Econ 406 W 2023 Winter 2023
ECON 406

Additional information about the course:

The course will cover various topics on money, monetary economics and monetary policy. Topics include: what is money? What forms does money take? The role of money in macro models, price rigidities, optimal monetary policy, liquidity traps, zero lower bound, rules versus discretion, what a central bank should target, how to identify a monetary shock in a VAR and the monetary transmission mechanism?

I will post the lecture notes and readings in advance on UW LEARN (https://learn.uwaterloo.ca). 

I: Sources and uses of data 

• Where and how to download the data we will use for this course
• Introduction to Matlab

II: What is money? 

• Why is money important?
• Barter economy versus a monetary economy
• Correlation: money, output and prices in the short-and-long-run
• Future of money: central bank digital currencies and cryptocurrencies

Readings: 

• Money and Payments: The U.S. Dollar in the Age of Digital Transformation. https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
• The Future of the Monetary System: BIS Annual Economic Report, 2022. https://www.bis.org/publ/arpdf/ar2022e3.htm
• Cash, COVID-19 and the Prospects for a Digital Canadian Dollar, Bank of Canada, Staff Discussion Paper 2022-17. https://www.bankofcanada.ca/2022/08/staff-discussion-paper-2022-17/
• Gabriel Chodorow-Reich, Gita Gopinath, Prachi Mishra and Abhinav Narayanan, 2019. “Cash and the Economy: Evidence from India’s Demonetization.” NBER Working Paper No 25370
• Walsh, Ch 1, sections 1.2, 1.3.4, 1.3.6, 1.4, 1.4.1 and 1.4.2

III: General Equilibrium Models with money and Optimal Inflation

• Monetary neutrality and superneutrality
• What is the optimal rate of inflation?

Readings:

• CW, Chapter 2, sections 2.1, 2.2 (and sub-sections), 2.5 (and sub-sections)
• Robert Lucas on Money Neutrality: A 50th Anniversary. https://conversableeconomist.com/2022/05/11/robert-e-lucas-on-monetary-neutrality-a-50th-anniversary/
• Claudio Borio, 2015. “Revisiting Three Intellectual Pillars of Monetary Policy Received Wisdom”, the whole paper is an interesting read, but if you have limited time, read parts II and III. https://www.bis.org/speeches/sp151112.pdf

IV: New Keynesian Models and Optimal Monetary Policy 

• The New Keynesian model
• Optimal policy under commitment and discretion
• Why inflation targeting?
• What to target? IT, PLT, Average inflation, NGDP?
• Effective lower bound and balance sheet policies

Readings:

• Clarida, R., J. Galí,  and M. Gertler. 1999. “The Science of Monetary-Policy: A New Keynesian Perspective.” Journal of Economic Literature.
• “What Academics Think of Central Banks’ Current Inflation Targets and Other Objectives” https://voxeu.org/article/what-academics-think-central-banks-current-inflation-targets-and-other-objectives
• “The Fed’s New Policy Framework: A Major Improvement but More Can be Done” https://voxeu.org/article/fed-s-new-policy-framework-major-improvement-more-can-be-done
• Walsh, Ch 8, sections 8.1-8.4, Ch 11, section 11.1-11.5

V: Structural VectorAutoregressions 

• Short-term identification
• What happens after a monetary policy shock?

Readings: 

• Lutz Kilian and Helmut Lütkepohl, 2019. “Structural Vector Autoregressive Analysis”, Cambridge University Press, 2017, chapter 1, section 1.1, chapter 4, sections 4.1, 4.2, chapter 8, sections 8.1-8.4.4

Vi: Monetary Transmission Mechanism

• Identify the various channels of monetary policy

All the lecture notes for the course will be posted on UW-LEARN.  In addition to the lecture notes and book chapters, there are several required readings for this class. 

I will provide example codes for Matlab. You can use any other software you want. I will not provide any assistance if you do not use Matlab.

You are expected to complete the assignments on your own. I am happy to answer any questions you may have about the assignments.

