Central Bank Models: A Critical Assessment ECON4080

  • Academic Session: 2023-24
  • School: Adam Smith Business School
  • Credits: 15
  • Level: Level 4 (SCQF level 10)
  • Typically Offered: Semester 2
  • Available to Visiting Students: Yes

Short Description

The course will examine in detail the construction of a representative model which serves as the blueprint for the current generation of macro-econometric models used by central banks. Using simpler models of household and firm behaviour, we shall seek to understand the economic behaviour implicit in this model, and where that description of the economy is more or less likely to fit the data. We shall then consider the policy implications of such modelling by undertaking a series of policy analyses, including assessing the costs and benefits of central bank independence, inflation targeting and other forms of delegated targets. We will also critically evaluate the models currently employed by policy institutions including the Bank of England, ECB, US FED and the IMF.

It will provide the opportunity to students to engage with debates over the relevance of mainstream macroeconomics and study material that has clear relevance to the "real world". Through a combination of relatively accessible theoretical analysis and extensive discussion of the empirical evidence of the theories discussed, students will gain a meaningful framework through which to assess the usefulness of the approach to policy analysis followed by most central banks.


Please refer to the Adam Smith Business School website for details of Honours courses available in the current session.

Lectures: 10 x 2-hour lectures

Requirements of Entry

Entry to an Honours programme in Economics or a minimum grade C3 (average) in Economics 2A and 2B for students taking an Honours programme in another subject.

Excluded Courses



ILO (covered)

Main Assessment In: April/May

Are reassessment opportunities available for all summative assessments? Not applicable for Honours courses

Reassessments are normally available for all courses, except those which contribute to the Honours classification. For non-Honours courses, students are offered reassessment in all or any of the components of assessment if the satisfactory (threshold) grade for the overall course is not achieved at the first attempt. This is normally grade D3 for undergraduate students and grade C3 for postgraduate students. Exceptionally it may not be possible to offer reassessment of some coursework items, in which case the mark achieved at the first attempt will be counted towards the final course grade. Any such exceptions for this course are described below. 

Course Aims

The main aims of the course are to :

1. provide a thorough grounding in the parallels and differences between the development of macroeconomic theory and the kinds of macro-econometric models used by central banks and other leading policy institutions;

2. carry out detailed analysis of the economic behaviour contained in a theoretical model which serves as the blue-print for the current generation of policy models employed by leading central banks;

3. critically evaluate the likely empirical successes and short-comings of the models which are employed by central banks;

4. perform critical policy analysis using the theoretical framework employed by central banks;

5. have in-depth discussion on how the major policy institutions have attempted to overcome the criticisms that have been launched at the use of Dynamic Stochastic General Equilibrium (DSGE) models following the financial crisis and an assessment as to whether or not they have succeeded.

Intended Learning Outcomes of Course

By the end of this course students will be able to:

1. draw out the theoretical implications of simple models of household and firm behaviour, and ascertain their empirical validity in order to assess the plausibility of the description of the economy implicit in the models used by Central Banks;

2. explain how major policy institutions have overcome the criticisms that have been launched at the use of such models following the financial crisis and critically assess whether or not they have succeeded;

3. clearly explain the parallels and differences between the development of macroeconomic theory and the kinds of macro-econometric models used by central banks;

4. carry out critical analysis of using the theoretical and empirical models found in the literature and disseminate this analysis clearly in written work;

5. undertake independent research, involving literature review, data collection and theoretical analysis on assessing the extent to which the macro-econometric models employed by central banks are fit for purpose.

Minimum Requirement for Award of Credits

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.