Introduction

Money and Banking is an upper-level economics and finance elective that provides an in-depth examination of the monetary system, including the history and function of: money, commercial and central banking systems, and monetary policy. This course will use a combination of theoretical and empirical approaches to explore these topics. This course is intended for students majoring in economics, finance, or related fields, with prior knowledge of both macro and microeconomics. Lectures will coordinate with chapters of the text (as indicated below), but will also modify and supplement what is found there. Understanding the text is critical, however, it is not enough; mastery of the course material will require a thorough understanding of both the text and the lectures.

The topics covered in this course are fundamental to understanding the financial system and its role in the economy. They provide insights into how money, banking, and financial institutions facilitate economic activity. Understanding these topics will enable students to make informed decisions in their personal financial lives and contribute to discussions on economic policy. The knowledge gained in this course will also be valuable for careers in finance, economics, policy-making, and more.

The main course text is Money, Banking, and the Financial System, 4th edition, Hubbard and O’Brien, 2022 .

Useful Files

Unit 1: Foundations of Money and Interest Rates

This unit lays the groundwork for the course by introducing the fundamental concepts of money, the payments system, and interest rates. It provides a historical context for the evolution of money and discusses the various factors that influence interest rates. Understanding these foundational concepts is crucial for grasping more complex topics later in the course. It also helps students appreciate the role of money and interest rates in the economy.

Lecture slides

  1. History of Money
  2. Money and the Payments System
  3. Interest Rates and Rates of Return
  4. Determining Interest Rates
  5. The Risk and Term Structure of Interest Rates
  6. An Intertemporal Model of Interest Rates

Unit 2: Banking, Financial Institutions, and Regulation

This unit delves into the world of banking and financial institutions. It covers the history of banking, the economics of banking, and the role of non-traditional financial institutions. It also discusses financial crises and the role of regulation in preventing such crises. Understanding how banks and other financial institutions operate, the risks they face, and how they are regulated is crucial for understanding the financial system as a whole.

Lecture slides

  1. The History of Banking
  2. The Economics of Banking
  3. Beyond Commercial Banks: Shadow Banks and Non-bank Financial Institutions
  4. Bank and Financial Crises
  5. Financial Regulation

Unit 3: Central Banking and the Federal Reserve

This unit focuses on the role of central banks, particularly the Federal Reserve, in managing the economy. It covers the history and structure of the Federal Reserve and the concepts of money supply and demand. Central banks have a significant impact on the economy through their control of monetary policy. Understanding their evolution and operation is crucial for understanding economic trends and policy debates.

Lecture slides

  1. The Federal Reserve and Central Banking
  2. The Federal Reserve’s Balance Sheet
  3. Money Supply and Money Demand

Unit 4: Monetary Policy and Theory

This unit introduces students to the tools of monetary policy and the key theoretical models in macroeconomics to discuss the interaction between monetary policy and the broader economy. It also compares and contrasts fiscal and monetary policy. It provides the theoretical underpinnings for understanding how monetary policy affects the economy and helps students understand the policy options available to governments and central banks and the trade-offs involved in these decisions.

Lecture slides

  1. Contemporary Monetary Policy
  2. Monetary Theory I: The Aggregate Demand and Aggregate Supply Model
  3. Monetary Theory II: The IS-MP Model
  4. Fiscal vs. Monetary Policy