Econ 6411: Advanced Monetary Policy and Theory I

Welcome to this web page! This class is taught by Christian Zimmermann. This class meets on Tuesdays 5:45 PM in room 339, Monteith Building.

Office hours for this class are Wednesdays 7:30-12:00 AM or by appointment.

Textbook

I will not formally use a textbook for this class.If you have Monetary Theory and Policy, by Carl Walsh, keep it.

We will cover a few chapter of the textbook, and rapidly divert from it. In particular, some recent working papers or articles will also be covered. They are mentioned below, whenever possible with a link to an online version. This list can and will change as we go along...

Schedule

The schedule is very tentative, as we will see how fast we progress. I may also change a few things in order to do less money and more macro. I will cover some of the papers myself, but every student will have to present several papers to the class. Also, I will amend it according to the interests of those attending the class.

  1. What is Money?

    Narayana Kocherlakota, 1998. "Money is Memory", Journal of Economic Theory.

  2. Stylized Facts about Money (rapid overview)

    Walsh, Chapter 1
    David Backus & Patrick Kehoe, 1992. "International Evidence of the Historical Properties of Business Cycles", American Economic Review
    Lawrence Christiano, Martin Eichenbaum, Charles Evans, 1998, "Monetary Policy Shocks: What Have We Learned and to What End?", NBER working paper.
    Riccardo Fiorito and Tryphon Kollintzas, 1994. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective", European Economic Review.
    Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth", Federal Reserve Bank of Minneapolis Quarterly Review, (Spr) pp. 3-18.
    George McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts", Federal Reserve Bank of Minneapolis Quarterly Review, (Sum) pp. 2-11.

  3. Introducing Money in a Macroeconomic Model

    1. Money-in-the-Utility Function

      Walsh, Chapter 2
      James M. Poterba & Julio J. Rotemberg, 1988. "Money in the Utility Function: An Empirical Implementation", NBER Reprints 1024 (also Working Paper 1796 ), National Bureau of Economic Research, Inc
      Robert E. Lucas, Jr., 2000. "Inflation and Welfare", Econometrica, Vol. 68 (2) pp. 247-274.
      Alvin L. Marty, 1999. "The welfare cost of inflation: a critique of Bailey and Lucas", Federal Reserve Bank of St. Louis Review, (Jan) pp. 41-46.

    2. Shopping Time (very fast)

      Walsh, Section 3.2

    3. Cash-in-Advance

      Walsh, Sections 3.3, 3.6
      Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy", Journal of Political Economy, Vol. 93 (5) pp. 919-44.
      Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy", Econometrica, Vol. 55 (3) pp. 491-513.
      Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model", American Economic Review, Vol. 79 (4) pp. 733-48.
      Cooley, Thomas F & Hansen, Gary D, 1991. "The Welfare Costs of Moderate Inflations", Journal of Money, Credit and Banking, Vol. 23 (3) pp. 483-503.

    4. Money Search with Fixed Prices

      Walsh, Section 3.4.2
      Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange", Journal of Political Economy, Vol. 97 (4) pp. 927-54.
      Ritter, Joseph A, 1995. "The Transition from Barter to Fiat Money", American Economic Review, Vol. 85 (1) pp. 134-49.
      Howitt, Peter, and Robert Clower, 2000. "The Emergence of Economic Organization", Journal of Economic Behavior and Organization, Vol. 41 (1) pp. 55-84.

    5. Money Search with Flexible Prices

      Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices", Journal of Political Economy, Vol. 103 (1) pp. 118-41.
      Ricardo Lagos and Randall Wright, 2005. A Unified Framework for Monetary Theory and Policy Analysis, Journal of Political Economy, vol. 113(3), pages 463-484.
      Lucy Qian Liu, Liang Wang and Randall Wright, 2008, The "Hot Potato" Effect of Inflation, working paper, University of Pennsylvania.

    6. Overlapping Generations

      McCandless, George & Wallace, Neil, 1991. "Introduction to Dynamic Macroeconomic Theory", Harvard University Press. Chapters 10, 11, 12.

  4. Limited Participation

    Walsh, Section 5.2.2
    Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism", American Economic Review, Vol. 73 (5) pp. 871-80.
    Fernando Alvarez, Andrew Atkeson, and Patrick J. Kehoe, 2002. "Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets", Journal of Political Economy, Vol. 110 (1) pp. 73-112.
    Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism", American Economic Review, Vol. 82 (2) pp. 346-53.
    Moran, Kevin, and Hendry, Scott, 2004. "Limited Participation and Costly Search in Financial Markets", Bank of Canada, mimeo.
    Filippo Occhino, 2004. "Modeling the Response of Money and Interest Rates to Monetary Policy Shocks: A Segmented Markets Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 181-197.
    Williamson, Stephen, 2004. "Limited Participation, Private Money, and Credit in a Spatial Model of Money", Economic Theory, Springer, vol. 24(4), pages 857-875.
    David Andolfatto & Ed Nosal, 2003. "A Theory of Money and Banking", working paper 03-10, Federal Reserve Bank of Cleveland.

