Monetary Theory and Policy (Eco 403)
Monetary Theory and Policy (Eco 403)
FINAL CHALLENGE REVIEW IS UP. SEE BELOW.
HOMEWORK 3 SOLUTIONS ARE UP. SEE BELOW.
HOMEWORK 3 GRADES ARE HERE.
Monetary Economics is concerned with the effects of monetary institutions (such as the Federal Reserve Bank) and policy
actions on economic variables (such as inflation and interest rates) that are of importance to individuals and
firms. Monetary Policy is considered by many to be of critical importance to the economy. Indeed, Ben Bernanke, the
chair of the Federal Reserve Bank, is often called the second most powerful man in the United States. The Federal
Reserve is playing a critical role in the government's respose to the credit crises, recession, and recovery.
The class will consist of three parts. In the first part, we will study money and related variables such as inflation
and interest rates. This includes study of the banking system and various institutions such as the Federal Reserve. The
second part of the course examines monetary policy. Once we understand the relationships between money, interest rates,
and inflation, we can ask what the optimal interest rate policy is, and how to implement it. The third part of the
course examines interesting monetary episodes in the US and across the world.
Professor: Associate Professor Dr. David L. Kelly (Dave).
Mondays and Wednesdays from 3:35 to 4:50 pm in room SB 308.
Office: Room 521B, Jenkins School of Business.
Office hours: Tuesdays at 2-3 pm (Dave is almost always around during business hours, but try to come
during office hours if you can).
Contacts: Dave can be contacted via phone (8x3725) or email (firstname.lastname@example.org).
Dave has established a website (http://moya.bus.miami.edu/~dkelly/teach/eco403/index.html)
for this course. At this site, you can download or view course material (homeworks, etc.), as well as a continuously
Monday, May 7 from 2 pm to 4:30 pm (Section H).
This course requires Eco 212 (Principles of Macroeconomics).
The class follows the lecture notes, which are available on the website. However, some parts follow the following
textbook, which is optional.
Dean Croushore, Money and Banking: A Policy Oriented Approach Houghton Mifflin Company, Boston, MA, 2007.
A few sections follow this book (again optional):
Bennett T. McCallum, Monetary Economics: Theory and Policy. Macmillan Publishing, NY, 1989.
3 Homeworks (Feburary 8, March 21, and April 18) 25%
First Challenge (Quiz): Wednesday February 22, 25%
Second Challenge (Quiz): Wednesday April 4, 25%
Final Challenge (Quiz): Monday May 7, 25%
You can now access your grades on line HERE!
- Attendance is very important for this class. All exam material comes from class notes, and not all class notes
are available in the book. Dave tries to reference every topic (whether in the book or elsewhere). However, the wily
student usually aces the course by attending every class and taking careful notes.
- Dave likes to do an example problem or two at the beginning of class. These problems are not in the handouts, but are
examples of what is on the quizzes and/or homeworks. Be sure to pay attention and write them down. LATE
PEOPLE: Dave does not repeat these problems for those unable to wake up and get to class by 3:30.
- The two quizzes are Wednesday, February 22 and Wednesday April 4. Now is the time to mark your calendars.
Only in the most dire emergencies can the student not take a quiz at the scheduled time. Even in dire emergencies,
Dave does not allow a make-up, but instead counts the final double. STUDENTS MUST LET DAVE KNOW OF THEIR
DIRE EMERGENCY BY NOON ON THE DAY OF THE QUIZ OR ELSE A ZERO IS AUTOMATICALLY RECORDED. LEAVING ME A MESSAGE OR EMAIL AND
NOT SHOWING UP PUTS YOU AT GRAVE RISK OF YOUR DIRE EMERGENCY NOT BEING APPROVED, IN WHICH CASE A ZERO IS AUTOMATICALLY
- Homeworks are due in class, at the beginning of class. Showing up 20 minutes late because you didn't finish the
homework on time is not acceptable. Putting a homework in my mailbox, under my door, etc. is also not acceptable.
