Economists have long been fascinated by the roles and interactions of money, banking and payment systems in market economies. In order to understand why money is essential for trading and why financial intermediation can be welfare improving, one needs to examine trade and money from first principles. If there is no clear idea of why money and banking are essential, then there is no real understanding of the consequences or welfare effects of monetary policy experiments, such as Quantitative Easing (QE) or negative interest rates (NIR), or the need for banking regulation.

The lecture is based on the book Champ B., Freeman S., and J. Haslag, 'Modeling Monetary Economies', Cambridge University Press. The book is composed of three parts. In Part I of the book, Champ et al. construct environments in which money serves as a medium of exchange and a store of value. Various issues such as inflation, barter, commodity money and price surprises are studied within this framework. In Part II, the authors extend the model of the first section to see how financial intermediation affects the trading environment and the role of money in the economy. In this part of the book, Champ et al. study the conflict between money and capital as stores of value, the liquidity structure of capital, clearing house functions of central banks and bank runs. Finally, in Part III, they introduce fiscal policy to study how deficits, the national debt, open market operations and seigniorage affect the functioning of the economy.

In some of the lectures, students will be shown how to program the model presented in the book in Python, and asked to program some extensions of the model themselves. No previous knowledge in programming is required. An introduction to programming in Python will be offered as part of the course.

The assignment will take the form of a Python-programming homework, which needs to be completed in groups of three students within 48 hours. The timespan is May 23-24, 2017 (midnight-midnight). The estimated time to complete the homework is 4 hours.

• Format: Python-programming homework (in groups of three students)
• Date: May 23-24, 2017 (48hours - midnight to midnight)
• Est. completion time: 4 hours

The lecture will be based on the following textbook:

• Champ, Bruce, Freeman, Scott, and Joseph Haslag (2016). Modeling Monetary Economies. 4th ed. New York: Cambridge University Press.

The following website provides useful resources for programming in Python:

• Quantitative Economics by Thomas Sargent and John Stachurski

Randall Wright: https://bus.wisc.edu/faculty/randall-wright

NBER homepage: http://www.nber.org/ 

JSTOR homepage: http://www.jstor.org/