Business Cycles and Stabilization Policy


Course Objective

The objective of the course is to introduce you to the theory and
practice of macroeconomic and monetary policy, including regulation of
the financial system. This course is complementary to the parallel
course of Structural Policy. It is highly recommended to take both

Specific learning outcomes upon completion of this course are:
• Ability to apply macroeconomic concepts and theories to analyze
problems of employment and inflation;
• Capability to analyze the role macroeconomic policymakers in
managing business cycles;
• An understanding of the policy problems facing central banks;
• Ability to interpret recent macroeconomic empirical work on
economic crises and the effects of fiscal and monetary policy.

Course Content

The course starts with discussing the historical development of
macroeconomic theories explaining the origin of business cycles:
- Say’s law versus Malthus’ gluts;
- The Great Depression and the Keynesian revolution: Keynes, Hicks,
Modigliani, Samuelson;
- Business cycle theory: Schumpeter, Austrians, Kuznets;
- Recent financial crises.

Next, the course continues with discussing the roles of different
authorities in conducting macroeconomic policies. This part of the
course includes the following topics:
- Money: creation, control of the money supply, interest rates,
bank reserves, securitization;
- Central banking: Fed, ECB, independence, different targets;
- Stabilizing role of Fiscal policy: automatic stabilizers,
crowding out, budget deficits, effectiveness;
- Stabilizing role of Monetary policy: Taylor rules, quantitative
easing, liquidity trap, effectiveness;
- The Debt-Driven Crisis: the Micro-explanation to the Great

The course concludes with discussing recent empirical work on economic
crises and the effects of fiscal and monetary policy.

This course is the sequel to the course Development of Macroeconomic
Thought and is suggested to be taken together with the course of
Structural Policy that runs in parallel.

Teaching Methods

Lectures, guest lectures and working groups (tutorials). Differently
from other courses, we highly rely on the active participation of
students, and in order to do so, we require all students to be present
at all tutorials.

Method of Assessment

Grade is average of problem sets (30 %) and written examination (70%),
with written exam grade of at least 5.0. To those who participate into
less than four compulsory tutorials and/or do not deliver their tutorial
work, one point will be subtracted from the final grade. Also attendance
is required at all tutorials in order to obtain full grades each week.

Entry Requirements

Basic knowledge of math and statistics, as provided in the academic core
of any academic program at the Vrije Universiteit Amsterdam or


Main reference is: Daron Acemoglu, David Laibson and John A. List,
2016, Economics. Harlow, Essex: Pearson Education Ltd. ISBN13:
We further use various academic papers and ancillary textbook chapters,
details to be announced on Canvas, as unfortunately no ideal textbook
exists for a course on Financial Stability, as this is a relatively new
field in Economics. If means allow, a publisher might provide a
comprehensive syllabus covering all topics from different references.
Announcements about this possibility will eventually appear on Canvas.

Target Audience

Third-year bachelor students of any major (except Economics and Business
Economics; and Econometrics).

Additional Information

This course is an integral part of the University Minor Economics;
participants gain strongly from attending the entire minor program.
This course prepares for Applications in Economic Policy, and has
intersections with the course Structural Policy.

Recommended background knowledge

Development of Macroeconomic Thought. Familiarity with contents
of that course is assumed. Familiarity includes a working knowledge of
how to apply economic models in context and how to select and use
appropriate graphical tools of analysis.

General Information

Course Code E_ME_BCSP
Credits 6 EC
Period P2
Course Level 200
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator dr. M. Mastrogiacomo
Examiner dr. M. Mastrogiacomo
Teaching Staff

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Seminar, Lecture
Target audiences

This course is also available as: