TOPIC 1. Consumption based asset pricing models: the Lucas economy, habit formation and belief heterogeneity. TOPIC 2. Asset pricing models with inflation: effects of monetary policy, nominal and real interest rates, the term strucutre of interest rates, money illusion, habit formation and belief heterogeneity. TOPIC 3. Optimal monetary policy. TOPIC 4. Empirical estimation of the effects of monetary policy: the Vector Auto Regression (VAR) approach.