Assignment 1: due Wednesday, January 25, in class or via dropbox, worth 7%

Assignment 2: due Wednesday, February 8,  in class or via dropbox, worth 10%

Assignment 3: due Monday, February 27, in class or via dropbox, worth 10%

Assignment 4: due Wednesday, March 22, in class or via dropbox, worth 10%

Assignment 5: due Tuesday, April 5, in class or via dropbox, worth 13%

The assignments will be a mixture of math problems, data collection and analysis, short answer questions and open-ended questions. I will not accept any late assignments or grant any extensions. Please submit your completed assignment in class or via the dropbox. The TA will mark most of your assignments and midterms. If you want me to remark your work because you suspect a mistake, all regrade requests must be submitted within one week of receiving your work back. In your request, you must clearly indicate the reasons why you want your work to be regraded. Note that your grade may go up, down or stay the same as a result of regrading your work.

Each midterm will cover a specific set of topics. I will let you know in advance which topics will be covered. The midterms are not cumulative. 

If you miss a midterm, please contact me within 48 hours so we can determine what documentation you will need to submit (self-declaration of illness form or VIF). If you miss at least one of the midterms,  you will be required to take a make-up midterm at the end of the year. The date for the make-up midterm will be determined by the Department of Economics and usually takes place after the exam period (see the Economics Department Deferred Final Exam Policy)

Intellectual Property

Students should be aware that this course contains the intellectual property of their instructor, TA, and/or the University of Waterloo. 

Intellectual property includes items such as:

• Lecture content, spoken and written (and any audio/video recording thereof);
• Lecture handouts, presentations, and other materials prepared for the course (e.g., PowerPoint slides);
• Questions or solution sets from various types of assessments (e.g., assignments, quizzes, tests, final exams); and
• Work protected by copyright (e.g., any work authored by the instructor or TA or used by the instructor or TA with permission of the copyright owner).

Course materials and the intellectual property contained therein, are used to enhance a student’s educational experience. However, sharing this intellectual property without the intellectual property owner’s permission is a violation of intellectual property rights.  For this reason, it is necessary to ask the instructor, TA and/or the University of Waterloo for permission before uploading and sharing the intellectual property of others online (e.g., to an online repository).

Permission from an instructor, TA or the University is also necessary before sharing the intellectual property of others from completed courses with students taking the same/similar courses in subsequent terms/years.  In many cases, instructors might be happy to allow distribution of certain materials. However, doing so without expressed permission is considered a violation of intellectual property rights.

Please alert the instructor if you become aware of intellectual property belonging to others (past or present) circulating, either through the student body or online. The intellectual property rights owner deserves to know (and may have already given their consent).

Chosen/Preferred First Name

Do you want professors and interviewers to call you by a different first name? Take a minute now to verify or tell us your chosen/preferred first name by logging into WatIAM.

Why? Starting in winter 2020, your chosen/preferred first name listed in WatIAM will be used broadly across campus (e.g., LEARN, Quest, WaterlooWorks, WatCard, etc). Note: Your legal first name will always be used on certain official documents. For more details, visit Updating Personal Information.

Important notes

• If you included a preferred name on your OUAC application, it will be used as your chosen/preferred name unless you make a change now.
• If you don’t provide a chosen/preferred name, your legal first name will continue to be used.

Mental Health Support

All of us need a support system. The faculty and staff in Arts encourage students to seek out mental health support if they are needed.

On Campus

Due to COVID-19 and campus closures, services are available only online or by phone.

• Counselling Services:  counselling.services@uwaterloo.ca / 519-888-4567 ext. 32655
• MATES:  one-to-one peer support program offered by the Waterloo Undergraduate Student Association (WUSA) and Counselling Services

Off campus, 24/7

• Good2Talk:  Free confidential help line for post-secondary students. Phone: 1-866-925-5454
• Grand River Hospital: Emergency care for mental health crisis. Phone: 519-749-4300 ext. 6880
• Here 24/7: Mental Health and Crisis Service Team. Phone: 1-844-437-3247
• OK2BME: set of support services for lesbian, gay, bisexual, transgender or questioning teens in Waterloo.  Phone: 519-884-0000 extension 213

Full details can be found online on the Faculty of Arts website

Download UWaterloo and regional mental health resources (PDF)

Download the WatSafe app to your phone to quickly access mental health support information.