  5. Imperfect Competitition and Price Stickiness

    Walsh, Section 5.3.2
    Mark Bils and Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199, April.
    Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Paper 7236.
    Christopher Hanes & John A. James, 2003. "Wage Adjustment under Low Inflation: Evidence from U.S. History," American Economic Review, vol. 93(4), pages 1414-1424, September.
    Lawrence J. Christiano, Martin Eichenbaum, and Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Cho, Jang-Ok & Cooley, Thomas F, 1995. "The Business Cycle with Nominal Contracts", Economic Theory, Vol. 6 (1) pp. 13-33.
    V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?", Econometrica, Vol. 68 (5) pp. 1151-1180.

  6. The Credit Channel of Monetary Policy

    Walsh, Chapter 7
    Bernanke, Ben S & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission", Journal of Economic Perspectives, Vol. 9 (4) pp. 27-48.
    Cooley, Thomas & Quadrini, Vincenzo, 2006. "Monetary Policy and The Financial Decisions of Firms", Economic Theory, Springer, vol. 27(1), pages 243-270.

  7. Perils of VARS

    Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, vol. 89(1), pages 249-271, March.
    V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005. "A critique of structural VARs using business cycle theory," Staff Report 364, Federal Reserve Bank of Minneapolis.
    Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez & Thomas J. Sargent, 2005. "A, B, C's (And D's) For Understanding VARS," PIER Working Paper 05-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2006. "Assessing structural VARs," International Finance Discussion Paper 866, Board of Governors of the Federal Reserve System (U.S.).

  8. Monetary Policy and Time Inconsistency

    Walsh, Chapter 8
    Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans", Journal of Political Economy, Vol. 85 (3) pp. 473-91.
    Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model", Journal of Political Economy, Vol. 91 (4) pp. 589-610.

  9. Taylor Rules

    Taylor, John B., 1993. "Discretion versus Policy Rules in Practice". Carnegie-Rochester Conference Series on Public Policy, Vol. 39 pp. 195-214.
    Athanasios Orphanides, 2000. "Activist stabilization policy and inflation: the Taylor rule in the 1970s," Finance and Economics Discussion Series 2000-13, Board of Governors of the Federal Reserve System (U.S.).
    Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001. "The Perils of Taylor Rules," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 40-69, January.

  10. Search and the Cycle

    Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Marcus Hagedorn & Iourii Manovskii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 853, European Central Bank.

  11. Recent Developments in Search and Matching Theory

  12. More on Economies with Incomplete Markets

    Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
    Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 79-91, January.
    Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
    Stéphane Pallage & Christian Zimmermann, 2001. "Voting on Unemployment Insurance," International Economic Review, vol. 42(4), pages 903-923, November. Wang, Cheng & Williamson, Stephen, 1996. "Unemployment insurance with moral hazard in a dynamic economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44, pages 1-41, June.

  13. Labor Market Trends


    Raquel Fernandez & Alessandra Fogli & Claudia Olivetti, 2002. "Marrying Your Mom: Preference Transmission and Women's Labor and Education Choices," NBER Working Papers 9234, National Bureau of Economic Research, Inc.
    Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 109-133, 01.
    Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis.
    John Knowles, 2005. "Why are Married Men Working So Much?," PIER Working Paper 05-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

  14. Crises

    Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc.
    Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
    Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
    Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
    Mertens, Karel, 2007. "The Role of Expectations in Sudden Stops," Working Papers 07-10, Cornell University, Center for Analytic Economics.
    Barseghyan, Levon & Jaimovich, Nir, 2004. "Undercapitalized Banks, Uncertain Government Policies, and Declines in Total Factor Productivity," Working Papers 04-05, Cornell University, Center for Analytic Economics.
    Robert J. Barro, 2007. "Rare Disasters, Asset Prices, and Welfare Costs," NBER Working Papers 13690, National Bureau of Economic Research, Inc.
    Robert J. Barro & José F. Ursúa, 2009. "Stock-Market Crashes and Depressions," NBER Working Papers 14760, National Bureau of Economic Research, Inc.

Grades...

There will be a mid-term and a final exam. Each will last a full class. I will also sprinkle a certain number of homeworks here and there, both to entice you to work without delay and to allow me to check we are on the right track. You will also be asked to write a short essay on a rather narrow topic and present it in the macro workshop (1 hour). The formula will be:

A word about grades. When I grade, the average is usually around 60%. This allows me to reward better those who do well. Do not be too alarmed when you get a grade that is lower than those you get in other classes. But if it is really low, you should do something about it...

Suggested Essay Topics

The essay should be 8 pages long, plus a bibliography of at least 10 items. At least three must be articles (no more than two from the same journal), at least three must be unpublished working papers. The topic should be distinct from what you have written for Econ 6212. A few suggestions: Other, non-monetary, topics are fine as well as long as they are within the realm of macroeconomics. Examples could be: Topics need to be approved by me. The essay then needs to be presented within a macro workshop, that is an audience broader than this class. The last workshop slots of the semester will be reserved for this class. To contact me: Phone: 6-3272, Email: christian.zimmermann@uconn.edu