Econ 410: Money, Banking and Payment Systems
Office Hours: Monday 10.30-11.30 and Wednesday 2.00-3.00 or by appointment.
Class Advisor: Markus Delves (email@example.com). If you have any questions, concerns, or criticisms of the class and/or instructor
and feel uncomfortable in approaching me, feel free to email Markus and he will relay your comments to me (anonymously).
 An Equilibrium Model of Fiat Money. The role of commitment, anonymity, and lack of double coincidence.
Multiple equilibria (self-fulfilling prophesies). Long-run neutrality. Short-run neutrality and non-neutrality.
Readings: Champ and Freeman (Chapter 1); Andolfatto (Chapter 8).
Midterm 1 (October 5).
 Inflation. Government spending and inflation. Seigniorage and the inflation tax. Monetary vs. fiscal policy.
Readings: Champ and Freeman (Chapter 3); Andolfatto (Chapter 9).
Midterm 2 (November 2).
 Money, Bonds, and Capital. Can fiat money coexist with other assets? Rate of return dominance. Inside money
and the money multiplier. Interpreting money-output correlations in the data.
Readings: Champ and Freeman (Chapter 6 and 9); Andolfatto (Chapter 10).
 International Monetary Systems. Indeterminacy of the nominal exchange rate. Legal restrictions. Fixed versus
floating exchange rate regimes. Speculative attacks.
Readings: Champ and Freeman (Chapter 4); Andolfatto (Chapter 11).
Course Outline (Old)
 Money as memory. Private Money. Government Money. The contractual characteristics of good money instruments.
Reading: Some Thoughts On Money. See also: The Myth of Fiat Money , by Dror Goldberg and Primitive Money , by Anthony Sealy.
 Is "evil" the root of all money? On the asymmetric allocation of commitment power and the demand for payments instruments.
Arrow-Debreu markets versus monetary exchange. The role of banks as suppliers of money.
Reading: A Simple Model of Money and Banking .
 The basic Overlapping Generations model. Generating a demand for "fiat" money when some agents are intertemporally separated.
Reading: A Simple Model of Money, Champ and Freeman, Chapter 1.
 The economic consequences of an expanding supply of fiat money. Seigniorage and the inflation tax. Optimal monetary policy.
Reading: Inflation, Champ and Freeman, Chapter 3.
 What determines the exchange rate between two fiat monies? The indeterminacy of the nominal exchange rate. Fixed and flexible
exchange rate regimes. Foreign currency controls. The incentive to "overinflate" in fixed exchange rate environments. Optimal currency
areas and need for international cooperation.
Readings: (i) International Monetary Systems, Champ and Freeman, Chapter 4.
(ii) The Role of Seigniorage in the 1970s Inflation and the Breakdown of the Bretton Woods International Monetary System ,
by Birgit Doerfler.
 What would laissez-faire in the money industry look like?
Readings: (i) The Competitive Supply of Money, by Benjamin Klein. Journal of Money, Credit, and Banking, 1974: 423-53.
Download from Jstor .
(ii) On the Economics of Private Money, by Robert G. King. Journal of Monetary Economics, 1983, 12: 127-158.
(iii) How Would the Invisible Hand Handle Money? by George A. Selgin and Lawrence H. White. Journal of Economic
Literature, December 1994: 1718-1749. Download from Jstor .
(iv) The Role of Demandable Debt in Structuring Optimal Banking Arrangements, by Charles W. Colomiris and Charles
M. Khan. American Economic Review, June 1991: 497-513. Download from Jstor .
(v) Reputation Formation in Early Bank Note Markets, by Gary Gorton. Journal of Political Economy, Volume 104(2): 346-397.
Download from Jstor .
 Money and Capital. Can fiat money coexist with another asset? The Tobin Effect. Rate of return dominance.
Readings: Champ and Freeman, Chapter 6.
Lecture Notes: Money and Capital in the OLG Model.
 Liquidity and Financial Intermediation. What is "liquidity"? Fiat money as a liquid asset. Financial intermediation and the creation of
competing liquid intruments.
Readings: Champ and Freeman, Chapter 7.
Lecture Notes: Liquidity.
 A Model of Inside and Outside Money. The money multiplier. Fluctuations in the supply of money in response to economic shocks.
Readings: Champ and Freeman, Chapter 9.
Lecture Notes: A Model of Inside and Outside Money.
 The Payments System. Fiat money, private nominal debt, and the role of clearinghouses. Central bank lending to alleviate
"liquidity shortages." Allowing banks to print their own currency. Banknote overissue.
Reading: Champ and Freeman, Chapter 11.
Midterm 1: October 5 during class time.
Midterm 2: November 2 during class time.
The Term Paper (Not applicable for Fall 2006 term).
 Read newspapers, magazines, or journal articles and keep your eye open for interesting issues pertaining to the subject matter of this course.
 Important: Identify a question (or set of questions) to be addressed. Be modest here; you do not have to explain everything!
 Identify and/or develop a model that is suitable for addressing the question at hand.
 Address the question at hand within the context of the model that has been developed.
 Critically evaluate the model's interpretation (e.g., Is a key result sensitive to one of your simplifying assumptions?
How might the model be extended and for what purpose?).
Due Date for Term Paper: Last Day of Classes.
Some links of interest:
Practice Questions Assignment 1 Exams Colonial Money Chapter 4: International Monetary Systems Chapter 10: Fully Backed Central Bank Money Chapter 11: Payments Systems Ithaca Hours (Non-government Fiat-Money Creation)