ec3332lec120112012semI

ec3332lec120112012semI - Money and Banking I EC3332 Sem I,...

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Unformatted text preview: Money and Banking I EC3332 Sem I, 2011-2012 Lecture 1  Introduction  Chapter 1: A simple model of money. Instructor  A/P Aditya Goenka  Office: AS2 06-04  Email: ecsadity@nus.edu.sg  Lectures: Fridays 10-12.  Room: LTB 9. Textbook  “Modeling Monetary Economies”  Bruce Champ, Scott Freeman & Joseph Haslag.  3 rd edition, Cambridge University Press Assessment  2 Assignments (10% each);  2 hour closed book mid-term (30%);  2 hour closed book final-examination (50%). Assessed Homework  There will be one homework each before and after the mid-term examination.  To be submitted in the General Office Mid Term & Final Exams  The mid-term will cover everything done till the end of week 6.  Time: Friday 30 September, 10-12.  Final Exam: EC3332 Exam: Saturday, 19- Nov-2011 (Morning) Introduction Objective  Study theory of money and banking.  Emphasis on developing a framework to think about these issues.  Institutions may change, so having a framework to think about policy issues is crucial. Monetary policy  Choice of the money supply.  Implemented by monetary authority (Fed/ MAS/BoE,ECB…).  At which rate should money supply grow?  In practice, setting short-term interest rates (federal funds rate). Why do we care?  Monetary (and fiscal policies) matter for the macroeconomic performance of a country.  Potentially affect output, consumption, growth, inflation…  Society’s welfare.  What can policy achieve?  What should policy be? The goals of economic policy  The policymaker maximizes a social welfare function.  If individuals are identical: social welfare = welfare of each individual.  If individuals are heterogeneous : More complicated – need to make interpersonal comparisons How to think about macro policies?  Before 70’s: Keynesian macroeconomics.  Aggregate relationships: Individual behaviors are not explicitly described.  Model is static.  Naïve expectations.  Prices are rigid: Markets do not clear. The IS-LM model  Monetary policy shifts LM.  Fiscal policy shifts IS.  Very tractable framework.  But not satisfactory:  Individual behavior is not explicit: Agents’ behaviors can react to policy (Robert Lucas).  The model is static: In practice, the consumption/saving choice is dynamic.  Expectations not modeled: Agents must anticipate future economic variables such as prices.  Welfare measure not explicit Ingredients of a “good” model.  Agents’ decisions are ‘microfounded’: maximization of an objective function subject to constraints.  Consumers maximize utility subject to budget constraint.  Firms maximize profits subject to technology.  The model is inter-temporal, i.e., has a time dimension:  Agents make inter-temporal choices: how much to consume today versus investment for tomorrow....
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This note was uploaded on 01/30/2012 for the course ECON 121 taught by Professor Abi during the Spring '11 term at Abu Dhabi University.

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ec3332lec120112012semI - Money and Banking I EC3332 Sem I,...

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