All material copyright 2004 Henrik Jensen (except where noted).
All rights reserved.
Material may only be used if due credit is given.


Monetary Economics:

Macro Aspects


Spring 2004

Henrik Jensen
Institute of Economics
University of Copenhagen


Welcome to the web page of the course "Monetary Economics: Macro Aspects," offered at the Masters Programme at Institute of Economics, University of Copenhagen.

On this page you will find a host of relevant information about the course, and the page will be regularly updated. You should therefore visit this page at least twice a week to stay up to date (so, bookmark it right away). For now, you can go to the following places:

Brief Course Description Breaking News Logistics and Contact Information
Downloadable Papers Lecture Slides, Notes, etc. Recap Information About the Course
Various Plans (tentative and
eventually final)
F.A.Q. Section Links

Brief Course Description

The aim of the course is to offer an understanding of several aspects of money and the macro economy, thereby providing insights into how and why monetary phenomena and policy affect important macroeconomic aggregates such as output, consumption, inflation and unemployment. Moreover, focus will be on the characteristics of “good” monetary policymaking in the sense of assessing the advantages and disadvantages of various monetary policy strategies. To secure a firm foundation for the aspects covered, emphasis will be on rigorously formulated theoretical models. Economic intuition, however, is just as important as mathematical formalism. Although the curriculum will be mainly theoretical, the empirical relevance of the material will not be underplayed. Particular aspects to be covered include: money’s role in flexible-price general equilibrium models; money’s role with incomplete nominal adjustment; credibility problems in monetary policy; the importance of institutional frameworks for monetary policy; inflation targeting; transparency of monetary policy conduct; international monetary policy coordination.

The curriculum will consist of a large part of Carl. E. Walsh (2003): "Monetary Theory and Policy. Second Edition", The MIT Press (note, it must be the second edition, the first edition from 1998 won't do), and a number of articles.

Recommended qualifications: As some of the material requires a thorough understanding of macroeconomic general equilibrium models, it is a prerequisite to master economic theory at a level corresponding to David Romer (2002): “Advanced Macroeconomics.” One should therefore be familiar with basic intertemporal optimization, and analyses of static and dynamic systems with rational expectations. Most importantly, one should not be afraid of mathematical rigor. At the end of the day it merely serves to create conclusions and policy implications that are internally consistent. Not a bad starting point for organizing your thoughts.

Assessment: Written 4-hour exam; closed book, on June 18, 2004.

The teaching language is English.

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Breaking News

The exam, June 18, 2004 (pdf file, 89 Kb)

Answers an comments to the exam, June 18, 2004 (pdf file, 107 kb)

The grades are now posted on the "grade board" in Studistraede. 23 out of 28 passed the exam, and the average result was 8,0. To see the distribution of grades, click here (pdf file, 10 Kb).

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Logistics and Contact Information

Lectures were on

    Mondays, 12-14
    Wednesdays, 12-14,

both days in HO 5 (main building on Vor Frue Plads).

Lecturer was Henrik Jensen. Contact info:

Phone: 35 32 30 43

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Downloadable papers

Jensen, H., 2003, Explaining an Inflation Bias without Using the Word "Surprise", working paper, University of Copenhagen (pdf file, 97 Kb)

Link to: Woodford, M., 1999, Commentary: How Should Monetary Policy Be Conducted in an Era of Price Stability?, in New Challenges for Monetary Policy, A symposium sponsored by the federal Reserve Bank of Kansas City (pdf file, 186 Kb).

Link to: Walsh, C. E., 2001, Teaching Inflation Targeting: An Analysis for Intermediate Macro, mimeo, University of California, Santa Cruz (pdf file, 81 Kb).

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Lecture Slides, Notes, etc.

Lecture slides

Introductory lecture, February 2 (pdf file, 72 Kb)

Slides, February 4 on empirics (pdf file, 126 Kb)

Slides, February 9 on the Tobin effect and MIU model (pdf file, 142 Kb)

Slides, February 11 on welfare effects of inflation and stochastic MIU model (pdf file, 148 Kb)

Slides, February 18 on shopping time models and CIA models (under certainty) (pdf file, 125 Kb)

Slides, February 23 on CIA model (stochastic) and real resource costs of transactions (pdf file, 114 Kb)

Slides, February 25 on public budget accounting and seigniorage (pdf file, 140 Kb)

Slides, March 1 on optimal taxation and the Friedman rule (pdf file, 124 Kb)

Slides, March 3 on incomplete nominal adjustment and imperfect information (pdf file, 125 Kb)

Slides, March 8 on incomplete nominal adjustment and sticky prices and wages (pdf file, 122 Kb)

Slides, March 17 on credibility problems (pdf file, 122 Kb)

Slides, March 22 on credibility problems and independent central banks (pdf file, 104 Kb)

Slides, March 24 on operating procedures and intermediate targets (pdf file, 110 Kb)

Slides, March 29 on interest rate policies (I) (pdf file, 104 Kb)

Slides, March 31 on interest rate policies (II) (pdf file, 114 Kb)

Slides, April 19 on the New Keynesian model of monetary policy (I) (pdf file, 130 Kb) (also used, April 21)

Slides, April 26 on the New Keynesian model of monetary policy (II) (pdf file, 110 Kb)

Slides, May 3 on delegation and credibility problems in New Keynesian models (pdf file, 121 Kb)

Slides, May 5 on Open-economy aspects (I): The Obstfeld-Rogoff model under flexible prices (pdf file, 128 Kb)

Slides, May 10 on Open-economy aspects (II): The O-R model with sticky prices and policy coordination (pdf file, 125 Kb)

Slides, May 12 on Inflation targeting (I) (pdf file, 103 Kb). Look at this New Zealand Parliament Background Note with recent information on which countries have adopted Inflation Targeting and "how" (pdf file, 921 Kb).

