Download ECON 612-001 Monetary Theory

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Econ 612 - Adv. Monetary Theory I
Professor Mott
Office Hours: MWF 11:00-12:00
Office: Econ. 102
FALL 1986
SYLLABUS
This is a course in advanced monetary theory . It is designed to serve as
part of a sequence with Econ. 613, though it can be taken independently. The
purpose of the sequence as I see it is to acquaint participants with various
issues and contributions within the domain of monetary theory, i .e., the theory
of what money has to do with an economic system. To that end I have arranged a
series of topics for this course which have been chosen with the goal of
allowing us to examine the logical and historical development of certain ideas
which have come to represent the major widely-held notions of what the relation
of money to an economy is. We will not be able to cover thoroughly all the
topics which are listed on this syllabus. Thus you should take the reading list
as a list of material with which you may want to familiarize yourself at some
point in your life (like before the comprehensive exam) and as a list containing
some material with which you will want to familiarize yourself intimately during
this semester.
The assignments to be completed in order to receive a grade in the course
are three. Each counts for 1/3 of your grade. The first two assignments are two
short (less than 10 pages) papers. The first paper is to answer the question:
how is Keynes' monetary theory different from and similar to neoclassical
monetary theory? This will be due one week after we finish Topic III. The
second paper is to answer the question: how successfully does one (your choice)
of the newer theories (Topics IV through VIII) correct deficiencies and overcome
criticisms of its ancestors? This will be due on the last day of classes.
Lateness in the papers will be tolerated but penalized (1/3 of a letter grade
off if handed in within one week late; 2/3 of a letter off if over one week
late).
The third requirement is either an open book final exam at the scheduled
time or a 10-20 page paper on a topic of your own choosing, which, however, must
be approved by me, due at the final exam time. The maximum late penalty here is
1/3 of a letter, though you need to be concerned about completing the course.
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The list of topics and sugg~~te~ readingi. for the course follows:
Four books were ordered to be available for purchase in the bookstore: ·
Laurence Harris, Monetary Theory
John Maynard Keynes, The General Theory of Employment, Interest and
Money ( GT)
Robert Gordon (ed.), Milton Friedman's Monetary Framework .
Robert Lucas, Studies in Business-Cycle Theory .
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Copies of all the other selections will be available grouped by topic at Kinko's Copy
Center across the street.
I. The Essence and Existence of Money
Harris, Chaps. 1-2
Robert Clower (ed.), Monetary Theory: Selected Readings, Intro and Selection 3
Ross Starr, 11 The Structure of Exchange in Barter and ~onetary Economics OJE
88 {1972)
11
Paul Samuelson,
An Exact Consumption-Loan Model of Interest with or without
the Socia 1 Contrivance of Money, 11 JPE 66 ( 1958)
Hyman Minsky, 11 Frank Hahn's Money andlnflation: A Review Article," JPKE 6 (1984)
II. Neoclassical Monetary Theory
Harris, Chaps . 3-6
Clower (ed.),
Selections 9-12
Clower, 11 What Trad i tional Monetary Theory Really Wasn't," Can. JE (1969)
Samuelson, "Nonoptimality of Money Holding under Laissez Faire," Can. JE (1969)
Harry G. Johnson, Further Essays in Monetary Economics, Chaps 4, 5
John Kle i n, Money and the Economy, pp. 94-95
Friedrich Lutz, "On Neutral Money, " in Striessler (ed.), Roads to Freedom
Eugene Fama, "Banking in the Theory of Finance," JME 6 (1980).
Robert Greenfield and Leland Yeager, "A Lai ssez-Fa1 re Approach to Monetary
Stability," JMCB 15 (1983).
Lawrence White-:-"'Competitive Payments Systems and the Unit of Account," AER 74
{1984) .
