10645-01: Monetary Theory

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Liquidity crises, once again, are causing great concern. In this lecture, we will be asking what function liquidity fulfills in a modern economy. We will be looking at the kind of frictions that make money essential and discuss the advantages of having fiat money in contrast to other or none media of exchange. On this basis, we will discuss various micro- and macroeconomic aspects of monetary theory and monetary policy.



Aleksander Berentsen   [ contact | teaching | cv ]


Oliver Sigrist [contact]


Wednesday 08.15-12.00



On May 15th the lecture takes place in room S14, Economics Department

Start date

February 27, 2013



  • The schedule for the presentations is online. They take place on June 11 and 13. Schedule
  • The written exam takes place on May 03, 11:00 - 12:00 (sine tempore), room S13 WWZ. Bring along a calculator. You may use a dictionary.
  • Remark (23.04.12): In the exercise set on search externalities, there was a mistake in task i). Instead of differentiating n(1-n), by mistake n/(1-n) was differentiated. The updated version can be downloaded below.
  • Remark (25.04.12): Below, you can find an updated version of the exercise set on credit economies. In addition to minor changes, Exercise 2a) and Figure 2 in the solutions have been changed.



Introduction & The Basic Environment (Chapter 0 & Chapter 1)


Pure Credit Economies (Chapter 2)


10:15 - 13:00: Money in Equilibrium (Chapter 4: extended version)

13:15 - 14:00: Exercise set 1 (Credit Economies)   (Credit Economies Solutions) [update 25.04.12]


10:15 - 11:00: Exercise set 2 (Money in Equilibrium) (solutions to exercise set 2)

11:15 - 14:00: Money in Equilibrium


10:15 - 11:00: Exercise set 2 (Money in Equilibrium) (solutions to exercise set 2)

11:15 - 14:00: Money in Equilibrium


Easter break


Monetary Policy, the Friedman rule, and the cost of inflation (Chapter 6)


10:15 - 11:45: Monetary Policy, the Friedman rule, and the cost of inflation, distribution of the papers for the presentations

12:30 - 14:00: Exercise set 3 (Search Externalities, Hot-Potato Effect), solutions to Exercise set 3 (Search Externalities [update 23.04.12],  Hot-Potato Effect), additional reading.



  • Exercise set 3 (Hot-Potato Effect)
  • Discussion of questions regarding all exercises. Ideally, you contact one of the teaching assistants by e-mail with problems you want to discuss beforehand.


Written exam (one hour) from 11:00-12:00, room S13 WWZ.

Written exam and presentation count each with 50% for the final grade.


Presentations of individual papers. Schedule

Additional material:


The course consists of two parts: a lecture and the study of individual papers. The lecture is based on the book "Money, Payments, and Liquidity" by Ed Nosal from the Federal Reserve Bank of Chicago and Guillaume Rocheteau from the University of California-Irving, MIT-Press.

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

Letzte Änderung: 14.01.2013