Customer Reviews

Interest and Prices: Foundations of a Theory of Monetary Policy

5 star:		(2)
4 star:		(1)
3 star:		(0)
2 star:		(1)
1 star:		(0)

 

 

For sure this will become a masterpiece in modern monetary policy. It is very well detailed, and discusses what is really important in the field.

It is already a reference book, and must be read by practitioners, students and academicians interested in the subject.

However the book has the following caveats:

- It is too verbose. That means that you might have the same deepness with less words. As a consequence the reader often gets tired, bored and misses the main point;
- It does not talk about conventional monetary policy as you could find in Walsh's "Monetary Theory and Policy";
- Trying to make the exposition easier, the models are presented in separeted too far apart pieces. This makes it difficult to fully grasp the details at once.

In view of this, I must say that Walsh's book might become a necessary complements to Woodford's. Notice that the styles and goals of both books are different. Therefore, buying one or another depends on your intentions.

In additon I'd say that Woodford's overall strategy is right in terms of the sequence of subjects treated. However, shorter and more numerous chapters might improve the exposition tactics.

This book is written by one of the giants in modern macroeconomics. Although a little bit lengthy, the book contains nearly all the recent advance in monetary economics, especially in the interest rate rules and optimal monetary policy. Of course, you should be familiar with log linearization and simple matrix algebra in order to access the mathematics of the book. Woodford¡¦s Interest and prices and Walsh¡¦s Monetary Theory and Policy (2nd edition) would definitely become the required text for every graduate course in monetary economics around the world.

It's a most compehensive and thought-provoking treatise on modern monetary economics, an excellent follow-up to Carl Walsh's Monetary Theory and Policy. I think this reviewer who gives the book 2 stars just on account of one technical error that he claims to have discovered is being extremely myopic. The book is not about solutions to stochastic difference equations and neither does the author claim to be an expert at stochastic difference equations. The book handles what it is meant to handle admirably well, i.e. MONETARY ECONOMICS

I have been spending the last four months concentrating on Woodford's model of a cashless economy, which Woodford presents in Chapter 2, and which provides the foundation for the rest of the book. I believe his model to be incomplete, relying on a rational expectations precedent of assuming bounded solutions when solving expectational difference equations. A colleague and I have written a paper that shows that this precedent is flawed and we then propose more rigorous procedures. When we apply those revised procedures to Woodford's model of a cashless economy, we find his model is incomplete.

Furthormore, I am writting a second paper that shows that the central bank in Woodford's model is unable to affect the nominal interest rate paid on loans by other entities. If the central bank cannot affect this interest rate, then it cannot affect prices even if Woodford's model was complete.

These are just challenges to Woodford's model which need to withstand the test of refereed journals. However, the potential reader of this book needs to be aware that there are some academics who are challenging the validity of his model. For more details, search for "Woodford cashless economy" with a search engine and you should be able to find my web page that discusses this (...) David Eagle, Associate Professor of Finance
Eastern Washington University
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