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About this book

This instructor’s manual complements the textbook Money: Theory and Practice which provides an introduction to modern monetary economics for advanced undergraduates, highlighting the lessons learned from the recent financial crisis. The manual provides teachers with exercises and examples that reflect both the core New Keynesian model and recent advances, taking into account financial frictions, and discusses recent research on an intuitive level based on simple static and two-period models.

Table of Contents

Frontmatter

Money and Equilibrium in the Long Run

Frontmatter

1. Long Run Growth: The Basic Framework

Abstract
This chapter provides exercises for the basic tools and modelling frameworks that are used for analyzing the equilibrium in a monetary economy in the long run, focusing on dynamic optimization and its applications. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

2. Money and Long Run Growth

Abstract
This chapter provides exercises for modelling money in long-run growth models, especially Money-in-the-Utility and Cash-in-Advance models. Further exercises discuss the welfare-improving role of money and the cost of inflation. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

3. Interaction Between Monetary and Fiscal Policy: Active and Passive Monetary Regimes

Abstract
This chapter provides exercises for better understanding the interaction between monetary and fiscal policies, focusing on the sustainability of debt in both closed and small open economies. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

Monetary Policy in the Short Run

Frontmatter

4. New Keynesian Macroeconomics

Abstract
This chapter provides exercises for the standard, small-scale New Keynesian macroeconomic models, focusing on the role of nominal/real rigidities, the sources of inefficiencies, and the implications for welfare-improving monetary policies. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

5. Optimal Monetary Policy

Abstract
This chapter provides exercises for optimal monetary policy in different setups, including the game theory based, Barro-Gordon type models, as well as the New Keynesian DSGE models. Further issues such as time-inconsistency problem, inflation bias, and their solutions are also discussed in the exercises. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

6. Monetary Policy Under Uncertainty

Abstract
This chapter provides exercises for better understanding the role of uncertainty in making monetary policy decisions, focusing on the sources of uncertainties such as incomplete information, limited control, and how they affect monetary policy through different targeting regimes. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

7. Liquidity Trap: Limits for Monetary Policy at the Effective Lower Bound

Abstract
This chapter provides exercises for better understanding the limits of monetary policy at effective zero lower bound, the concept of liquidity trap, and the policies that improve efficiency. Exercises are short questions that mainly focus on the intuitions.
Jin Cao, Gerhard Illing

Unconventional Monetary Policy, Financial Frictions and Crises

Frontmatter

8. Monetary Policy in Practice

Abstract
This chapter provides exercises for better understanding the implementation of monetary policy, focusing on the working mechanism of the corridor system and the impact of various monetary policy instruments on the market equilibrium. Exercises are short questions that mainly focus on the intuitions.
Jin Cao, Gerhard Illing

9. Financial Frictions and Monetary Policy

Abstract
This chapter provides exercises for better understanding the sources of financial frictions (such as moral hazard induced market segmentation, leverage cycle, etc.), and their impact on monetary policy making as well as the transmission of monetary policy. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

10. Monetary Policy and Financial Stability

Abstract
This chapter provides exercises for better understanding the feedback between monetary policy and financial stability, and the macroprudential policies that are necessary to deter the risk-taking induced by monetary policy. Solutions are provided for selected exercises.
Jin Cao, Gerhard Illing

Backmatter

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