Modeling Monetary Economies Review

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(More customer reviews)Economists have a responsiblity to communicate as simply as possible. Too often complex mathematics are an egotistic tool of the economist that merely frustrates the reader. Champ and Freeman's Modeling Monetary Economies is a wonderful volume that explains tough issues in monetary economics by building upon Wallace and Bryant's overlapping generations (OLG) model.
The OLG framework is a very simple framework that has its limitations, yet it is a powerful explanatory device. Champ and Freeman apply it to the following exercises:
* Introduce money into an economy--any grad student of economics (as I once was) will tell you this is no simple task! We take money for granted, of course, but mathematical models tend to imply that money is unnecessary! Just getting money into an economic model without unreasonable assumptions is itself an accomplishment.
* Inflation--again, not easy to do in other mathematical models of money--and anticipated inflation
* International currency exchange and the indeterminancy of the exchange rate
* Central banking and changes to the money supply
* Banks and lending
* Deficits and the national debt
* The interaction of all of the above
The book also has exercises in it that apply and extend the models introduced in each chapter.
RECOMMENDATION
I recommend this book for advanced year undergrads (in mathematical econ programs) and graduate students. It really is a great book that builds a conceptual knowledge of the interaction of the various components of monetary economics. This is useful for understanding more complicated dynamic optimization models. And it provides models that are useful in their own right and relevant as the basis for further (ie., dissertation) research.

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The approach of this text is to teach monetary economics using the classical paradigm of rational agents in a market setting. Too often monetaryeconomics has been taught as a collection of facts about existing institutions for students to memorize. By teaching from first principles instead, the authors aim to instruct students not only in the monetary policies and institutions that exist today in the United States and Canada, but also in what policies and institutions may orshould exist tomorrow and elsewhere. The text builds on a simple, clear monetary model and applies this framework consistently to a wide variety of monetary questions. The authors have added in this third edition new material on money as a means of replacing imperfect social record keeping, the role of currency inbanking panics, and a description of the policies implemented to deal with the banking crises that began in 2007.

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