Money and Banking
Module Code: EC3021
Module Title: Money and Banking
- ECTS Weighting: 10
- Semester/Term Taught: Michaelmas + Hilary Term
- Contact Hours: 44 hours of lectures and 10 hours of tutorials
- Module Personnel: Lecturer - Professor Agustín Bénétrix / Lecturer - Mr Frank Browne
On successful completion of this module, you will be able to:
- Discuss the recent performance of financial markets and government intervention strategies in light of economic theory;
- Describe recent trends in the organization of the financial industry and recognize the main microeconomic theories of banking;
- Examine the nature of money, definitions of the money supply and different approaches to determining how the money supply is created;
- Explain monetary theory and its relevance to macroeconomic policy against the background of the main financial institutions and markets;
- Discuss current issues in relation to the formulation and operation of monetary policy;
- Describe the main financial instruments and the way in which they help redistribute risk between economic agents.
The first half of this module is formed by three pillars. The first one will introduce the core principles of banking and present an overview of financial instruments, financial markets and financial institutions. The second pillar will study fundamental concepts such as value and present value, risk and term structure, bonds, interest rate determination, stock markets, market efficiency, derivatives and foreign exchange. We will study how market interest rates are determined. The third pillar will put the focus on the economic theory behind financial intermediaries. We will discuss how the financial system can mitigate problems related to asymmetric information. This part of the module will also cover bank risk management, bank runs and financial crises.
The second half of the module covers contemporary monetary economics and its application to the conduct of monetary policy. As well as reviewing the relevant academic literature, the module deals with the experience of the main central banks, with a particular focus on the European Central Bank. The module first analyses the nature of money and the long-run relation between money and prices and economic activity. It then examines a number of key issues in regard to contemporary monetary policy: monetary policy rules, the role of expectations and the transmission mechanism. For this purpose, the course presents the New Keynesian model which is now widely used for the purpose of analysing monetary policies. The course then looks at the monetary policy strategies of the major central banks as well as the operational frameworks by which they steer interest rates. The module concludes by looking at the conduct of monetary policy during the financial crisis, covering issues such as non-standard measures, the implications of the zero bound on nominal interest rates and the role of monetary policy in contributing to financial stability.
Recommended Reading List
- Cecchetti, Stephen G. and Schoenholtz, Kermit L. Money, Banking and Financial Markets 3rd ed. (McGraw-Hill, 2011)
- Matthews, Kent and John Thompson. The Economics of Banking, 2nd ed. (Wiley, 2008)
- Feixas, Xavier and Rochet, Jean-Charles. Microeconomics of Banking, 2nd ed. (MIT Press, 2008)
NB: Additional readings will be suggested in lectures.
Module Pre Requisite
EC2010 and EC2040
There will be tutorial assignments and a take home exam (one in each term), each accounting for 15% of the overall grade. The annual exam accounts for 70% of the overall grade.