ECO 367R • Monetary Economics
Most of this course is about monetary theory, not monetary practice. Students will learn that much of what they know about money derives from how a rational agent attempts to maximize utility under budget constraints. This leads, for example, to a deeper understanding of the meaning of money as a store of value and as a medium of exchange. Specifically, the course is a study how an economy that uses fiat money achieves a higher level of economic welfare than one that does not. Some questions to be addressed are the following: How efficient is the raising of government revenues from printing money (called seigniorage) in comparison to taxation? What is the optimum quantity of money in a growing economy? How is the demand for money affected by real capital? What is the impact of liquidity on financial inter-mediation? What are some important implications of bank risk? To answer these questions and others we employ the overlapping generations (OLG) model of the monetary economy. This model permits us to examine monetary dynamics in a very simple way. Learning and applying the OLG model will consume about one-half of the course.