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Foundations of Monetary Economics

Course description
This course is intended for graduate students interested in monetary economics and, more generally, macroeconomic models in which trade is decentralized.

The main goals are:

  1. To study some techniques used in theoretical modelingof money;
  2. To study existence of equilibrium and to characterize equilibrium;
  3. To learn experimental methods helpful to study monetary economies in the laboratory.

The focus is on the modeling aspect, not the technical details. At the end of the course students will possess an expanded set of tools, which will be helpful to read critically the literature and to engage independent research. The student will be able to critically assess (i) the main modeling techniques and theoretical insights in the monetary literature and (ii) how new behavioral insights can be gathered from designing experiments and analyzing laboratory data.


  1. The basic problem in modelingmoney in a standard neoclassical macro model.
  2. How to build macroeconomic models in which trade processes are made explicit.
  3. The basic problem in supporting trade without formal institutions.
  4. The theoretical advantage of adopting a monetary system in a society.
  5. How to design a laboratory monetary economy.
  6. Behavioral properties of monetary systems.

Teaching Method
The lectures are divided into two segments:  Theory and Experiments. The theory part will develop a theoretical platform for monetary models and decentralized trading models. This part will focus on models of strategic interaction and Nash equilibrium; these models have been adopted to study a variety of topics including labor, IO, money and finance. This overlap opens the door to exploring related applications, such as cooperation, collusion, trust, equilibrium selection, coordination. The experimental part will focus on discussing laboratory explorations of these class of models. Some of the lectures will be used for class presentations.

Technically, we will apply dynamic programming techniques and techniques from the theory of repeated games to study equilibrium outcomes in environments characterized by informational asymmetries, lack of commitment and/or formal enforcement institutions. The center of attention will be a class of models known as matching models. The course will provide the students with the necessary tools, technical and conceptual, to understand this area of research.

Assessment methods
The grade will be based on: (1) a 30-minutes class presentation of one paper to be done in pairs of students and (2) an individual paper that proposes an extension or an application of the paper surveyed. There are equal weights on these two components. Presentation slides must be submitted before the presentation. You will be graded both on the clarity and the content of the presentation and of your individual paper. Presentation papers will be assigned to each of you. There is no required text so you will have to take notes about what we will cover in class (I will also give you some notes, when feasible).

Any student who has a disability that may require some modification of seating, testing or other class requirements should see me after class or during office hours. Working with the Dean of Students, I will ensure that appropriate arrangements are made.