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Regular version of the site

Monetary Economics

Academic Year
Instruction in English
ECTS credits
Course type:
Elective course
4 year, 1-4 module


Course Syllabus


Monetary Economics is a two-semester course compulsory for the fourth-year students studying Economics, and an elective course for those in Economics and Finance and Banking and Finance. It is one of the core courses taught to the fourth-year students at the ICEF. The content of the corresponding University of London course will be covered entirely, but will constitute approximately 70% of the material of the ICEF course. The course focuses on the issues of monetary policy implementation in a closed economy context. The Fall semester covers topics of money creation and monetary transmission mechanisms, inflation and expectations, neutrality of money and introduces the Real Business Cycle Model. The first half of the winter term will cover the classical and Keynesian approaches to the monetary policy and discusses their empirical evidence. The second half of the winter semester examines time inconsistency in monetary policy, uncertainties in monetary policy design and the term structure of interest rates. Pre-requisites This course is an intermediate (advanced undergraduate) level macroeconomics course. However, the course will focus on the microfoundations of macroeconomic issues and modelling. This means explicitly deriving aggregate behaviour from individual preferences and behaviour. A good knowledge of 3rd year Macroeconomics is necessary. Perhaps more importantly, a thorough knowledge and understanding of the General Equilibrium section in the 3rd year Microeconomics course is needed. Students are strongly advised to revise this section of the 3rd year course before the first lecture in Monetary Economics. Students should be comfortable in setting up an individual maximisation problem (utility function, budget constraints, market clearing conditions), setting up a Lagrangian of the maximisation problem, deriving first order (optimality) conditions, deriving individual demand functions from the Lagrangian and finally solving for prices from market clearing conditions. More specifically, students should be comfortable in writing down and solving a two-period economy with 2 agents and a single good each period, each having endowments in each period, trading a bond between the two agents and solving for the equilibrium interest rate. To ensure that students have a comfortable grasp of the above, they are strongly advised, before the first lecture, to go through Section 1 and Section 2.1 (all pages up to and including page 7) of : https://www.dropbox.com/s/bxfiafvyl81dkye/Money%20in%20GE%20week%204%20note.pdf?dl=0
Learning Objectives

Learning Objectives

  • Monetary Economics course provides students with the theoretical building blocks that are needed for an understanding of the monetary theory and surveys the issues in the present-day monetary policy implementation faced by the central banks.
  • The course equips students with the necessary background to analyze problems involving the determination of interest and exchange rates in the economy as well as with the understanding of what central banks can do to improve the economic performance through the use of the monetary policy instruments.
Expected Learning Outcomes

Expected Learning Outcomes

  • Explain the basic concepts of the nature of money and how it relates to different forms of money in the modern economy.
  • Outline the basic concepts of the demand for money and modelling approaches to the various types of demands
  • Apply the balance sheet approach to quantifying the various measures of money supply
  • Describe the modern monetary system and inflation targeting systems
  • Outline a comprehensive general equilibrium formulation of the modern monetary system.
  • Be able to make positive and normative conclusions through a monetary general equilibrium model.
  • Explain the empirical relationships between inflation, monetary policy and the business cycle.
  • Explain how inflation can have real effects in the absence of assumed nominal rigidities.
  • Outline the assumptions and conclusions of the RBC model.
  • Be able to derive the first order conditions of such a model properly.
  • Use IS/LM, AS/AD models and perform basic macro reasoning in these frameworks.
  • Be able to work through models of sticky prices to understand the effects of monetary policy.
  • Analyse the impact of supply and demand shocks.
  • introduce the concepts of data and parameter uncertainty and discuss the policy under uncertainty
Course Contents

