Monetary Economics

1. Theories of Money Demand
   1. Classical theory of money demand
      1. Quantity theory of money
         1. Equation of exchange: MV = PY
         2. Assumptions:
            1. Money is held for transactions
            2. V (velocity) is constant in the short run
            3. P (price level) and Y (output) are stable
         3. Implications for monetary policy
            1. Emphasis on controlling the money supply
            2. Predictability of inflation based on money supply changes
   2. Keynesian theory of money demand
      1. Liquidity preference theory
         1. Motives for holding money
            1. Transaction motive
            2. Precautionary motive
            3. Speculative motive
         2. Demand for money as a function of interest rates
         3. Implications for interest rates
            1. Interest elasticity of money demand
            2. Role of expectations in determining money demand
         4. Keynesian cross and IS-LM model
            1. Interaction with the goods market
            2. Policy implications for fiscal and monetary interventions
   3. Monetarist perspective
      1. Milton Friedman and the permanent income hypothesis
         1. Distinction between transitory and permanent income
         2. Concept of real money balances
         3. Demand for money related to wealth
      2. Predictability and stability of money demand
         1. Empirical studies supporting monetarist view
         2. Critique of Keynesian variability in money demand
      3. Policy rules
         1. Recommendations for a stable rate of money growth
         2. Influence on monetary policy frameworks
   4. Portfolio theories of money demand
      1. Tobin's liquidity preference as behavior towards risk
         1. Asset allocation between money and bonds
         2. Risk-return trade-off
         3. Diversification benefits
      2. The Baumol-Tobin model
         1. Economic model of transactions demand
         2. Trade-off between transaction costs and opportunity cost of holding money
         3. Implications for understanding money demand’s sensitivity to interest rates
      3. Modern portfolio theory applications
         1. Money as part of a diversified portfolio
         2. Effects of financial innovation on money demand
         3. Impact of digital currencies and new financial instruments
   5. Behavioral perspectives on money demand
      1. Psychological factors influencing money holding
      2. Cognitive biases and heuristics
      3. Impact of social and cultural norms
      4. Incorporation into existing models
   6. Empirical evidence and measurement issues
      1. Challenges in measuring money demand
         1. Data availability and accuracy
         2. Impact of financial deregulation and innovation
      2. Long-term trends vs. short-term fluctuations
         1. Structural changes in the economy
         2. Influence of interest rates, inflation, and economic cycles
      3. Cross-country analyses and comparisons
         1. Differences in money demand functions across economies
         2. Role of institutional and policy factors