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Regular version of the site
Bachelor 2023/2024

Monetary Economics

Language: English
ECTS credits: 10
Contact hours: 112

Course Syllabus

Abstract

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

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

Course Contents

  • The Nature of Money
  • Demand for Money
  • Money Supply
  • Monetary Policy in Practice
  • Classical Theory of Money
  • Stylized Facts
  • Dynamics: Money, Inflation and Welfare
  • Dynamics: Real Business Cycle Model
  • Keynesian Model
  • Time inconsistency in monetary policy
  • Uncertainties in monetary policy design
  • Term structure of interest rates
Assessment Elements

Assessment Elements

  • non-blocking class activity
  • non-blocking Homework assignment
  • non-blocking mid-term test 1
  • non-blocking Final exam
  • non-blocking Winter exam
  • non-blocking mid-term test 2
Interim Assessment

Interim Assessment

  • 2023/2024 2nd module
    0.2 * mid-term test 1 + 0.15 * Homework assignment + 0.65 * Winter exam
  • 2023/2024 4th module
    0.4 * Final exam + 0.1 * class activity + 0.5 * mid-term test 2
Bibliography

Bibliography

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., 1993