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Professor Karl Shell
ks22@cornell.edu
www.karlshell.com

Spring 2002

Economics 732: Monetary Economics II

Economics 614 or the consent of Professor Shell is required.

This course is based on new material. Macro graduate students are expected to attend even if they have already taken Economics 731 and/or Economics 732 in the past.

The course meets on Fridays from 10:15 am to 12:00 noon in Uris Hall 488.

Faculty participation is encouraged.

The course grade will be based on the performance on the weekly problem sets, on class participation, and on performance on the examination.

Professor Shell's assistant is Nigar Hashimzade, shelloffice@cornell.edu; 255-5618; 402 Uris Hall.

Problem Sets

Reading List

A. Topics in Economic Growth

  1. Robert M. Solow, "A Contribution to the Theory of Economic Growth," Quarterly Journal of Economics, February 1956, 65-94.
  2. R. Courant, Differential and Integral Calculus, Chapter VII (volume 2) on "Calculus of Variations," New York: Wiley - Interscience, 1968, 491-521.
  3. L.S. Pontryagin et.al., The Mathematical Theory of Optimal Processes, New York: Wiley - Interscience, 1962.
  4. Karl Shell, "Application of Pontryagin's Maximum Principle to Economics," in Mathematical Systems Theory and Economics I (H.W. Kuhn and G.P. Szegö, eds.), Berlin: Springer Verlag, 1969, 241-292. Known as "the Varenna lectures".
  5. David Cass, "Optimum Growth in an Aggregative Model of Capital Accumulation," Review of Economic Studies, July 1965, 233-240.
  6. Karl Shell, "Toward a Theory of Inventive Activity and Capital Accumulation," American Economic Review, 1966, Vol. 56 (No. 2), 62-68.
  7. Karl Shell, "A Model of Inventive Activity and Capital Accumulation," in Essays on the Theory of Economic Growth, Cambridge: MIT Press (1967), 67-85.
  8. Karl Shell, "Inventive Activity, Industrial Organization and Economic Growth," Models of Economic Growth, edited by J. Mirrlees and N. Stern, NY: Macmillan and Halsted (1973), 77-100.
  9. P. Romer, "Increasing Returns and Long-Run Growth," Journal of Political Economy, Vol. 94 (1986), 1002-1037.
  10. P. Romer, "Endogenous Technological Change," Journal of Political Economy, Vol. 98 (1990), S71-S102.
  11. K. Shell and J. E. Stiglitz, "The Allocation of Investment in a Dynamic Economy," Quarterly Journal of Economics, Vol. 81, November 1967, 592-609.
  12. K. Shell, M. Sidrauski, and J.E. Stiglitz, "Capital Gains, Income, and Saving," The Review of Economic Studies, Vol. 36 (1969), 15-26.

B. Money, Securities and Taxes: Background

  1. K. J. Arrow, "The Role of Securities in the Optimal Allocation of Risk-Bearing," Review of Economic Studies, April 1964, 91-96.
  2. Yves Balasko and Karl Shell, "Lump-Sum Taxation: The Static Economy," in General Equilibrium, Growth, and Trade: The Legacy of Lionel McKenzie, II (R. Becker, M. Boldrin, R. Jones and W. Thomson, eds.) New York: Academic Press, 1993, 168-180.
  3. James Peck, "Non-Connectedness of the Set of Equilibrium Money Prices: The Static Economy," Journal of Economic Theory, Vol. 43(2), December 1987, 348-354.
  4. Rod Garratt, "The Connectedness of the Set of Equilibrium Money Prices Depends on the Choice of the Numeraire," Journal of Economic Theory, Vol. 56(1), February 1992, 206-217.
  5. Peter A. Diamond and James A. Mirrlees, "Optimal Taxation and Public Production I: Production Efficiency," American Economic Review, Vol. 61(2), March 1971, 8-27. (See also "Errata" in American Economic Review, Vol. 62(1/2), 1972, 238)
  6. Peter A. Diamond, James A. Mirrlees, "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, Vol. 61(3), June 1971, 261-278.