Course Contents

  • The Nature of Money
    Defining money by its functions. Advantages of monetary economy over the barter economy.
  • Demand for Money
    The Demand for Money will be derived from first principles for different economic environments. Quantity theory of demand for money. Keynes’ speculative demand for money. Transaction based theories of money demand. Baumol-Tobin model and the Tobin’s model of portfolio selection. Empirical evidence.
  • Money Supply
    Creation and control of the monetary base by the central bank. The banking system and financial intermediation. The base-multiplier approach to money supply determination. Monetary policy instruments.
  • Monetary Policy in Practice
    Examination of how central banks are organised and how monetary policy is enacted in practice.
  • Classical Theory of Money
    The classical dichotomy and monetary neutrality. Money in general equilibrium. Walras’s law and the Patinkin’s critique. The Real-Balance Effect. Formal General Equilibrium modelling of a monetary economy through cash-in-advance constraints. Formal General Equilibrium modelling of a monetary economy through cash-in-advance. Focus on policy. Non-neutrality of money in a classical world. The role of frictions such as information (Lucas Islands ”misperceptions” model).
  • Stylized Facts
  • Dynamics: Money, Inflation and Welfare
    Real and nominal interest rates. High inflation and hyperinflation. The Laffer Curve and the inflation tax. The welfare costs of inflation and the optimal quantity of money.
  • Dynamics: Real Business Cycle Model
    Neo-Classical policy in practice.
  • Keynesian Model
    Keynesian models with money supply as a policy instrument. Foundations of New-Keynesian Model. New-Keynesian Model in Practice
  • Time inconsistency in monetary policy
    Barro-Gordon mode
  • Uncertainties in monetary policy design
    Multiplicative uncertainty
  • Term structure of interest rates
Assessment Elements

Assessment Elements

  • non-blocking Homework assignment
  • non-blocking mid-term test
    Для студентов она дистанте экзамен проводится в письменной форме с использованием асинхронного прокторинга. Экзамен проводится на платформе https://hse.student.examus.net). К экзамену необходимо подключиться за 10 минут до начала. Проверку настроек компьютера необходимо провести заранее, чтобы в случае возникших проблем у вас было время для обращения в службу техподдержки и устранения неполадок. Компьютер студента должен удовлетворять требованиям: 1. Стационарный компьютер или ноутбук (мобильные устройства не поддерживаются); 2. Операционная система Windows (версии 7, 8, 8.1, 10) или Mac OS X Yosemite 10.10 и выше; 3. Интернет-браузер Google Chrome последней на момент сдачи экзамена версии (для проверки и обновления версии браузера используйте ссылку chrome://help/); 4. Наличие исправной и включенной веб-камеры (включая встроенные в ноутбуки); 5. Наличие исправного и включенного микрофона (включая встроенные в ноутбуки); 6. Наличие постоянного интернет-соединения со скоростью передачи данных от пользователя не ниже 1 Мбит/сек; 7. Ваш компьютер должен успешно проходить проверку. Проверка доступна только после авторизации. Для доступа к экзамену требуется документ удостоверяющий личность. Его в развернутом виде необходимо будет сфотографировать на камеру после входа на платформу «Экзамус». Также вы должны медленно и плавно продемонстрировать на камеру рабочее место и помещение, в котором Вы пишете экзамен, а также чистые листы для написания экзамена (с двух сторон). Это необходимо для получения чёткого изображения. Во время экзамена запрещается пользоваться любыми материалами (в бумажном / электронном виде), использовать телефон или любые другие устройства (любые функции), открывать на экране посторонние вкладки. В случае выявления факта неприемлемого поведения на экзамене (например, списывание) результат экзамена будет аннулирован, а к студенту будут применены предусмотренные нормативными документами меры дисциплинарного характера вплоть до исключения из НИУ ВШЭ. Если возникают ситуации, когда студент внезапно отключается по любым причинам (камера отключилась, компьютер выключился и др.) или отходит от своего рабочего места на какое-то время, или студент показал неожиданно высокий результат, или будут обнаружены подозрительные действия во время экзамена, будет просмотрена видеозапись выполнения экзамена этим студентом и при необходимости студент будет приглашен на онлайн-собеседование с преподавателем. Об этом студент будет проинформирован заранее в индивидуальном порядке. Во время выполнения задания, не завершайте Интернет-соединения и не отключайте камеры и микрофона. Во время экзамена ведется аудио- и видео-запись. Процедура пересдачи проводится в соответствии с нормативными документами НИУ ВШЭ.
  • non-blocking final exam
  • non-blocking class activity
  • non-blocking UoL exam
    UoL exam is not counted to the overall grade.
  • non-blocking winter exam
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.15 * Homework assignment + 0.2 * mid-term test + 0.65 * winter exam
  • Interim assessment (4 module)
    0.05 * class activity + 0.2 * final exam + 0.5 * Interim assessment (2 module) + 0.25 * mid-term test


Recommended Core Bibliography

  • Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2015). International Economics: Theory and Policy, Global Edition (Vol. Tenth edition, global edition). Boston: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=nlebk&AN=1419045

Recommended Additional Bibliography

  • Modern money and banking, Miller, R. L., VanHoose, D. D., 1993