Territorial Acknowledgement

We acknowledge that we are living and working on the traditional territory of the Attawandaron (also known as Neutral), Anishinaabe and Haudenosaunee peoples. The University of Waterloo is situated on the Haldimand Tract, the land promised to the Six Nations that includes ten kilometres on each side of the Grand River.

For more information about the purpose of territorial acknowledgements, please see the CAUT Guide to Acknowledging Traditional Territory.

Academic freedom at the University of Waterloo

Policy 33, Ethical Behaviour states, as one of its general principles (Section 1), “The University supports academic freedom for all members of the University community. Academic freedom carries with it the duty to use that freedom in a manner consistent with the scholarly obligation to base teaching and research on an honest and ethical quest for knowledge. In the context of this policy, 'academic freedom' refers to academic activities, including teaching and scholarship, as is articulated in the principles set out in the Memorandum of Agreement between the FAUW and the University of Waterloo, 1998 (Article 6). The academic environment which fosters free debate may from time to time include the presentation or discussion of unpopular opinions or controversial material. Such material shall be dealt with as openly, respectfully and sensitively as possible.” This definition is repeated in Policies 70 and 71, and in the Memorandum of Agreement, Section 6

Cross-listed courses

Please note that a cross-listed course will count in all respective averages no matter under which subject code it has been taken. For example, a PHIL/PSCI cross-list will count in a Philosophy major average, even if the course was taken under the Political Science subject code.

Economics Department Deferred Final Exam Policy

All deferred Final Exam requests for economics courses are administered by the Economics Undergraduate Office. Please consult the Deferred Exam Policy at 

https://uwaterloo.ca/economics/undergraduate/resources-and-policies/deferred-final-exam-policy.

Academic integrity: In order to maintain a culture of academic integrity, members of the University of Waterloo community are expected to promote honesty, trust, fairness, respect and responsibility. [Check the Office of Academic Integrity for more information.]

Grievance: A student who believes that a decision affecting some aspect of their university life has been unfair or unreasonable may have grounds for initiating a grievance. Read Policy 70, Student Petitions and Grievances, Section 4. When in doubt, please be certain to contact the department’s administrative assistant who will provide further assistance.

Discipline: A student is expected to know what constitutes academic integrity to avoid committing an academic offence, and to take responsibility for their actions. [Check the Office of Academic Integrity for more information.] A student who is unsure whether an action constitutes an offence, or who needs help in learning how to avoid offences (e.g., plagiarism, cheating) or about “rules” for group work/collaboration should seek guidance from the course instructor, academic advisor, or the undergraduate associate dean. For information on categories of offences and types of penalties, students should refer to Policy 71, Student Discipline. For typical penalties, check Guidelines for the Assessment of Penalties.

Appeals: A decision made or penalty imposed under Policy 70, Student Petitions and Grievances (other than a petition) or Policy 71, Student Discipline may be appealed if there is a ground. A student who believes they have a ground for an appeal should refer to Policy 72, Student Appeals.

Note for students with disabilities: AccessAbility Services, located in Needles Hall, Room 1401, collaborates with all academic departments to arrange appropriate accommodations for students with disabilities without compromising the academic integrity of the curriculum. If you require academic accommodations to lessen the impact of your disability, please register with AccessAbility Services at the beginning of each academic term.

Turnitin.com: Text matching software (Turnitin®) may be used to screen assignments in this course. Turnitin® is used to verify that all materials and sources in assignments are documented. Students' submissions are stored on a U.S. server, therefore students must be given an alternative (e.g., scaffolded assignment or annotated bibliography), if they are concerned about their privacy and/or security. Students will be given due notice, in the first week of the term and/or at the time assignment details are provided, about arrangements and alternatives for the use of Turnitin in this course.

It is the responsibility of the student to notify the instructor if they, in the first week of term or at the time assignment details are provided, wish to submit alternate assignment.