Slides, May 19 on Inflation targeting (II) (pdf file, 105 Kb).

Slides, May 24 on Transparency of monetary policy (pdf file, 145 Kb).

List of typos in lecture slides and recaps

The list as of April 21 (pdf file, 55 Kb)


Technical notes to Walsh (2003), Section 5.3.2 (pdf file, 97 Kb).

Solution to Exercise, March 10 (pdf file, 65 Kb)

Note on equivalence between (9.11) and (9.10) in Walsh (2003) (pdf file, 89 Kb)

Note on deriving (9.21) in Walsh (2003) (pdf file, 83 Kb)

Notes on deriving relative demands and the price index in the Obstfeld-Rogoff model (pdf file, 88 Kb)

Notes on solving the Svensson (1997, EER) model (pdf file, 88 Kb)


The exam, June 20, 2003 (pdf file, 77 Kb)

Answers to the June 20, 2003, exam (pdf file, 135 Kb)

Answer to the question of March 22 lectures (pdf file, 70 Kb)


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Recap Information

Here, I will post notes where the key concepts covered in recent lectures are briefly listed. These notes will, along with lecture slides, hopefully provide valuable information about what is essential in the curriculum, and what is less essential (at least in my opinion, which is not entirely irrelevant information to you.....). Also, in various circumstances, some discussion about what is relevant for the exam (in terms of exemplifying a potential exam question) will be provided.

Recap Information 1: Stylized facts, empirical problems and issues (pdf file, 75 Kb). This note contains general information on how exam questions will be designed, with emphasis on the degree of importance of math (this information will not be repeated in the subsequent Recaps). An example of an exam question is also included.

Recap Information 2: The Tobin effect and micro-founded, flexible-price models with money in the utility function (pdf file, 93 Kb). An example of a technical exam question is included.

Recap Information 3: Shopping-time models and Cash-in-Advance models (pdf file, 40 Kb).

Recap Information 4: Inflation as a tax (pdf file, 40 Kb).

Recap Information 5: Money's role with incomplete nominal adjustment (pdf file, 41 Kb).

Recap Information 6: Rules versus discretion: Credibility problems (I) (pdf file, 70 Kb). An example of an exam question is included.

Recap Information 7: Operating procedures, interest rates and monetary policy (pdf file, 49 Kb).

Recap Information 8: Monetary policy conduct in "New Keynesian" settings: Credibility problems (II) (pdf file, 51 Kb).

Recap Information 9: Open-economy aspects and monetary policy coordination (pdf file, 56 Kb).

Recap Information 10: Inflation targeting (pdf file, 50 Kb).

Recap Information 11: Transparency of monetary policymaking (pdf file, 72 Kb). A sample exam question is included. This is a question that is slightly "outside" the curriculum, but with your skills, together with what you have learned during the course, it should not be too difficult for you to answer.

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Various Plans (tentative and eventually final)

Preliminary course plan and reading list, January 29 (pdf file, 24 Kb).

Final curriculum, May 26 (pdf file, 20 Kb) (Note that Jensen (2003) is the "Explaining..." paper downloadable above)

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F.A.Q. Section

In this section, I will post questions and answers that arise during the course. A fruitful way of communication if you have problems with some of the curriculum, is to e-mail me the problem/question. First, one often solves the issue by oneself by formulating it in writing. Secondly, by writing me an e-mail question, I can provide a much clearer answer than is usually the case in verbal exchange. Finally, when everything is written down, one can make the issue available to all students. This is valuable, as it is quite likely that fellow students have had similar problems with the issue. Therefore, feel free to e-mail questions. I will then make the question and answer publicly available here for everyone's benefit. Of course, your name will not be mentioned (unless you demand so); hence, there is nothing to lose by posing a "silly question" (and by the way: there is no such thing as a "silly question").

May 3: Finding the solution of the simple New Keynesian model when k>0 (pdf file, 61 Kb)
May 10: On linearizations in Chapter 6 in Walsh (2003) (pdf file, 69 Kb)
June 4: On the sample question in Recap 2 (pdf file, 49 Kb)
June 4: On the shopping-time model, p. 5-6 in slides of Feb. 18 (pdf file, 55 Kb)
June 15: On the examples of exam questions in the recaps 6 and 11 (pdf file, 70 Kb)

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Here is a link to last year's course homepage (wear sunglasses!).
Here is a link to my own list of (some) of the economists whose material we will be reading.
Here is the link to Lars Svensson's more comprehensive list of economists.

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Created January 29, 2004.
Last update: August 2, 2004.

Send suggestions for improvements to me.
To Henrik Jensen's home page.
To Institute of Economics' home page.