ECON 1221/FIN 2221: Money, Banking, and Financial Markets

Abstract

Monetary policy, both in the U.S. and around the world is frequently in the news as policymakers work hard to control inflation, bring about balanced growth and maintain the stability of the financial system. Money, Banking, and Financial Markets is a course that looks at the workings of the overall economy and how monetary and financial policies affect it.¶ Several broad questions are addressed over the course of the semester:¶ • What are the fundamental determinants of financial asset (stocks, bonds, etc.) values and market interest rates? • What do banks do, and what is their unique role in the financial system? • How is monetary policy conducted? How has this changed in recent years? • How does monetary policy affect the macro economy? • Why is banking and financial sector regulation important? • What gives rise to financial instability and crises, and what is the role of the central bank in confronting these problems?¶ We will begin the semester devoting considerable time to studying the financial system. This will include understanding the economic role of financial institutions, the nature of banking, the emergence of “shadow banking,” as well as the economics of interest rates and asset pricing.¶ Monetary policy and financial regulation are important policy tools because they pursue three essential goals: a) to keep an economy out of recession, b) to keep inflation under control and c) to preserve the stability and soundness of the financial system. Once we have learned about the private financial system, we will examine the structure of the central bank, the Federal Reserve in the U.S., and explains how policy makers try to attain these three goals. The role of money, interest rates and exchange rates are studied as well as the way in which monetary policy affects each. In addition, we will examine the regulation of the financial sector and efforts to maintain financial and economic stability. In the last part of the semester we will devote considerable attention to the financial crisis that developed in 2007-2008, the COVID-19 crisis in 2020, and other historic panics and crises.