Monetary Policy, Banks, and Financial Markets

Learn about the key concepts of how the financial system, the banking system, the money supply process and monetary policy work.
The minor covers questions around money, interest rates, banking, financial crises and monetary policy such as

• What is money and how is it created in the financial system?
• How do capital and money markets work?
• How are interest rates on different bonds determined?
• What is the role of commercial banks and central banks?
• Why and how are banks regulated?
• Why can financial crises have such devastating consequences for the real economy?
• How do central banks implement conventional and unconventional monetary policy?
• How does monetary policy transmit to the real economy?
• How can monetary policy stabilize inflation and output in response to demand and supply shock?

• Compare the financial system of different countries
• Illustrate the functions of money, financial intermediaries and the money supply process
• Analyze moral hazard and adverse selection problems in financial markets using a formal model, and how these frictions can be overcome by financial intermediaries
• Discuss the inherent instability of banking in a formal model and how it is addressed by financial regulation
• Investigate the build-up, the evolution and amplification mechanisms of financial crises throughout history using different models of financial crises
• Discuss the function of central banks and how monetary policy affects the real economy through different channels in a domestic and international context
• Calculate relevant concepts around interest rates including present value, yield to maturity, expected return, the risk- and term-structure of interest rates, as well as the difference between nominal and real interest rates
• Analyze how aggregate demand and aggregate supply affect aggregate output and inflation, and how they interact with monetary policy.

It is a major goal of this minor to make the theory and discussion directly applicable to the real world. Every class will strive to show students how the material covered in each session is directly relevant to them, and discussed in the context of recent developments in financial markets and economic policy.
This course is aimed at a wide population of students from a multitude of backgrounds.
The required skills for the course are:
• Good understanding of mathematics (e.g., solving equations for unknowns)
• Good understanding of statistics/econometrics (e.g., interpreting coefficient estimates from a regression)
• Basic knowledge of corporate finance, accounting and macroeconomics (appreciated but not necessary)

All RSM minors have mandatory attendance.

Teaching methods
The course consists of interactive lectures which students need to prepare for by studying teaching materials. The lectures are complemented with on-demand videos. There are three group assignments which students present in class. Students also need to participate in a game about financial regulation.

Teaching materials

• “The Economics of Money, Banking, and Financial Markets, 13th Global Edition” by Frederic S. Mishkin (ISBN-13: 9781292409481) (students can also work with the 12th edition)
• Selected scientific articles

Method of examination

• Final written test (open questions)

• Three written group assignments including presentations

Composition final grade
Final Grade = 0.3 × (Averaged Assignment Grade) + 0.7 × (Written test Grade)

In order to obtain a grade you need to score at least 4.5 on the written test. In order to pass the course a score of 5.5 is required for the overall final course grade.

There will only be a re-sit for the written test.