20297 - MONETARY POLICY

We will not use much maths; in fact, we will use just simple algebra: virtually no derivatives, very simple difference equations, and no integrals. However, if seeing an equation gives you a headache, you should probably not take this course. I will also assume that you have taken at least one full course specifically on macroeconomics, and hopefully two.

Please note: this course covers a lot of topics. I believe this is necessary in order to understand fully the current issues and debates on monetary policy. As a result, the material to be studied is above the typical 6-credit course. If this bothers you, you should probably not take this course. (For the record: I have tried, but not been able, to make this into an 8-credit course). The first goal of this course is to study the evoltuion and to discuss the key current problems of monetary policy, using a rigorous framework but with an emphasis on facts and problems as opposed to complicated theoretical models. In particular, in order to understand the working of monetary policy we need to understand the instruments and working of the money market ---something that is just absent from the macro models of monetary policy now in use. The second goal is methodological. Most, if not all, macroeconomic problems do not have an obvious, black-or-white solution. I will therefore strive to present all the main sides of the debate, instead of presenting a simple model with a simple, one-sided solution. Ideally, at the end of the course, the student will have the tools to evaluate critically the different positions on the main issues being debated. The third goal of the course is to give a correct feel for facts and figures, and to teach students where to get and how to interpret monetary statistics and central bank balance sheets.

Please note: in addition to the lectures covering the syllabus below, I will try to have  three lectures by three invited lecturers (all dates to be defined, we need flexibility to accomodate the schedules of the speakers):

Olivier Blanchard, former Chief Economist of the International Monetary Fund, who will speak on interest rates and public debt

Andrea Filtri, Co-Head of European Equity Research, Mediobanca, who will speak on digital currencies

Philip Lane, current Chied Economist of the European Central Bank, who will speak on current issues at the ECB

Here is the regula syllabus:

Part 1: Monetary policy

1.       Nominal and real interest rates. Short and long rates.

2.       The Fed and the ECB

3.       Money, the monetary base, and the balance sheet of the sectors

4.       The money supply process

5.       Monetary policy instruments of central banks

6.       Monetary poly in practice before the crisis  

7.       A bit of history

8.       Qantitative easing: facts and numbers

9.       Unconventional monetary policies: quantitative easing

10      The role of central bank capital

11.     The Target system

12.     The Modern Monetary Theory

13.     An era of low interest rates

Part 2: The money market, financial markets, and the financial crisis

14.   The money market

15.   The economics of structured finance

16.   Credit default swaps

17.   The emerging importance of dealer banks

18.   Shadow banking

19.   The financial crisis and its explanations

- Understand how monetary policy is conducted in the Eurozone and the US

- understand the current debate about monetary policy

- locate and interpret central bank balance sheets and data

- understand the evolution of monetary policy and its debate during the pandemic

- compare mainstream monetary policy with the Modern Monetary Theory and alternative policy proposals

Interpret the actions of monetary policymakers.

• Face-to-face lectures
• Online lectures

Face-to-face lectures are standard. Online lectures will replace face-to-face lectures  depending on the decision of the university administration. Online lectures are live, recorded and made available to students. Students can intervene even during online lectures, either in wiriting or by voice.

Active participation is highly encouraged, in class and online. 

With the purpose of measuring the acquisition of the above-mentioned learning outcomes,the assessment process is based on a written examination (100% of the final grade)

The written exam consists of exercises and/or open questions, aimed at assessingstudents' ability to:

•   Apply the analytical tools illustrated during the course.

•   Solve simple economic models and explain their implications.

•   Identify the economic effects of monetary and fiscal policies.

•   Absrib the intuition underlying the main concepts discussed in class

The exam also consists of short statements (true or false) to discuss,aimed at assessing students' ability to:

•   Precisely define the main economic variables and concepts.

•   Articulate economic reasoning.

•   Correctly apply the knowledge and skills acquired duringthe course.

content and weight distribution of those applied to attending students).

Handouts will be made available before each class  on the course BlackBoard