Monetary Theory (10645-01, Master, 6 KP, block week)



LecturerDr. Florian Madison [contact]
DatesLecture: March 16 - 21, 2020 (see details below)
Exam: TBA
Seminar: May 29 - 30, 2020
GradingWritten Exam and Seminar Presentation
Course DirectoryLink


In this course, we study the role of liquidity in modern economies through the lens of New Monetarist Economists. Located at the intersection between theoretical microeconomics and macroeconomics, the main objective is to understand exchange under frictions such as spatial separation, limited commitment, anonymity, and imperfect record-keeping, and to analyze how institutions including money, assets, credit, and financial intermediaries allow to facilitate this process. By rigorously incorporating microfoundations, the developed frameworks allow to study individually rational behavior, and to show how a medium of exchange can be welfare improving by enabling trades that, given the aforementioned frictions, would not be feasible otherwise. Once established, we will discuss various policy recommendations.


DateRoomTime/ Topic


S16 HG.3908:15-10:00: Introduction: Liquidity in Macroeconomics
10:00-12:00: Baseline Environment
14:00-16:00: Pure Credit Economies I


S16 HG.3910:15-12:00: Pure Credit Economies II
14:00-18:00: Exercises I


S16 HG.3910:15-12:00: Shi-Trejos-Wright: A Second Generation Monetary Model
14:00-18:00: Exercises II


S13 HG.3512:15-20:00: Lagos and Wright: A Third Generation Monetary Model


S3 HG.3708:15-11:00: Exercises III 
11:00-14:00: Monetary Policy, the Friedman Rule, and the Cost of Inflation I
21.03.S14 HG.3210:15-12:00: Monetary Policy, the Friedman Rule, and the Cost of Inflation II
12:15-14:00: Exercises IV
TBATBATBA: Written Exam
29.05S3 HG.37Presentations of individual papers (participation is mandatory)
30.05S14 HG.32Presentations of individual papers (participation is mandatory)

 *preliminary and subject to changes.


In the seminar, students will present a paper at the research frontier of monetary theory. The final grade is a weighted average of exam and presentation. Participation is mandatory for the entire seminar.


The lecture is based on the book "Money, Payments, and Liquidity" (2nd ed, MIT Press) by Guillaume Rocheteau from the University of California-Irvine and Ed Nosal from the Federal Reserve Bank of Chicago.

Stephen Williamson and Randall Wright discuss the foundations of New Monetarist Economics in two articles worth reading:

An impeccable overview over the whole field was recently published by Ricardo Lagos, Guillaume Rocheteau, and Randall Wright in the Journal of Economic Literature:

 The Lagos-Wright Model:

The BCW Model:

  • Berentsen, A., G. Camera, and C. Waller. "Money, Credit and Banking." Journal of Economic Theory, Vol. 135, No. 1, Pages 171-195.

Individual papers: to be announced.

Additional material: