Market Supervisory Authority, and the Bank for International Settlements will discuss current regulatory issues.
The seminar is designed for staff members in middle management positions of central banks. The ideal age is between 30 and 40 years. Several years of professional experience in the central bank are a precondition for attending the course. Applicants holding a university degree in economics are preferred.
This three-week course, organized jointly by the Study Center Gerzensee and the Joint Vienna Institute (JVI), is devoted to the interrelationships between monetary and fiscal policy and will focus on the implications of public finance, public debt, and sovereign risks for the development of inflation and financial stability. The course endeavors to combine micro- and macroeconomic theory that provide a framework for analyzing and discussing the current developments between fiscal and monetary policy.
The first two weeks of the course take place in Gerzensee and the third week in Vienna.
During the first week, some of the traditional economic approaches, where monetary and fiscal policy are contemplated in isolation, will be reviewed. Topics include the standard New-Keynesian Model for monetary policy and fiscal policy concepts such as the government budget constraint, seignorage, or sovereign risk.
The second week of the course is devoted to the interaction between monetary and fiscal policy. Specific topics include the interdependencies between public debt, interest rates and inflation, the fiscal theory of the price level, liquid government bonds, stabilization policies, fiscal aspects of monetary policy, as well as jointly optimal fiscal and monetary policies.
Formal lectures and exercises will provide the analytical framework. In addition, representatives from the the Swiss National Bank and the Federal Department of Finance will discuss some of the current issues from a practical perspective.
The third week of the course emphasizes some practical applications and implications for policy advice, and explores several case studies. This segment will cover topics such as assessing the fiscal stance and fiscal sustainability, consolidation strategies, the response of monetary and fiscal policies to the business cycle, and the interaction between monetary and fiscal policy in high-debt environments.
The course is designed for staff members in middle management positions of central banks who are dealing with practical or research-related aspects of fiscal and monetary policy. The ideal age is between 30 and 40 years. Some years of professional experience in central banking is a precondition for attending this course. Applicants holding a university degree in economics are preferred. We expect participants to be comfortable in the usage of elementary mathematics.
This two-week course discusses theories and quantitative methods needed to undertake policy analyses with Dynamic Stochastic General Equilibrium (DSGE) models.
The first week of the course, taught by Professor Carl E. Walsh, will focus on recent research in monetary economics with lessons directly relevant for monetary policy. We will discuss the design of optimal monetary policies, robustness, the consequences of the zero lower bound for monetary policy, unconventional monetary policies, policy issues arising in open economies, the integration of modern theories of unemployment into policy models, and fiscal and monetary policy interactions. Morning sessions will be in a lecture format, while afternoon sessions will involve computer exercises, opportunities for participants to discuss their own work, and discussions of current issues facing monetary policy makers.
The second week is taught by Professor Lawrence Christiano. The course gives an overview of the tools needed to conduct empirical research using vector autoregressions (VARs) and DSGE models. The course begins with an introduction to Bayesian econometrics and a survey of recent advances in the analysis of structural VARs. It then discusses solution and approximation methods for DSGE models as well as quantitative analysis with calibrated DSGE models. We will consider extensions of the standard New Keynesian DSGE model to include financial frictions. The most prominent approach is based on the costly state verification idea of Townsend and introduced to DSGE models by Bernanke, Gertler and Gilchrist. We will review the micro-foundations of this approach, as well as the impact on estimation and inference of a New Keynesian model. Other approaches to financial frictions may also be considered, such as the recent analysis in Gertler and Kiyotaki. Time permitting, we could consider other topics, such as the interaction of monetary policy and boom-bust cycles and the introduction of unemployment into DSGE models. The course will primarily follow a lecture format, but there will also be computer sessions that will feature the use of Dynare to estimate DSGE models and study monetary policy questions.
The course is directed to research economists with a Ph.D. degree. Candidates with a master’s degree may also be considered if their mathematical and statistical skills are at the Ph.D. level.
This course, organized jointly with the Swiss Finance Institute, provides an introduction to financial instruments and the analysis of capital markets. We take the view of a central banker who needs to understand financial instruments both in terms of their economic role and their actual use. Particular emphasis will be given to how banks and financial institutions should use these instruments to protect themselves against risks.
During the first week of the course, we review fundamental aspects of finance, including concepts such as asset returns, market efficiency, portfolio theory and CAPM. We then take a macroeconomic perspective and analyze the interaction between monetary policy and financial markets. We also examine the foreign exchange market as well as issues related to financial crises.
During the second week, we start with a discussion of futures contracts in general. During this discussion, we will discover the arbitrage principle, a most important concept for risk management and the pricing of financial assets. We move on with a survey of fixed income assets and review important basic concepts such duration, convexity, and immunization. We learn how to infer from bond prices information on the term structure of interest rates and default probabilities. We use the Banc One case study to conduct an in-depth analysis of immunization.
The preceding survey provides the background for an in-depth analysis of advanced financial instruments in the third week of the course as well as an understanding of when and how these instruments should be used for risk management. We review and discuss the characteristics of derivative assets such as options. Several practical exercises, based on actual data, allow participants to become more familiar with these instruments. In the section on risk-management we will discuss concepts such as value at risk as well as expected shortfall.
Experts from the Bank for International Settlements and the Swiss National Bank also contribute to the program, emphasizing practical aspects in their presentations.
The course is designed for staff members in middle management positions of central banks. The ideal age is between 30 and 40 years. Several years of professional experience in the central bank are a precondition for attending the course. Applicants holding a university degree in economics or business are preferred. We expect the participants to be familiar in using mathematics and statistics.