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1、Chapter 10 A Monetary Intertemporal Model: Money, Prices, and Monetary Policy ? ? Teaching Goals Analysis of a monetary economy can become quite complex. Modern economies require significant specialization to function well. Such specialization requires a commonly accepted medium of exchange. Money s
2、erves this function. Although it matters quite a lot that we have money, the actual quantity of money in circulation is not very important. This fact emerges because the quantity of money is neutral, if not in the very short run, certainly in the long run. In the monetary intertemporal model, change
3、s in the money supply affect the level of prices, but do not otherwise affect economic outcomes; money is neutral. Real factors may also affect the price level. The price level adjusts to keep money demand and money equal. Disturbances that change the equilibrium levels of output and the real intere
4、st rate therefore change the price level. Shifts in preferences for money holding also affect the price level. The principle role of monetary policy in the monetary intertemporal model is to control the level of prices. A popular goal of policy is to stabilize the price level in response to shocks t
5、o the economy. However, the central banks ability to stabilize prices may be compromised if money demand does not behave in a predictable manner. It is also important for policy to set targets and adhere to particular policy rules. ? ? Classroom Discussion Topics The payments technology has continua
6、lly advanced over time, but the rate of advance has accelerated in the era of computer technology. Ask the students for examples of advances in this technology beyond the routine use of cash and the writing of paper checks. Some obvious possibilities include the use of ATMs, computer and telephone b
7、anking, the use of prepaid phone cards and other forms of smart card technologies. Students are also likely to discuss the existence of credit cards and the ever more sophisticated ways to use credit cards and protect against fraud. As one example, there is the use of credit cards to pay for purchas
8、es over the Internet. In discussing these possibilities, it is also important to distinguish the payments technology from the proper measurement of the money supply. For example, it is important to distinguish between payment arrangements that are uses of credit, like the use of credit cards, from u
9、ses of money, like cash and transaction deposits. Standard macroeconomic analysis, like that of this chapter, emphasizes central banks control of the quantity of money in circulation. However, most contemporary discussions of U.S. monetary policy focus on the Federal Reserves control of “interest ra
10、tes.” This chapter offers plenty of opportunities to discuss real life events. For example, discuss the upcoming meeting of the FOMC, what it decides on, what information it uses, and what it may do. 102 Williamson Macroeconomics, Third Edition In the monetary intertemporal model, the real interest
11、rate is market determined and cannot be influenced by central bank behavior. Ask the students whether they believe a simplistic view of popular press coverage that seems to refute the notion that the interest rate is market determined. Note the importance of the distinction between the federal funds
12、 rate and the sort of real interest rates that motivate saving and investment choices. Is it possible that the Fed adjusts the federal funds rate to more closely resemble other market interest rates? Is it possible to control the nominal interest rate while being unable to influence the real interes
13、t rate? Even if the Fed is able to control one very narrowly defined real interest rate, does this mean that models like those in this chapter are not useful descriptions of reality? ? ? Outline I. Functions of Money A. Medium of Exchange B. Store of Value C. Unit of Account II. Measuring the Money
14、Supply A. The Monetary Base 1. Currency Outside the Fed 2. Depository Institution Deposits at the Fed B. M1 1. Currency Held by the Public 2. Travelers Checks 3. Demand Deposits 4. Other Checkable Deposits C. M2 1. Savings Deposits 2. Small-Denomination Time Deposits 3. Retail Money Market Mutual Fu
15、nds D. M3 1. Large-Denomination Time Deposits 2. Institutional Money Market Mutual Funds 3. Repurchase Agreements 4. Eurodollars III. Introduction to the Monetary Intertemporal Model A. The Need for Money 1. Single Coincidence of Wants 2. Double Coincidence of Wants 3. The Cash-in-Advance Model B. R
16、eal and Nominal Interest Rates 1. Nominal Bonds 2. The Nominal Interest Rate 3. The Fisher Relationship Chapter 10 A Monetary Intertemporal Model: Money, Prices, and Monetary Policy 103 C. Representative Consumer 1. The Cash-in-Advance Constraint 2. Banking Service Cost Function 3. Optimal Choice of Banking Services D. Representative Firm 1. The Cash-in-Advance Constraint 2. Banking Service Cost Function 3. Optimal Choice of Banking Services E. Money and the Gove
