30159 - MONETARY THEORY AND POLICY
CLEAM - BESS-CLES - WBB - BIEF - BIEM - BIG
Course taught in English
Go to class group/s: 31
This course goes into more depth in the analysis of monetary theory and policy introduced in the basic course of macroeconomics. The main objective of the course is to allow students to understand the behavior of central banks and the effects of monetary policy on the economy. Particular emphasis will be placed on studying the effects of monetary policy on labor market outcomes, such as the decision of firms to create jobs and hire new workers and the unemployment rate. After introducing and defining money, we discuss the conduct of monetary policy, describe the money supply process and compare the structure of monetary policy institutions and the tools of monetary policy at different central banks, such as the European Central Bank and the U.S. Federal Reserve. We then study theory and empirical evidence related to the effects of monetary policy on the economy and its transmission mechanisms. Here we emphasize the role of imperfections in both credit and labor markets. Then, we discuss the design of monetary policy and present a number of related issues, such as the time-inconsistency of monetary policy. We also develop a model of inflation targeting. Finally, we analyze the unconventional response of monetary policy in turbulent times and describe the monetary policy tools created during the recent financial crisis. We conclude with a discussion of the recent sovereign debt crisis in Europe and its relations to monetary policy. Simple analytical models are derived in class.
- What is money?
- What are the tools available to central banks to conduct monetary policy? How is monetary policy conducted at the Fed and the ECB?
- What is the role of banks in the creation of money?
- How is monetary policy transmitted to the economy? What are the effects on inflation, unemployment and output?
- What are the features financial and labor markets that make them special, and how they interact with monetary policy and the rest of the economy?
- How should central banks conduct monetary policy?
- How has monetary policy in the US and Europe responded to the emergence of the liquidity trap and the financial crisis? How do quantitative easing, credit easing, forward guidance and other unconventional monetary policies work?
Students are evaluated based on a written exam and two problem sets. The final grade is a weighted average of the grade obtained in the written exam and the grade obtained in the problem sets. In computing the final course grade, the exam grade has a weight of 70% and the problem sets grade has weight of 30%. If the exam grade is higher than the problem sets grade, the exam grade has weight 100%.
In order to take the written exam, students have two possibilities.
- The first possibility is to take two partial examinations. The first partial examination takes place toward the end of October and covers the first part of the course material; the second partial examination takes place in January (or in the December session, which reserved to exchange students) and covers the second part of the course. To pass the exam, students must get at least 18/30 in each of the two partial examinations. The two partial exams are equally weighted (50% each) when computing the final exam grade. Even if they have passed the first partial exam, students wishing to do so are allowed to register for any of the general examinations scheduled from January onwards (December onwards for exchange students), in which case the grade received in the first partial will be canceled. Except from this case, under no circumstances a passed exam can be retaken to improve the grade.
- The second possibility is to take a general exam, a single examination on all topics covered in the course, in any of the general exam sessions scheduled in the academic year, typically in December (only for exchange students), January, February, July and September.
- There are two problem sets, one during the first part of the course, the other during the second part. Problem sets involve both theoretical questions, as well as questions that entail dealing with macroeconomic data. Students are encouraged to work out the problem sets questions in groups, but have to submit their own individual copy of the problem set. Identical problem sets are identified and not considered valid. The two problem sets are equally weighted (50% each) when computing the final problem set grade. Problem set grades count for the final course grade when the exam is taken in December, January and February.
- F.S. MISHKIN, K. MATTHEWS, M. GIULIODORI, The economics of Money, Banking and Financial Markets, Pearson, 2013, European Edition.
- S.D. WILLIAMSON, Macroeconomics, Pearson, International edition, 2013, 5th edition.
- G. MANKIW, Macroeconomics, Worth Publishers, 2010, 8th edition.
- Additional readings as specified in the program.
- Handouts, readings and slides will be made available.