Emailing homework is only acceptable if done in advance. Only in the most dire emergencies can a student be excused from
turning in a homework on time. Even in dire emergencies Dave does not allow the homework to be turned in late, but will
instead weight the final more. Students must let Dave know of their dire emergency by noon on the day which the homework
is due or else a zero is automatically recorded.
- Computers and Ipads are not allowed in class. 99% of what you need to write down in your notes is either math or
graphs. Most definitions, etc. are in the notes Dave provides.
- Smart phones, texting, portable games, X-boxes, Wiis, etc. are not allowed, as seeing students text breaks Dave's
mental flow. Therefore, each time Dave sees a student texting, he will subtract 1% from that student's final grade.
WARNING: Dave can see you text even when done in the back of class or under the table.
- What they say about Dave on Rate My Professor:
- "Can be an a-- if you procrastinate."
- "God help you if you don't go to class."
Some Macro Links and Career Information
DC is the Dean Croushore book and BM is the the Bennett McCallum book.
- Introduction (BM:1, January 18 - February 1).
- Facts about the Monetary Economy (DC:1).
- Money (BM:2, DC:3,8,15, DC:461-488)
- Functions of Money (DC:3)
- Measures of Money
- Fiat vs. Commodity Money
- The Banking System (DC:8)
- The Federal Reserve (DC:15)
- Interest Rates (DC:p110-118,150-159)
- HOMEWORK 1, DUE FEBRUARY 8
- The Money Market (February 8-22)
- Money Supply (BM:4.1-4.4, DC:p461-488)
- Money Demand (BM:3.1)
- Baumol-Tobin Model (BM:3.6, DC:307-315)
- Velocity (BM:3.5)
- Cagan Model (BM:7.1)
- FIRST QUIZ FEBRUARY 22
- The Inflation Tax (article, February 27 - February 29)
- Welfare costs of the inflation tax
- Budget Deficits and Inflation
- Laffer Curve of Inflation Tax
- Classical and Keynesian Models (BM:5, DC:12, March 5-21)
- Aggregate Demand (BM:5.1-5.4)
- Classical Aggregate Supply (BM:5.5)
- Keynesian Aggregate Supply (BM:5.7, 5.8)
- Neutrality and Policy in the Classical Model (BM:5.6)
- HOMEWORK 2, DUE MARCH 21
- Policy and policy effectiveness in the Keynesian Model (BM:5.8)
- Phillips Curve (March 26-March 28)
- Classical and Keynesian (BM:9.2, DC:512-516)
- Lucas Monetary Misperceptions (BM:9.4, DC:516-520)
- SECOND QUIZ, APRIL 4
- Monetary Policy Implementation (April 2-18)
- Policy Rules vs. Discretion (BM:12,11.3, DC:p494-512, DC:18)
- Interest Rate Targeting (BM:4.4)
- Money Supply Targeting (BM:4.3)
- Exchange Rate Targeting (BM:14.5-14.7)
- Inflation Rate targeting (including asset price inflation, articles)
- HOMEWORK 3, DUE APRIL 18
- Commodity Standards (BM:13)
- Interesting Monetary Episodes (April 23-25)
- Recent episodes: Federal Reserve and the credit crises (articles)
Note: all handouts may be downloaded as Adobe Acrobat pdf files. If your computer cannot read acrobat files, download
the reader for free HERE .
Homework 1, Due Wednesday February 8.
Homework 1, Solutions.
Review, First Quiz.
Review solutions, First Quiz.
First Quiz, Solutions.
Homework 2, Due March 21.
Homework 2, Solutions.
Review, Second Quiz.
Second Quiz, Solutions.
Homework 3, Due April 18.
Homework 3, solutions.
Notes, graphs, tables, etc.
Below are some notes for the class. I will add notes periodically throughout the semester. You will see that these
notes, while helpful, are in an outline format and do not substitute for the notes taken in class.
Notes: Introduction (Section I)
Notes: Money Market and Inflation Tax (Section II, III)
Notes: Classical Model (Section IV)
Notes: Phillips Curve (Section V)
Notes: Monetary Policy Implementation (Section VI)
Velocity in the United States
Velocity in some high inflation economies
Up to Dave Kelly's homepage
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