C. Overlapping Generations

  1. Karl Shell and Bruce Smith, "Overlapping-Generations Model and Monetary Economics," in the New Palgrave Dictionary of Money and Finance (J. Eatwell, M. Milgate, and P. Newman, eds.), Vol. 3, London: Macmillan, 1992, 104-109.
  2. Paul A. Samuelson, "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, December 1958, 467-482.
  3. Peter A. Diamond, "National Debt in a Neoclassical Growth Model", American Economic Review, Vol. 55(5), December 1965, 1126-1150.
  4. Karl Shell, "Notes on the Economics of Infinity," Journal of Political Economy, Vol. 79(5), September/October 1971, 1002-1011. (Appears in Spanish as "Notas sobre las economias del infinito" (translation by M. Santos), Cuadernos Economicos de I.C.E., Vol. 35(1), 1987, 31-39.)
  5. David Gale, "Pure Exchange Equilibrium of Dynamic Economic Models," Journal of Economic Theory, Vol. 6(1), February 1973, 12-36.
  6. Yves Balasko and Karl Shell, "The Overlapping-Generations Model, I: The Case of Pure Exchange without Money, " Journal of Economic Theory, Vol. 23(3), December 1980, 281-306.
  7. Yves Balasko and Karl Shell, "The Overlapping-Generations Model, II: The Case of Pure Exchange with Money," Journal of Economic Theory, Vol. 24(1), February 1981, 112-142. See also "Erratum," Journal of Economic Theory, Vol. 25(3), December 1981, 471.
  8. Yves Balasko and Karl Shell, "Lump-Sum Taxes and Transfers: Public Debt in the Overlapping-Generations Model," in Essays in Honor of Kenneth J. Arrow, Vol. II: Equilibrium Analysis (W. Heller, R. Starr, and D. Starrett, eds.), New York: Cambridge University Press, 1986, Chapter 5, 121-153.
  9. Karl Shell, "Monnaie et Allocation Intertemporelle," [title and abstract in French, text in English] mimeo, Séminaire d'Econométrie Roy-Malinvaud, Centre National de la Recherche Scientifique, Paris, November 21, 1977. (Forthcoming in Macroeconomic Dynamics.)
  10. Costas Azariadis, "Self-Fulfilling Prophecies," Journal of Economic Theory, Vol. 25(3), December 1981, 380-396.
  11. Christian Ghiglino and Karl Shell, "The Economic Effects of Restrictions on Government Budget Deficits," Journal of Economic Theory, Vol. 94(1), September 2000, 106-137.
  12. Christian Ghiglino and Karl Shell, "The Economic Effects of Restrictions on Government Budget Deficits: Imperfect Private Credit Markets," Economic Theory, Vol. 21, Number 2-3, March 2003, 399-421. [To be reprinted in a Springer Verlag volume edited by C.D. Aliprantis, K.J. Arrow, P.J. Hammond, F. Kubler, H.M. Wu, and N.C. Yannelis.]

D. Sunspots

  1. Karl Shell, "Sunspot Equilibrium," in The New Palgrave: A Dictionary of Economics (J. Eatwell, M. Milgate, and P. Newman, eds.), Vol. 4, New York: Macmillan, 1987, 549-551.
  2. Karl Shell and Bruce Smith, "Sunspot Equilibrium", in the New Palgrave Dictionary of Money and Finance (J. Eatwell, M. Milgate, and P. Newman, eds.), Vol. 3, London: Macmillan, 601-605.
  3. Karl Shell, "Monnaie et Allocation Intertemporelle," [title and abstract in French, text in English] mimeo, Séminaire d'Econométrie Roy-Malinvaud, Centre National de la Recherche Scientifique, Paris, November 21, 1977. (Forthcoming in Macroeconomic Dynamics.)
  4. David Cass and Karl Shell, "Do Sunspots Matter?" Journal of Political Economy, Vol. 91(2), April 1983, 193-227.
  5. Costas Azariadis, "Self-Fulfilling Prophecies," Journal of Economic Theory, Vol. 25(3), December 1981, 380-396.
  6. Costas Azariadis and Roger Guesnerie, "Sunspots and Cycles", Review of Economic Studies, Vol. 53(5), October 1986, 725-738.
  7. Yves Balasko, "Extrinsic Uncertainty Revisited", Journal of Economic Theory, Vol. 31(2), December 1983, 203-210.
  8. James Peck, "On the Existence of Sunspot Equilibria in an Overlapping Generations Model," Journal of Economic Theory, Vol. 44(1), February 1988, 19-42.
  9. James Peck and Karl Shell, "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," The Review of Economic Studies, Vol. 58(5), October 1991, 1011-1019.
  10. Karl Shell and Randall Wright, "Indivisibilities, Lotteries and Sunspot Equilibria," Economic Theory, Vol. 3(1), January 1993, 1-17.
  11. David Cass and Karl Shell, "Sunspot Equilibrium in an Overlapping-Generations Economy with an Idealized Contingent-Commodities Market," Part 1, Chapter 1 in Economic Complexity: Chaos, Sunspots, Bubbles, and Nonlinearity (W. Barnett, J. Geweke, and K. Shell, eds.), New York: Cambridge University Press, 1989, 3-20.
  12. Edward Prescott and Robert Townsend, "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Vol. 52(1), January 1984, 21-45.
  13. Edward Prescott and Robert Townsend, "General Competitive Analysis in an Economy with Private Information," International Economic Review, Vol. 25(1), February 1984, 1-20.
  14. Rod Garratt, Todd Keister, Cheng-Zhon Qin, and Karl Shell, "Equilibrium Prices when the Sunspot Variable is Continuous," Journal of Economic Theory symposium on Sunspots and Lotteries, doi:10.1006/jeth.1999.2634
  15. Aditya Goenka and Karl Shell, "When Sunspots Don't Matter," Economic Theory, Vol. 9(1), January 1997, 169-178.
  16. Aditya Goenka and Karl Shell, "Robustness of Sunspot Equilibria," Economic Theory, Vol. 10(1), July 1997, 79-98.
  17. James Peck and Karl Shell, "Bank Portfolio Restrictions and Equilibrium Bank Runs," Working Paper 99-07, Center for Analytical Economics, Cornell University, Ithaca, July 1999.
  18. Timothy J. Kehoe, David K. Levine, Edward C. Prescott, "Lotteries, Sunspots, and Incentive Constraints," forthcoming in the Journal of Economic Theory, doi:10.1006/jeth.2001.2792.
  19. Peck, James, and Shell, Karl. "Equilibrium Bank Runs," Journal of Political Economy, Vol. 111, No. 1, February 2003, 103-123.
  20. Rod Garratt, Todd Keister, and Karl Shell, "Comparing Sunspot Equlibrium and Lottery Equilibrium Allocations: The Finite Case," Incomplete Markets Workshop, SUNY Stony Brook, July 2001.

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