In this course we will cover selected topics in monetary theory and policy through constructing a series of formal economic models. It consists of four parts. Part one explores the functions of money and the cost of inflation using the overlapping generations (OLG) model. In Part two, we will employ a neoclassical growth framework to study monetary phenomena. The focus will be on the role of inflation as a tax and the welfare costs of inflation. In Part three, monetary policy is studied. The IS-LM model is introduced to help understand how monetary policy affects the economy. The last part of this course will explore the role of money in the History of Economic Thought. We will examine the history of monetary economics, with particular focus on the contributions of John Maynard Keynes and Friedrich Hayek.
Students are expected to develop a thorough understanding of important issues about money, such as the role of money in the economy, the cost of inflation and how central banks conduct monetary policy. Students will learn to analyze monetary issues in a dynamic general equilibrium framework.
I will cover selected chapters from the following books:
Modeling Monetary Economies, Bruce Champ and Scott Freeman, Cambridge University Press, 2001; Monetary Theory and Policy, Carl E. Walsh, The MIT Press 2003; Olivier Blanchard and David Johnson, Macroeconomics, Prentice Hall 2010. I will post the lecture slides, assignments,
their solutions, and additional material on the course web-page.
Grading will be based on three assignments, one mid-term exam, and a final (comprehensive) exam.
- Assignments — 20%,
- Mid-Term Exam — 40%,
- Final Exam — 40%.
Methods of instruction: lectures and class discussion.
Students are expected to be comfortable with unconstrained and constrained optimization tools and methods.