Download ECON 8121-001 Ad vanced Monetary Theory

Econ 8121 - Advanced Monetary Theory
Professor Mott
Office Hours: MWF, 12:30-1 :30 pm
Office: Econ 102
Spring 1990
SYLLABUS
This is a course for economics graduate students in monetary theory. It is designed to serve as part of
a sequence, 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 a 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 1O pages) papers. The first paper
is to answer the question: how is Keynes's monetary theory different from and similar to neoclassical
monetary theory? This will be due one week after we finish Topic Ill. The second paper is to answer the
question: how successfully does one (your choice) of the newer theories (fopics 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) .
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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 suggested readings for the course are as follows:
Three books were ordered to be available for purchase in the bookstore:
John Maynard Keynes, The General Theory of Employment. Interest and Money (GT)
Robert Lucas, Studies in Business-Cycle Theory
Olivier Blanchard and Stanley Fischer, Lectures on Macroeconomics
I.
The Essence and Existence of Money
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
Laurence Harris, Monetary Theory. Chapters 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
Neil Wallace, "A Legal Restrictions Theory of the Demand for 'Money' and the Role of Monetary
Policy," FRB of Minneapolis Quarterly Review (1983)
Lawrence White, "Accounting for Non-Interest-bearing Currency: A Critique of the Legal
Restrictions Theory of Money," JMCB 19 (1987)
Bennett McCallum, "Some Issues Concerning Interest Rate Pegging, Price Level Determinancy, and
the Real Bills Doctrine," JME 17 (1986)
Irving Fisher, The Purchasing'Pc>wer 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
Ill.
Keynes
Keynes, A Tract on Monetary Reform, pp. 61-70
, A Treatise on Money. Vol. I, Book Ill
Joan Robinson, "The Theory of Money and the Analysis of Output," R.E. Stud. 1 (1933)
Keynes, GT, Preface, Chaps. 1-3, 13-22, 24
John Hicks, "Mr. Keynes and the 'Classics'; A Suggested Interpretation," Econometrica 5 (1937)
Harris, Chap. 12
IV.
The "New Classical Macroeconomics"
Milton 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
Blanchard and Fischer, Chaps. 4-7
Lucas and Nancy Stokey, "Money and Interest in a Cash-in-Advance Economy," Econometrica 55
(1987)
Finn Kydland and Edward Prescott, ''Time to Build and Aggregate Fluctuations," Econometrica 50
(1982)
John Long and Charles Plosser, "Real Business Cycles," JPE 91 (1983)
Robert Barro and Robert King, ''Time-Separable Preferences and lntertemporal-Substitution Models
of Business Cycles," QJE 99 (1984)
David Cass and Karl Shell, "Do Sunspots Matter?" JPE 91 (1983)
Arthur Okun, "Rational-Expectations-with-Misperceptions as a Theory of the Business Cycle," JMCB
12 (1980)
John Taylor, "Rational Expectations Models in Macroeconomics," in K.J. Arrow and A Honkapohja,
eds., Frontiers of Economics
Stanley Fischer, "On Activist Monetary Policy with Rational Expectations," in Rational Expectations
and Economic Policy
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V.
"New" Keynesianism
Blanchard and Fischer, Chaps. 8-11
Costas Azariadis, "Implicit Contracts and Underemployment Equilibria," JPE 83 (1975)
Mark Gertler, "Financial Structure and Aggregate Economic Activity: An Overview," JMCB 20 (1 988)
Janet Yellen, "Efficiency Wage Models of Unemployment," AER Papers and Proceedings (1984)
Bruce Greenwald and Joseph Stiglitz, "Keynesian, New Keynesian, and New Classical Economics,"
OEP 39 (1987)
, "Examining Alternative Macroeconomic Theories," BPEA (1988)
- - , "Imperfect Information, Finance Constraints, and Business Fluctuations," in Meir Kohn and
--Sho-Chieh Tsiang, eds., Finance Constraints, Expectations, and Macroeconomics
_ _• "Money, Imperfect Information, and Economic Fluctuations,· in Kohn and Tsiang, eds.
VI.
"Post" Keynesianism
Keynes, GT, Chap. 12
Robinson, Economic Heresies, Chaps. 5, 6
, "The .Rate of Interest," in The Rate of lnterest•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
Tracy Mott, "Kalecki's Principle 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)
James Tobin, "Real Balance Effects Reconsidered," in Asset Accumulation and Economic Activity
Clower (ed.), Selection 13
Paul Davidson, "Money and ttfo Real World," EJ (1972)
Minsky, "Financial Innovations and Financial Instability: Observations and Theory"
Marc Lavoie, "The Endogenous Flow of Credit and the Post Keynesian Theory of Money," JEI 18
(1984)
VII.
Money, Growth, and Economic Development
Ronald McKinnon, Money and Capital in Economic Development, Chaps. 5, 6, 7 .
Kalecki, Essays on Developing Economies, Chap. 5
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