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Course 2019-2020 a.y.


Department of Economics

Course taught in English

Programma in corso di definizione

Go to class group/s: 31

Course Director:

Classes: 31 (II sem.)

Suggested background knowledge

We will not use much maths; in fact, we will use just simple algebra: virtually no derivatives, very simple difference equations that we will solve by brute force, 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.

Mission & Content Summary

The first goal of this course is to discuss some of the key problems of monetary policy of our times, using a rigorous framework but with an emphasis on facts and problems as opposed to complicated theoretical models. There will be no models, and very few equations. In particular, the financial crisis has taught us, among many other things, that 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 totally absent from the macro models of monetary policy now in use. The second goal of this course is methodological. Most, if not all, macroeconomic problems do not have an obvious, black-or-white solution: there are pros and cons in any solution we might think of. 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. The third goal is to give the instruments to discuss the current problems. 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. To do so, we will also look at several case studies. The fourth goal of the course is to give a correct feel for facts and figures.


Part 1: Preliminaries

  1. Nominal and real interest rates
  2. The monetary base and the money supply process
  3. The Fed and the Ecb

Part 2: the money market

  1. The money market
  2. The repo market
  3. Securities lending
  4. The commercial paper market
  5. Money market mutual funds
  6. The Eurodollar market
  7. Certificates of deposits
  8. The federal funds market

Part 3: The conduct of monetary policy

  1. Monetary policy at the Fed
  2. Monetary policy at the Ecb

Part 4: The evolution of the banking system and money markets before the crisis

  1. The economics of structured finance
  2. Credit default swaps
  3. The emerging importance of dealer banks
  4. Shadow banking

Part 5: The crisis

  1. The debate on monetary policy before the crisis
  2. A brief chronology of the crisis
  3. Putting it all together: explanations of the crisis

Part 6: After the crisis

  1. Unconventional monetary policies and the zero lower bound at the Fed …
  2. …. And at the Ecb

Part 7: The debate on monetary policy and the banking system in Europe

  1. Some terminology: Tier 1 and Tier 2 capital, and the rest …
  2. The zero lower bound and bank profitability
  3. The problem of nonperforming loans
  4. Non performing loans in Europe
  5. Case study: Non performing loans in Italy
  6. Banking union and bank resolution
  7. Case study: Spain and the cajas
  8. Case study: Monte Paschi di Siena
  9. Is equity expensive?  The bankers’ new clothes

Intended Learning Outcomes (ILO)

Understand how monetary policy is conducted in the Eurozone and the US, and what are the main challenges currentluy facing monetary policymakers.


Interpret the actions of monetary policymakers.

Teaching methods
  • Face-to-face lectures

Teaching materials

Handouts available online on the course BlackBoard

Last change 21/05/2019 11:36