Monetary Theory and Policy, 4e

by Walsh

ISBN: 9780262338493 | Copyright 2017

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This textbook presents a comprehensive treatment of the most important topics in monetary economics, focusing on the primary models monetary economists have employed to address topics in theory and policy. Striking a balance of insight, accessibility, and rigor, the book covers the basic theoretical approaches, shows how to do simulation work with the models, and discusses the full range of frictions that economists have studied to understand the impacts of monetary policy.

For the fourth edition, every chapter has been revised to improve the exposition and to reflect recent research. The new edition offers an entirely new chapter on the effective lower bound on nominal interest rates, forward guidance policies, and quantitative and credit easing policies. Material on the basic new Keynesian model has been reorganized into a single chapter to provide a comprehensive analysis of the model and its policy implications. In addition, the chapter on the open economy now reflects the dominance of the new Keynesian approach. Other new material includes discussions of price adjustment, labor market frictions and unemployment, and moral hazard frictions among financial intermediaries. References and end-of-chapter problems allow readers to extend their knowledge of the topics covered.

Monetary Theory and Policy continues to be the most comprehensive and up-to-date treatment of monetary economics, not only the leading text in the field but also the standard reference for academics and central bank researchers.

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Contents (pg. v)
Preface (pg. xiii)
Introduction (pg. xvii)
1 Evidence on Money, Prices, and Output (pg. 1)
1.1 Introduction (pg. 1)
1.2 Some Basic Correlations (pg. 1)
1.3 Estimating the Effect of Monetary Policy on Output and Inflation (pg. 8)
1.4 Monetary Policy at Very Low Interest Rates (pg. 31)
1.5 Summary (pg. 40)
2 Money-in-the-Utility Function (pg. 41)
2.1 Introduction (pg. 41)
2.2 The Basic MIU Model (pg. 43)
2.3 The Welfare Cost of Inflation (pg. 61)
2.4 Extensions (pg. 66)
2.5 Dynamics in an MIU Model (pg. 69)
2.6 Summary (pg. 83)
2.7 Appendix: Solving the MIU Model (pg. 83)
2.8 Problems (pg. 94)
3 Money and Transactions (pg. 97)
3.1 Introduction (pg. 97)
3.2 Resource Costs of Transacting (pg. 98)
3.3 Cash-in-Advance (CIA) Models (pg. 103)
3.4 Search (pg. 120)
3.5 Summary (pg. 129)
3.6 Appendix: The CIA Approximation (pg. 130)
3.7 Problems (pg. 132)
4 Money and Public Finance (pg. 137)
4.1 Introduction (pg. 137)
4.2 Budget Accounting (pg. 138)
4.3 Money and Fiscal Policy Frameworks (pg. 144)
4.4 Deficits and Inflation (pg. 145)
4.5 The Fiscal Theory of the Price Level (pg. 162)
4.6 Optimal Taxation and Seigniorage (pg. 169)
4.7 Summary (pg. 188)
4.8 Problems (pg. 189)
5 Informational and Portfolio Rigidities (pg. 193)
5.1 Introduction (pg. 193)
5.2 Informational Frictions (pg. 194)
5.3 Limited Participation and Liquidity Effects (pg. 206)
5.4 Summary (pg. 215)
5.5 Appendix: An Imperfect-Information Model (pg. 215)
5.6 Problems (pg. 219)
6 Discretionary Policy and Time Inconsistency (pg. 221)
6.1 Introduction (pg. 221)
6.2 Inflation under Discretionary Policy (pg. 223)
6.3 Solutions to the Inflation Bias (pg. 234)
6.4 Is the Inflation Bias Important? (pg. 264)
6.5 Summary (pg. 271)
6.6 Problems (pg. 271)
7 Nominal Price and Wage Rigidities (pg. 277)
7.1 Introduction (pg. 277)
7.2 Sticky Prices and Wages (pg. 277)
7.3 Assessing Alternatives (pg. 301)
7.4 Summary (pg. 313)
7.5 Appendix: A Sticky-Wage MIU Model (pg. 314)
7.6 Problems (pg. 316)
8 New Keynesian Monetary Economics (pg. 319)
8.1 Introduction (pg. 319)
8.2 The Basic Model (pg. 320)
8.3 A Linearized New Keynesian Model (pg. 327)
8.4 Monetary Policy Analysis in New Keynesian Models (pg. 341)
8.5 Labor Market Frictions and Unemployment (pg. 365)
8.6 Summary (pg. 377)
8.7 Appendix (pg. 378)
8.8 Problems (pg. 388)
9 Monetary Policy in the Open Economy (pg. 397)
9.1 Introduction (pg. 397)
9.2 A Two-Country Open-Economy Model (pg. 398)
9.3 A Model of the Small Open Economy (pg. 424)
9.4 Additional Sources of Nominal Distortions (pg. 437)
9.5 Currency Unions (pg. 442)
9.6 Summary (pg. 447)
9.7 Appendix (pg. 448)
9.8 Problems (pg. 449)
10 Financial Markets and Monetary Policy (pg. 455)
10.1 Introduction (pg. 455)
10.2 Interest Rates and Monetary Policy (pg. 456)
10.3 The Term Structure of Interest Rates (pg. 462)
10.4 Macrofinance (pg. 467)
10.5 Policy and the Term Structure (pg. 473)
10.6 Financial Frictions in Credit Markets (pg. 478)
10.7 Macroeconomic Implications (pg. 495)
10.8 Summary (pg. 505)
10.9 Problems (pg. 505)
11 The Effective Lower Bound and Balance Sheet Policies (pg. 509)
11.1 Introduction (pg. 509)
11.2 The Effective Lower Bound (pg. 510)
11.3 Liquidity Traps (pg. 512)
11.4 Conventional Policies at the ELB (pg. 515)
11.5 Balance Sheet Policies (pg. 532)
11.6 Appendix: Derivation of the Asset Pricing Wedges (pg. 556)
11.7 Problems (pg. 557)
12 Monetary Policy Operating Procedures (pg. 561)
12.1 Introduction (pg. 561)
12.2 From Instruments to Goals (pg. 562)
12.3 The Instrument Choice Problem (pg. 563)
12.4 Operating Procedures and Policy Measures (pg. 579)
12.5 Interest on Reserves in a Channel System (pg. 590)
12.6 A Brief History of Fed Operating Procedures (pg. 595)
12.7 Other Countries (pg. 603)
12.8 Summary (pg. 605)
12.9 Problems (pg. 605)
References (pg. 609)
Name Index (pg. 645)
Subject Index (pg. 651)

Carl E. Walsh

Carl E. Walsh is Professor of Economics at the University of California, Santa Cruz. He is a Visiting Scholar at the Federal Reserve Bank of San Francisco.


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