Data on the course

Master’s Programme in Economics. Open to other students as well.

First spring term, after completing Macroeconomics 1 and 2

After the course, the student should

• Understand the role of the central bank in a fiat money system 
• Be able to show how the supply of money is determined 
• Be able to analyse the macroeconomic equilibrium of an economy using a simple IS-LM model 
• Understand liquidity traps and potential ways to take the economy out of them 
• Be able to analyse optimal monetary policy using Kydland-Prescott, Barro-Gordon or New Keynesian monetary macromodels 
• Understand the basic concepts of optimal monetary policy: discretion (re-optimisation, pre-commitment, time consistency, inflation bias, stabilisation bias

The course consists of lectures (24 hours). The lectures are not mandatory. The course is completed by a final exam.

The prerequisite macroeconomic theory: Macroeconomics 1 and 2 or Advanced Macroeconomics 1 and 2.

Any of the following courses will help in learning the course material: Advanced Macroeconomics 3 or 4.

The goal of the course is to provide an introduction to monetary macroeconomics and the role of money and monetary policy in the economy. After describing what monetary macroeconomics is about, students will learn how the money supply is determined in the economy and how it changes. The course emphasises price stickiness as the key factor underlying the short-run effectiveness of monetary policy. Different models are used to show how an economy can fall into a liquidity trap and what the potential measures are through which policy makers can try to lift an economy from the liquidity trap. The core of the course is optimal monetary policy. Different models also show how the time inconsistency of the optimal pre-commitment policy emerges when policy makers are dynamically optimising their policy choices and how the inflation and stabilisation bias bedevil optimal discretionary monetary policy. The aim of the course is to learn to use simple analytical tools to understand basic features of money and monetary policy from the point of view of the shortrun macroeconomic equilibrium of an economy.

In addition to the lecture material, selected parts (covered in the course) of Carl Walsh (2010), Monetary Theory and Policy, 3rd ed., MIT Press, are recommended. The book is demanding, particularly for selfstudy.

All course material is delivered through the internet.

The grade on a scale from 0 (fail) to 5 is based on the points earned in the final exam.