Introduction to Monetary Economics

Introduction. The concept of money

• The concept of money.
• Money demand. Money supply.
• Empirical evidence on the links between money, output, inflation and other economic variables.
• Monetary policy operating procedures.
• Monetary policy regimes.

The classical monetary models

• Money neutrality in RBC models.
• Classical monetary models.
• Money in the utility function models.
• Cash-in-advance models.
• Comparison of the models’ predictions and the empirical evidence.

The basic New Keynesian Model

• The main blocks of the model: representative household, firms, monetary policy rule.
• Monopolistic competition and price stickiness.
• Extensions with other possible nominal rigidities.
• The discussion of the New-Keynesian models: simplicity versus realism.

Monetary policy design in New Keynesian models

• Monetary policy instruments.
• Money supply rules versus interest rate rules.
• The problem of determinacy.
• The overview of the practice of monetary policy among central banks in advanced economies.

The optimal monetary policy

• The social welfare function in the New Keynesian model. Optimal policy rules. Policy tradeoffs:
• inflation-output tradeoff and stabilization bias.
• Time inconsistency of the optimal policy.
• Discretion versus commitment.

Monetary policy at zero-lower bound

• The New-Keynesian model extension:
• ZLB constraint.
• The origins of liquidity traps.
• Effective lower bound.
• Conventional monetary policy at ZLB. Unconventional policies:
• forward guidance,
• Quantitative and qualitative easing.
• The evidence of monetary policy effectiveness in advanced countries at ZLB.

Monetary policy under uncertainty

• The types of uncertainty:
• additive uncertainty,
• multiplicative uncertainty,
• model uncertainty.
• Robust monetary policy.
• Attenuation effect.
• The role of information policy under uncertainty.

Communication policy of a central bank

• Information as a policy tool.
• The overview of central banks communication.
• The optimal design of communication policy.
• Communication policy at ZLB and during financial crises.

Monetary policy in an open economy

• A two-country New Keynesian model.
• A small open economy.
• The optimal exchange rate policy.
• Optimal monetary policy rules in an open economy.
• Currency unions.

Financial markets and monetary policy

• The term structure of interest rates.
• Financial frictions in credit markets.
• The monetary policy effects on yield curve.