Irvi ng Fisher, The Purchasing Power of Money, Chaps. 2, 4, 5, 8,
Gardner Ackley, Macroeconomics: Theory and Policy, pp. 135-138
Knut Wicksell, Lectures on Political Economy, Vol. II, pp. 141-208
I I I • Keynes
Keynes, A Tract on Monetary Reform, pp.61-70
ATreatise on Money, Vol. I, Book III
- -,, GT,
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Preface, Chaps. 1-3, 13- 22, 24
IV. Neoclassical Keynesianism
Harris, Chaps. 9-12 , 15-17
John Hicks, "Mr . Keynes and the 'Classics'; A Suggested Interpretation,"
Econometrica 5 (1937)
James Tobi n, "A General Equilibrium Approach to Monetary Theory," JMCB 1 (1969)
, "Commercial Banks as Creators of 'Money'," in Essays in - -E_c_o-nomics (and elsewhere)
John Gurley and Edward Shaw, "Financial Intermediaries and the SavingInvestment Process," J. of Finance 11 {1956)
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Bruce Greenwald, Joseph Stiglitz, and Andrew Weiss, "Informational Imperfections
in the Capital Mar ket and Macroeconomic Fluctuations," AER Pap. & Proc. (1984)
Janet Yellen, "Efficiency Wage Models of Unemployment," AER Pap. & Proc. (1984}
V.
VI.
Monetarism
Harris, Chap. 7
Gordon, {ed . ) , pp. 1- 62, 77-89, 111-172 .
"New" Keynesianism
Harris, Chaps. 13, 14
Don Patinkin, Money, Interest, and Prices, Chap . 13
Clower {ed.), Selections 14, 19
Axel Leijonhufvud, Information and Coordination, Selections 1, 6, 7
Robert Barro and Herschel Grossman, "A General Disequilibrium Model of
Income and Employment, AER 61 (1971)
Kenneth Arrow , "Toward a Theory of Pr ice Adjustment" i n Moses Abramovitz
et al., The Allocation of Economic Resources
TracyMott, "Mr . Keynes and the Neoclassics ," Social Concept 1 {1984)
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VII.
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Post Keynesianism
Keynes, GT, Chap. 12
Robinson-,-Economic Heresies, Chaps . 5, 6
, "The Rate of Interest," in The Rate of Interest and Other Essays
. ,.,N,. . i. . .,ch-o"""l_a_s Kaldor, "Speculation and Economic Stability," RES 7 (1939)
Michal Kalecki, "The Principle of Increasing Ris k, Economica 4 (1937) .
in Selected Essays on the
-----,~-..,... , "Political Aspects of Full Employment ,
Dynamics of the Capitalist Economy
Mott, "Kalecl<i 's Principle of Inc reasing Risk and the Relation Among
Mark-up Pricing, Investment Fluctuations, and Liquidity Preference," Econ .
Forum (1985} "Towards a Post-Keynesian Formulation of Liquidity Preference,"
JPKE 8 (1985).
Tobin , "Real Balance Effects Reconsidered," in Asset Accumulation and
Economic Activit~ .
Clower (ed.}, Selection 13.
Paul Davidson , "Money and the Real World, EJ (1972)
Minsky, "Financial Innovations and Financia1Instability : Observations and
Theory"
Basil Moore, "Monetary Factors," in Alfred Eichner (ed.), A Guide to
Post-Keynesian Economics.
John Caskey and Steve Fazzari, "Disinflation, Wage Flexi bility , and Nominal
Debt Commitments . "
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VIII . The "New Classica l Macroeconomics"
Harris, Chap. 21
Friedman, "The Role of Monetary Policy," in The Optimum Quantity of Money.
Edmund Phelps, "Money Wage Dynamics and Labor Market Equilibrium ,"
JPE 76 (1968)
Lucas , pp. 66- 89 , 179-296.
Thomas Sarnent and Neil Wallace, "Rational Expectations and the Theory of
Economic Policy , " JME 2 (1976)
Sargent, The Ends oTTour Big Inflations" in Rational Expectations and
Inflation
Rodney Maddock and Michael Carter, "A Child's Guide to Rational Expecta11
r
-4tions," JEL 20 (1982)
Stanley Fischer, "Long-Term Contracts, Rational Expectations, and the
Optimal Money Supply Rule," JPE 85 (1977)
Randall Bausor, 0 The Rational-Expectations Hypothesis and the Epistemics
of Time," Cam. JE 7 (1983)
Arthur Okun, Prices and Quantities, Chaps. 2, 3
IX. Money, Growth, and Economic Development
Ronald McKinnon, Money and Capital in Economic Development, Chps. 5, 6, 7.
Kalecki, Essays on Developing Economies, Chp . 5.
Harris, Chap. 18.