28807-01: Money, Banking and Payment Systems

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By Chris Waller (2002): Economists have long been fascinated by the role of money in market economies. Furthermore, the interaction of money and banking is so fundamental to the economics profession that an entire course on the subject is taught to undergraduates. Yet in most of these courses, there is no use of monetary or macroeconomic models in which money is essential.

In order to understand why money is essential for trading, one needs to examine trade and money from first principles. Shortcuts for forcing money to have value in an economic model (cash-in-advance constraints, money in the utility function or leisure saving technology) lead to shallow theories of money and are inadequate for understanding why money is essential for trade. Instead, these assumptions force a particular transaction pattern or trading technology on economic agents. Modeling money as a simple quantity equation or Keynesian money demand curve formulation is also unsatisfactory. If there is no clear idea of why money is essential, then there is no real understanding of the consequences or welfare effects of policy experiments such as increasing the money growth rate. Once there is an understanding of why money matters, intelligent policy experiments can then be conducted.


Midterm exam:

  • Counts as 30 % of the final grade
  • Takes place on April 3rd 10.15 - 11.45, Pro Iure Auditorium EG.44 (The exam will last 90 minutes, not 60 as has previously been announced)
  • Questions will be similar in style to those of the Homeworks and Exercises
  • Students who are absent without a medical certificate will get zero points.

  • Midterm: Results



  • There will be four homeworks that have to be handed in
  • Each of these counts as 5 % of the final grade
  • The four deadlines are: 12.3.; 19.3.; 23.4.; 14.5.
  • Homeworks handed in after midnight on the indicated day won't be accepted
  • Homeworks have to be handed in as a PDF file
  • Students have to work in groups of three or four persons
  • Students who can't find a group should contact the assistants by the 8th of March at the latest

  • Homework #1: Results

  • Homework #2: Results

  • Homework #3: Results

  • Homework #4: Results





Aleksander Berentsen   [ contact | teaching | cv ]


Lukas Altermatt [contact]

Lukas Eckert [contact]


Tuesday, 08.15-12.00


Juristische Fakultät, Pro Iure Auditorium EG.44


February 21, 2012


20% Homework

30% Midterm exam

50% Final exam







Intro & A Simple Model of Money

(Chapter 1)

(Exercise1, Solution1)


No lecture



(Chapter 3)



International Monetary Systems

(Chapter 4)



Price Surprises & Capital

(Chapter 5)

(Exercise5, Solution5)

(Chapter 6)


Liquidity and Financial Intermediation

(Chapter 7)


Midterm exam


Central Banking

(Chapter 8)

(Exercise 7/8)

(Solution 7/8)


Money Stock Fluctuations & Fully Backed Central Bank Money

(Chapter 9)

(Chapter 10)



The Payments System

(Chapter 11)

(Exercise 10/11)

(Solution 10/11)


No lecture

Please read Chapter 13



Bank Risk & Deficits and the National Debt

(Chapter 12)

(Chapter 14)



Savings and Investment & The Effect of the National Debt

(Chapter 15)

(Chapter 16)

(Exercise 14)

(Solution 14)


The Temptation of Inflation

(Chapter 17)





Bruce Champ, Scott Freeman and Joseph Haslag (2011): Modeling Monetary Economies, Cambridge University Press.

The book is composed of three parts. In Part I of the book, CF 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, CF 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.

Additional material:

[To be announced.]

Letzte Änderung: 21.05.2012