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Monetary Economics - ECO00010H

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  • Department: Economics and Related Studies
  • Module co-ordinator: Prof. Subir Chattopadhyay
  • Credit value: 20 credits
  • Credit level: H
  • Academic year of delivery: 2021-22
    • See module specification for other years: 2022-23

Module summary

This module introduces final year students to a broad set of topics in modern monetary theory.  Macroeconomics I and II introduced models of money, both money demand and money supply, and how they can be put together.  You have also seen how a central bank operates and how monetary policy affects the macroeconomy.  In this module we take a different approach to some of those issues.

It is taught across the autumn and spring terms.

Related modules

Co-requisite modules

  • None

Prohibited combinations

  • None

Additional information

The mathematics content of the module is quite high as is the level of abstract thought required.  At a minimum students should be open to a theoretical/mathematical mode of thought and should be comfortable with the optimisation techniques (Lagrangians) introduced in mathematics modules.

Module will run

Occurrence Teaching period
A Autumn Term 2021-22 to Spring Term 2021-22

Module aims

Macroeconomics I and II introduced models of money, both money demand and money supply, and showed how a central bank operates and how monetary policy affects the economy.

Monetary Economics takes a different approach to some of those issues. It builds on models of individual behaviour to develop a model that is well understood - the perfectly competitive model - where there are no frictions, resources are allocated efficiently and there is no role for money. It then identifies the key elements of that model and specifies the extent to which it can be generalised.

With that in hand, it proceeds to set up models that have certain imperfections and thereby generate a role for money and monetary policy. Specifically, it considers the importance of expectations, liquidity constraints, missing markets, uncertainty, imperfect information and enforceability. It also studies certain aspects of central banking and policy. All the models developed have foundations in microeconomics completed with either a general equilibrium focus or a game theoretic one.

Module learning outcomes

On completing the module a student will be able to understand:

  • When there is a role for money
  • Some aspects of monetary policy that are related to the optimum quantity of money
  • Some aspects of liquidity

Module content

Currently there are seventeen hour long lectures.

You will have access to a set of notes that are more comprehensive than the lectures.

Homework assignments will be solved in practical classes and attendance will be taken.

You do not need to submit solutions to the assignments but I strongly urge you to try to solve the problems before the corresponding practical class. You should be prepared to participate in discussions and you might be asked to solve problems on the blackboard.

In week 8 you will be required to submit one piece of written work—an exercise from the homework assignments or a past paper—which will be marked and returned. There will also be one small group seminar meeting in week 8. This will give you an opportunity to ask questions and discuss the material covered in lectures.

It is essential that you attend lectures, make an honest effort to solve the homework exercises, and attend the practical classes and the seminar.


Task Length % of module mark
Online Exam - 24 hrs (Centrally scheduled)
Monetary Economics
8 hours 100

Special assessment rules



Task Length % of module mark
Online Exam - 24 hrs (Centrally scheduled)
Monetary Economics
8 hours 100

Module feedback

This is provided in four different forms:

(i) Complete solutions to all homework exercises will be posted on the VLE page after the material has been presented in the practical classes,

(ii) you are encouraged to make use of office hours to make sure that you familiarize yourself with the material as it is being taught,

(iii) one piece of work will have to be submitted in each term and will be marked and returned to you,  

(iv) the seminar meeting in week 8 of each term provides you with an opportunity to interact with me to raise questions and clarify doubts that you have.

Indicative reading

Lecture Notes and some chapters or sections from:

  • Farmer, R. (F): The macroeconomics of self-fulfilling prophecies, MIT, 1993.
  • Malinvaud, E. (M): Lectures on microeconomic theory, North Holland, 1972.
  • Champ, B. & Freeman, S. (2001). Modelling Monetary Economies. Cambridge.
  • Diamond, D., and Dybvig, P.: Bank Runs, Deposit Insurance and Liquidity.  Journal of Political Economy, 1983, 91, 401-419.
  • Freixas, X. & Rochet, J C. (1997). Microeconomics of Banking. MIT Press.

The information on this page is indicative of the module that is currently on offer. The University is constantly exploring ways to enhance and improve its degree programmes and therefore reserves the right to make variations to the content and method of delivery of modules, and to discontinue modules, if such action is reasonably considered to be necessary by the University. Where appropriate, the University will notify and consult with affected students in advance about any changes that are required in line with the University's policy on the Approval of Modifications to Existing Taught Programmes of Study.