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ILLINOIS STATE UNIVERSITY
DEPARTMENT OF ECONOMICS
MONETARY ECONOMICS
ECONOMICS 415
SPRING 2001
INSTRUCTOR: Dr. Hassan Mohammadi
OFFICE: STV 423D
PHONE: 438-7777
OFFICE HOURS: T & R 10:00-12:00 AM or by appointment
Textbooks (Required)
1. Monetary Economics, Theory and policy (First Edition), Bennett T. McCallum,
Macmillian, 1989.
(Recommended)
2. International Monetary Economics, (First Edition), Bennett T. McCallum,
Oxford, 1996.
3. The Demand for Money, 4th Edition, David E.W. Laidler, Harper Collins,
1993.
COURSE OBJECTIVES
This course serves two objectives: (1) it investigates the impact of
money and monetary institutions on the economy's performance, as measured
by standard macroeconomic variables such as output, employment, the price
level, interest rate, wages, and the exchange rate, within the context
of alternative macroeconomic models. (2) it investigates the role of money
as an important instrument of stabilization policy.
COURSE IMPLEMENTATION
This course is designed to increase the interaction between the instructor
and students and to improve class participation and discussion. For this
purpose, subject matters are introduced in the form of lecture/student
presentations. In the first part of this course, I will introduce the
theoretical aspects of the subject. In the later part of the semester,
you will conduct class presentations dealing with the empirical literature.
CLASS PRESENTATION
The purpose of class presentations is to introduce you to the vast empirical
literature surrounding monetary economics. For this purpose, I have developed
the following procedure for class presentations: (1) By March 22, each
of you provide me with a list of three articles which deals with an empirical
aspect of a theoretical issue introduced and developed in the class. The
articles should be selected from reputable economic journals and published
since January 1995 (a list of these journals are provided). (2) One of
these articles will be selected for your class presentation. (3) Your
next task is to provide a 2-to-3 page summary of the article. The summary
must include (a) author's objective, (b) theoretical framework, (c) empirical
specification of the model, (d) data, (e) empirical results, and (f) a
summary of major findings.
COURSE GRADE
The course grade is based on two term examinations, a final examination,
and class presentation and participation. Each exam will have 100 points.
Class presentation will also carry 100 points. Thus the total maximum
grade will be 400 points.
GRADE DISTRIBUTION
Scale Grade
100%-90%: A
89%-80%: B
79%-70%: C
69%-60%: D
Below 60%: F
COURSE OUTLINE
1. Theories of Money Demand
a. Fisher's Transactions demand
b. Pigou's Asset demand
c. Keynesian liquidity preference (Branson)
d. Tobin's liquidity preference (Branson)
e. Baumol-Tobin's transactions demand (Branson)
2. Empirical Specifications and Tests of Money Demand (Laidler)
3. Money Supply (McCallum I)
a. Basic Relationships
b. Monetary Control
c. Alternative Control procedures
4. Money in Static Models (McCallum I)
5. Steady Inflation (McCallum I)
6. Inflationary Dynamics under Adaptive and Rational Expectations (McCallum
I)
7. Inflation and Unemployment: Alternative Theories
a. Original Phillips Curve
b. Augmented Phillips Curve
c. Lucas Monetary Misperception
8. Exchange Rate Concepts (McCallum II)
Interest rate parity
Real exchange rate
Purchasing Power Parity (PPP)
9. Open Economy Monetary Theory with flexible exchange rate(McCallum II)
AD / AS model
10. Long-run and short-run analysis
Stationary analysis
Steady State Analysis
Short-run dynamics
11. Analysis with fixed exchange rate
Loss of monetary authority
Impact and stationary state analysis
Steady state analysis
The J-curve effect
12. Expectations and Dynamic Analysis
Rational Expectations
Analysis with rational Expectations
Solutions and properties
Journal List
1. American Economic Review
2. Economic Journal
3. Journal of Political Economy
4. Quarterly Journal of Economics
5. Review of Economics and Statistics
6. Brookings papers on Economic Activity
7. Canadian Journal of Economics
8. Economic Inquiry
9. International Economic Review
10. Journal of Finance
11. Journal of International Economics
12. Journal of Monetary Economics
13. Journal of Money, Credit, and banking
14. Oxford Economic papers
15. Southern Economic Journal
16. Economia Internazionale
17. European Economic Review
18. Oxford Bulletin of Econ. and Statistics
19. Journal of Macroeconomics
20. Journal of Post Keynesian Economics
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