Following the onset of the global financial crisis, liquidity shortages caused great concern. Meanwhile, excess liquidity has become a challenge. In this lecture, we study the role of liquidity in modern economies through the lens of New Monetarist economics. Located at the intersection of 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 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.

The course is separated in two parts: lecture and seminar. The first part is a traditional lecture, introducing you to the workhorse models in microfounded monetary economics. An overview of the topics covered in the lecture part is provided below:

1. Introduction: Liquidity in Macroeconomics
2. Pure Credit Economies
3. Lagos and Wright: A Third Generation Monetary Search Model
4. Monetary Policy, the Friedman Rule, and the Cost of Inflation

In the second part, you will apply your acquired knowledge to study and present papers on the research frontier of New Monetarist economics. After successful completion of this course, you will be able to understand and interpret current research in microfounded monetary economics.

 *preliminary and subject to changes.

The final course grade will be a weighted average of a final exam and a seminar presentation. The dates are provided below:

• Final Exam: May 11th, 2022 -- tba
• Seminars: May 25th and June 1st, 2022 -- 08:30am-12:00am

Seminar Presentations: Towards the middle of the semester you will form teams. Each team will choose an interesting topic/ research paper of its own and hold a formal presentation. The presentation will give you a chance to integrate the expertise acquired during the semester and exhibit it in its best light. Further, it gives you an opportunity to sharpen your presentation skills and face a professional audience. Participation is mandatory for the entire seminar. Presentation guidelines and a LaTeX template can be found below:

• Presentation guidelines
• LaTeX Template

The main resources for this course are the lecture slides, problem sets, and additional readings periodically uploaded to ADAM. I suggest my slides as the main study element, so please make sure to download them before class. Further, I recommend the textbook "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 Atlanta. The slides are based on the book.

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

• New Monetarist Economics: Methods (2010)
• New Monetarist Economics: Models (2011)

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

• Liquidity: A New Monetarist Perspective (2017)

Additional material:

• Introduction to Dynamic Programming (Envelope Theorem).