PRIFYSGOL ABERTAWE: SWANSEA UNIVERSITY

ONLINE DEGREE EXAMINATIONS: AUGUST 2021

SCHOOL OF MANAGEMENT



MN-M567: Monetary Economics
Normal Duration: 2 hours

Answer ONE Question in Section A ONLY
Answer ONE Question in Section B ONLY

Calculators: Candidates may use calculators to complete this assessment

ONLINE EXAM INSTRUCTIONS

? You have a period of 24 hours in which to complete this exam and upload your answers on
Turnitin.
? As a guide we recommend that you spend approximately 2 hours working on your answers.
? The deadline for submission of your answers for this exam is 09.15 am BST on the 27th
August 2021.
? Type your answers in an MS Word or Excel file where possible.
? The total word limit for this paper is: 3000. Examiners will not continue marking past this limit.
? Fill in the online exam submission cover sheet and include it as the first page of your
answers.
? Save the file on your computer or other device – the file name MUST include your student ID
and the module code e.g. 123456MN8000.
? Upload your completed answers at the Online Exam Turnitin link on the Canvas site for
your module. A direct link is provided in the e-mail to which this exam paper was attached.
? Only one file can be submitted for each exam – please include all your answers in one file.
? If you have problems submitting your file or queries about these instructions, please
contact somsubmit@swansea.ac.uk immediately.



MN-M567 (August 2021) Page 2
SECTION A – Answer ONE Question ONLY
Question 1
Explain what is meant by the ‘improper prior’ assumed by Morris and Shin (2002), and its
implications for the Bayesian weights of private-sector agents in that model. Proceed to
derive and interpret the relevant expressions relating to the model’s equilibrium and explain
the extent to which it can be considered efficient. Discuss and explain also both the model’s
principal result relating to disclosure policy, and the observations made by Svensson in
relation to that result. [50 marks]



Question 2

Using mathematical expressions, discuss and explain the origin and welfare significance of
price dispersion and output volatility in the Adam (2007) version of the Woodford (2003)
model. If the model incorporates a monetarist specification of aggregate demand subject to
stochastic shocks, and a monetary policy instrument that can directly affect aggregate
demand, derive the model’s equilibrium expressions and analyse with particular reference
to agents’ price-setting behaviour the implications for optimal disclosure policy.
[ 50 marks]



(SECTION B is on the next page)

MN-M567 (August 2021) Page 3
SECTION B – Answer ONE Question ONLY

Question 3
Answer both parts.
(a) Under the assumption that the relative weight placed by society on inflation is a
proper fraction, analyse by means of appropriate diagrams and algebraic
expressions the implications within the Rogoff (1985) framework of an inflation target
being imposed on the central bank. [30 marks]
(b) Explain the various economic arguments, other than those relating to the risk
premium demanded by investors, for why a price-level targeting regime may have
significant advantages over a regime which imposes a specific inflation target on the
central bank. [20 marks]
[50 marks total]


Question 4
By making use of Cukierman (2001) or other appropriate model, explain by means of
diagrams and accompanying mathematical expressions the nature and source of the
stochastic inflation bias and the related policy implications. For the case of a beneficial
supply shock, explain what the diagrammatic implications would be if the private sector
agents were partially informed about the supply shock realisation, but less accurately
informed than the central bank. [50 marks]

Question 5
In the context of the Cukierman and Liviatan model explain with reference to mathematical
expressions the sensitivity of equilibrium outcomes to the degree of private-sector
uncertainty regarding a policymaker’s ability to adhere to previous policy announcements.
Discuss also how the informational assumptions made by Cukierman and Liviatan
distinguish it from the scenario analysed by Alesina and Gatti (1995). [50 marks]


End of Paper