B2207 - MONETARY ECONOMICS

Learning outcomes

The course starts from the foundations of monetary economics and then provides a broad overview of the main and most recent issues discussed in monetary economics and the models developed to analyze them. Special emphasis will be placed on the characterization of optimal monetary policy as the challenges created by credibility problems and how institutions help to alleviate them. At the end of the course students will be able to: - explain and discuss why people demand money and what are the costs of inflation; - solve both Classical and Keynesian macroeconomic models and assess the role and efficacy of monetary policy; - understand the main channels of the monetary transmission mechanism, through which monetary policy can have real effects on the economy; - assess the merits and disadvantages of different monetary institutions.

Course contents

1. Foundations of money.

2. New keynesian framework. 

3. Fiscal theory of the price level.

4. Optimal monetary policy.

5. Credibility issues and institutions. 

Readings/Bibliography

Gali J., "Monetary Policy, Inflation, and the Business Cycle", 2015, Princeton University Press. 

Cochrane J., "The Fiscal Theory of the Price Level", 2023, Princeton University Press. 

Samuelson P., "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money", 1958, Journal of Political Economy, 66(6).

Sidrauski M., "Rational Choice and Patterns of Growth in a Monetary Economy", 1967, American Economic Review 57(2), 534-544.

Sargent T. and N. Wallace, "Some Unpleasant Monetarist Arithmetic", 1981, Federal Reserve Bank of Minneapolis Quarterly Review, 5(3), 1-17.

Barro R., and D. Gordon, "Rules, discretion and reputation in a model of monetary policy", 1983, Journal of Monetary Economics 12(1), 101-121.

Rogoff K., "The Optimal Degree of Commitment to an Intermediate Monetary Target", 1985, Quarterly Journal of Economics, 100(4), 1169–1189. 

Lucas R., and N. Stokey, "Money and Interest in a Cash-in-Advance Economy", 1987, Econometrica 55(3), 491-513.

Kiyotaki N., and R. Wright, "On Money as a Medium of Exchange", Journal of Political Economy, 1989, 97(4).

Lagos R., and R. Wright, "A Unified Framework for Monetary Theory and Policy Analysis", 2005, Journal of Political Economy, 113(3). 

Cochrane J., "Determinacy and Identification with Taylor Rules", 2011, Journal of Political Economy, 119(3).

Alvarez F., M. Beraja, M. Gonzalez-Rozada, and P. Neumeyer, "From Hyperinflation to Stable Prices: Argentina’s Evidence on Menu Cost Models", 2019, Quarterly Journal of Economics, 134(1), 451–505.

 

Teaching methods

Lectures and recitations, complemented by supporting material.

Attendance of both lectures and recitations is strongly recommended.

Assessment methods

Your grade will be based on a written final exam. Students can reject a pass grade in the exam only once.

The maximum possible score in the class is 30 cum laude, in case all answers are correct, complete and formally rigorous. The grade distribution is as follows:

<18 failed

18-23 sufficient

24-27 good

28-30 very good

30 e lode excellent

In case online exams will be envisaged by the University of Bologna for all students, the structure of the written exam is the same. The exam will be run through Teams or Zoom and Exams Online (EOL). Detailed instructions on how to manage and hand in the online exam are available on the course page on the VIRTUALE platform.

Teaching tools

Lectures and recitations.
Slides, exercises, and other material will be made available online on virtuale.

Office hours

See the website of Martin Gonzalez Eiras