Prof Ricardo Reis 32L.1.27 and Dr Kevin Sheedy 32L.1.09

This course is available on the MPA in European Policy-Making, MPA in International Development, MPA in Public Policy and Management, MPA in Public and Economic Policy, MPA in Public and Social Policy, MPA in Social Impact, MSc in Econometrics and Mathematical Economics, MSc in Economics and MSc in Economics (2 Year Programme). This course is available with permission as an outside option to students on other programmes where regulations permit.

Students must have completed Introductory Course in Mathematics and Statistics (EC400).

In exceptional circumstances, students may take this course without EC400 provided they meet the necessary requirements and have received approval from the course conveners (via a face to face meeting), the MSc Economics Programme Director and their own Programme Director. Contact the Department of Economics for more information (econ.msc@lse.ac.uk) regarding entry to this course.

The course aims to develop the student's ability to undertake research in monetary economics by studying a number of current issues both theoretical and applied.

In the MT, we begin by studying money’s role as a medium of exchange and the determination of the price level using money-in-the-utility-function and cash-in-advance models. We then look more carefully at the reasons for holding money by applying search theory. We also study money’s role as a unit of account and the consequences of nominal rigidities such as sticky prices. We analyse the costs of inflation and optimal monetary policy, and we also look at unconventional monetary policies when a central bank is constrained by the interest-rate lower bound. Finally, we study firms’ price-setting behaviour in more detail and its implications for the size of the real effects of monetary policy.

In the LT, we discuss the role of inflation expectations and financial markets in constraining monetary policy, and the design of central banks and their instruments. We study the interaction between fiscal and monetary policy, as well as the specification of the central bank objectives.

20 hours of lectures and 10 hours of seminars in the MT. 20 hours of lectures and 10 hours of seminars in the LT.

Two marked assignments per term.

A reading list will be handed out by the lecturers at the beginning of their sessions.

Exam (25%, duration: 2 hours, reading time: 15 minutes) in the LT week 0.
Exam (25%, duration: 2 hours, reading time: 15 minutes) in the main exam period.
Essay (50%, 6000 words) in the ST.