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Econ 612 - Adv. Monetary Theory I Professor Mott Office Hours: WF 12:00-1:30 Office: Econ . 102 FALL 1987 SYLLABUS This is a course in advanced monetary theory. It is designed to serve as part of a sequence with Econ. 611 and 643, 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 VI) 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 eithe r 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. -2The list of topics and suggested readings for the course follows: Three 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 Lucas, Studies in Business-Cycle Theory. 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, "The Structure of Exchange in Barter and Monetary Economics QJE 88 (1972) Paul Samuelson, "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," JPE 66 (1958) Hyman Minsky, "Frank Hahn's Money and Inflation: A Review Article," JPKE 6 (1984) II. Neoclassical Monetary Theory Harris, Chaps. 3-6 Clower (ed.), Selections 9-12 Clower, "What Traditional 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 Klein, Money and the Economy , pp. 94-95 Eugene Fama, "Banking in the Theory of Finance," JME 6 (1980). Robert Greenfield and Leland Yeager, "A Laissez-Faire Approach to Monetary Stability," JMCB 15 (1983). Lawrence White, "Competitive Payments Systems and the Unit of Account," AER 74 (1984). Irving 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 Friedrich Lutz, "On Neutral Money," in Striessler (ed.), Roads to Freedom III. Keynes Keynes, A Tract on Monetary Reform, pp . 61-70 A Treatise on Money, Vol. I, Book III _ _ _ , GT, Preface, Chaps. 1-3, 13-22, 24 IV. Neoclassical Keynesianism Harris, Chaps. 9-17 John Hicks, "Mr. Keynes and the 'Classics'; A Suggested Interpretation," Econometrica 5 (1937) James Tobin, "A General Equilibrium Approach to Monetary Theory," JMCB 1 (1969) --, "Commercial Banks as Creators of 'Money'," in Essays in Economics (and elsewhere) John Gurley and Edward Shaw, "Financial Intermediaries and the SavingInvestment Process," J. of Finance 11 (1956) \ • -3Bruce Greenwald, Joseph Stiglitz, and Andrew Weiss, "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," AER Pap . & Proc. (1984) Janet Yellen, "Efficiency Wage Models of Unemployment," AER Pap. & Proc. (1984) Don Patinkin, Money, Interest, and Prices, Chap. 13 Clower (ed.), Selections 14, 19 Axel Leijonhufvud, Information and Coordination, Selection 1 V. "Post" Keynesianism Keynes, GT, Chap. 12 Robinson, Economic Heresies, Chaps. 5, 6 _ _ _ _ , "The Rate of Interest," in The Rate of Interest and Other Essays Nicholas Kaldor, "Speculation and Economic Stability," RES 7 (1939) Michal Kalecki, "The Principle of Increasing Risk," Economica 4 (1937). _ _ _ _ , "Political Aspects of Full Employment," in. Selected Essays on the Dynamics of the Capitalist Economy Mott, "Kalecki's Princ iple of Increasing 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 Activity. Clower (ed . ), Selection 13. Paul Davidson, "Money and the Real World," EJ (1972) Minsky, "Financial Innovations and FinanciaY-Instability: Observations and Theory" Basil Moore, "Monetary Factors," in Alfred Eichner (ed.), A Guide to Post-Keynesian Economics. VI . The "New Classical Macroeconomics" Harris, Chap. 7, 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 Sargent and Neil Wallace, "Rational Expectations and the Theory of Economic Policy," JME 2 (1976) Sargent, "The Ends of Four Big Inflati ons " in Rati onal Expectations and Inflation Rodney Maddock and Michael Carter, "A Child 's Guide t o Rational Expectations," JEL 20 (1982) Stanley Fis cher, "Long-Term Contracts, Ra tional Expectations, and the Optimal Money Sup ply Rule," JPE 85 (1977) Randall Bausor, "The Ra tional-Expectations Hypo thesis and the Epistemics of Time," Cam. JE 7 (1983) Arthur Okun, Pri ces and Quantities, Chaps. 2, 3 VII. 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.