Trinity College Dublin

DEPARTMENT OF ECONOMICS

Monetary economics is the second module in the Monetary & Welfare Economics Course - it covers monetary theory and its relevance to macroeconomic policy. It analyses Keynesianism, new Keynesianism, monetarism and new classical macroeconomics and the implementation of such theories as part of monetary policy. Monetary policy is then examined against the background of the main financial institutions and markets, along with the financial instruments and derivatives created by such markets.

Course Description:

The course covers monetary theory and its relevance to macroeconomic policy. It examines the nature of money, definitions of the money supply and different approaches to determining how the money supply is created. It analyses Keynesianism, monetarism and new classical macroeconomics and the manner in which these theories have influenced macroeconomic policy. Monetary policy is then examined against the background of the main financial institutions and markets. This is followed by an analysis of European Monetary Union, the Euro and the monetary policy of the European Central Bank. The final section of the course will examine the rationality of financial markets.

1. Sources of monetary statistics and a guide to the literature on monetary economics.
2. The objectives of macroeconomic policy. Macroeconomic forecasting in Ireland .
3. Money in the macroeconomy. The barter economy versus the money economy. The nature of money, the creation of money, different definitions of the money supply. The money supply equation.
4. Monetary and financial institutions – banks and non-bank financial intermediaries.
5. Money and the rate of interest in Keynesian economics. The natural versus the market rate of interest; nominal and real interest rates.
6. Monetarism. The equation of exchange, the Cambridge approach, Friedman's re-statement of quantity theory of money.
7. Money and inflation. The demise of the Phillips Curve. Inflationary expectations – adaptive expectations, rational expectations.
8. New Classical Macroeconomics Mark 1 and Mark 2.
9. Is the money supply endogenous or exogenous?
10. The Euro and European Monetary Union
11. The European Central Bank's monetary policy. Monetary targeting and inflation targeting.
12. Financial markets and rationality. Do financial bubbles exist?

Reading List:

*Bofinger, Peter, Monetary Policy Goals, Institutions, Strategies and Instruments (Clarendon, Oxford , 2001)

*Eijffinger, Sylvester. European Monetary and Fiscal Policy ( Oxford University Press, 2000).

* Snowdon , B. Vane, H. and Wynarczyk R. A Modern Guide to Macroeconomics (Edward Elgar, 1994)

Lewis, Mervyn K. and Mizen, Paul D. Monetary Economics (O.U.P), 2000)

Howells, P. and Bain, K., The Economics of Money, Banking and Finance (Addison ,Wesley Longman, 1992)

Gros. D. and Thygesen, N. European Monetary Integration ( Addison , 1998)

Barry, F. (ed.) Understanding Ireland 's Economic Growth (Macmillan, 1999)

Middleton, R. Charlatans or Saviours Economists and the British Economy from Marshall to Meade (Edward Elgar, 1998)

Mishkin, Frederic S. The Economics of Money, Banking and Financial Markets (Addison Wesley, 2002)

Gowland, D. Money, Inflation and Unemployment (Harvester, 1991)

Cobham, D. Macroeconomic Analysis (Longman, 1998)

Schiller, R. Irrational Exuberance ( Princeton University Press, 2000)

Arestis, P. and Sawyer, M.C. The Political Economy of Central Banking (Edward Elgar, 1998)

Bucholz, T.G. New Ideas from Dead Economists (Penguin, 1999)

*Possible purchases for students

Useful reference works

Eatwell, J., Milgate M., and Newman Peter. The New Palgrave A Dictionary of Economics (Macmillan, 1987)

Eatwell, J., Milgate, M., and Newman, P. The New Palgrave Dictionary of Money and Finance (Macmillan, 1992)

Putnam, B.J. and Zimmer , S.C. The Blackwell Guide to Wall Street (Blackwell, 1987)

Vaitilingam, Romesh. The Financial Times Guide to Using the Financial Pages (Pitman, 1996)

Journals and Reviews to Consult:

Journal of Economic Literature

Journal of Economic Perspectives

Journal of Money Credit and Banking

The Central Bank of Ireland Quarterly Bulletin .

Internet sites:

OECD ( http://www.oecd.org )

The Economist ( http://www.economist.com )

Economic Report of the President . The statistical tables of this report may be found at http://www.access.gpo.gov/eop/

The Macroeconomics Resources Site at the Harvard Business School ( http://www.hbs.edu/units/bgie/internet )

This site provides links with a number of other potentially interesting Web sites.

Bill Goffe, University of Mississippi ( http://rfe.wustl.edu ) - Provides useful guide to data sources for economic information.

Examinations:

There will be an examination at the end of Hilary term. This examination will count for 15% of the overall grade (30% of the Monetary Economics grade). The annual examination, accounting for the remaining part of the overall grade, takes place at the end of the Trinity term.

Classes:

Mr. Charles Larkin will give seminar classes each week.