Ateneo - UPO

This course covers the fundamentals of monetary economics, with a focus on the importance of central banks' policies, such as the Taylor (interest rate) Rule, forward guidance, and conventional and unconventional monetary policies. In the final part, the course introduces some key issues surrounding the political economy of central banking, including independence and credibility.

The recommended textbook is Carlin & Soskice, Macroeconomics, Institutions, Instability, and Inequality, Oxford University Press, 2024 edition. An equivalent textbook is Carlin & Soskice, “Macroeconomics: Imperfections, Institutions and Policies”, Oxford University Press, 2005 edition. Complementary textbooks which are useful include Casu, Girardone & Molineux, “Introduction to Banking”, FT Prentice Hall, and Mishkin, “The Economics of Money, Banking & Financial Markets”, Pearson. Please note that ANY EDITION of the above textbooks is fine, so NO NEED to get the latest edition. Further readings and lecture notes will be uploaded on DIR.

The course provides students with the analytical tools needed to understand the role of central banks in contemporary economies and to assess the effects of monetary policy on output, employment and inflation. By attending the course, students will have the opportunity to develop: 1) an advanced understanding of contemporary academic thinking on central banking and of the analytical framework within which monetary policy is formulated; 2) familiarity with the political economy of central banks and with the policies adopted by institutions such as the FED, the ECB and the Bank of England, both conventional and unconventional; 3) the ability to critically discuss key issues in monetary policy, assessing the effectiveness, limits and side effects of the measures adopted. Most of CFUs (equivalent to about 36 contact hours) are devoted to lecture-based teaching (face-to-face classes), whereas a small share of CFUs (equivalent to about 9 contact hours) is devoted to interactive teaching (seminars).

Fundamentals of Macroeconomics (IS-LM model).

The course comprises 45 hours in total, divided between lectures held in person (lecture-based teaching) and seminars (interactive teaching). Lectures present the models and analytical tools that make up the syllabus. Seminars discuss applications to concrete monetary policy cases. Attendance at lectures and seminars is recommended. Supplementary readings and lecture slides are made available on DIR, so that non-attending students can also achieve the intended learning outcomes.

Students with physical disabilities, Learning Disabilities or Special Education Needs can request specific services and tools via the Staff Sviluppo e Coordinamento Carriere e Servizi alle Studentesse e agli Studenti, consulting the University webpage: https://www.uniupo.it/en/students-physical-or-learning- Students with disabilities, learning disabilities or special education needs, once they have contacted the University Staff, can refer to the lecturer in charge of the course to define the examination modalities, concerning academic aspects.

The examination consists of a written test lasting 90 minutes, to be taken at the end of the course. The exam paper sets three open questions, all covering the syllabus of the course as a whole: Question 1 is compulsory, while the candidate chooses one of the two remaining questions. Candidates therefore answer two questions in total, each worth up to 15 marks, for a maximum of 30 marks. The questions require candidates to derive and use the models presented during the course, to apply them to concrete monetary policy cases and to argue the conclusions they reach; the graphical representations of the model are expected to be used in support of the argument. Each answer is marked on the correctness of the analytical framework, the completeness of the argument, the capacity for critical discussion and the command of technical language. Question 1 is selective: a minimum of 9 marks is required; if this threshold is not reached, the second answer is not marked and the examination is failed. The examination is passed with a minimum overall mark of 18/30. Preparation for the examination is based on the textbooks listed among the reference texts and on the supplementary readings and lecture slides available on DIR.

The grading criteria are as follows:

18–21: the candidate demonstrates knowledge of the structure of the IS-PC-MR model and of the main monetary policy instruments, as well as of the derivation of their implications in standard cases; the answer is intelligible and free of significant conceptual errors, though it remains essentially descriptive.

22–26: the candidate uses the model correctly in cases that are not straightforward, gives a complete account of the central bank's response to a shock and of the resulting adjustment path, and argues their conclusions using appropriate technical terminology and correct use of the graphical representations.

27–30: the candidate independently connects topics covered in different parts of the syllabus, critically discusses the assumptions of the models and the limits of the analysis, and compares conventional and unconventional policies, identifying their effectiveness, limits and side effects; the answer is clear, rigorous and well structured.

30 with distinction: on top of the abilities described above, the candidate shows full command of the analytical tools and ability to formulate original, logically ordered conclusions on concrete policy cases.

IS-LM model; Central banks' balancd sheet; retail banks' balance sheet; Money supply and money multiplier; Labour Market and the Philips Curve (gender gap in employment rate, policies to close gender gap); Central bank's Loss Function; MR rule; IS-PC-MR model; Taylor Rule; Unconventional Monetary Policies (QEs, LTROs, etc); Conventional vs Unconventional Policies; The 2008-2022 Decade of Unconventional Policies; The Post-2022 Reversion to Conventional Policies. The gender dimension is not specifically addressed in the course programme, as it is not relevant to the content covered.

By the end of the course, students will have acquired knowledge of the following concepts: the structure of the balance sheet of the central bank and of commercial banks, the money creation process and the money multiplier; the modus operandi of the labour market and the relationship between unemployment and inflation described by the Phillips Curve (PC); the central bank's loss function and the derivation of the monetary rule (MR); the structure and properties of the IS-PC-MR model; the Taylor Rule; the main unconventional monetary policies (QE, LTROs, forward guidance) and the reasons for their use over the 2008-2022 decade and for the subsequent return to conventional instruments; the political economy issues surrounding central banking, with particular reference to independence and credibility.

Students will have acquired the ability to derive the monetary policy rule from the central bank's loss function; to use the IS-PC-MR model to determine the central bank's optimal response to a demand or supply shock and to trace the resulting adjustment path; to compute and interpret the interest rate implied by a Taylor Rule given observed data; and to assign a measure adopted by the FED, the ECB or the BoE to the relevant analytical category and assess its transmission mechanism.

Students will have developed independent judgement in comparing conventional versus unconventional monetary policies directed at the same objective, identifying their effectiveness, limits and side effects; they can critically discuss the assumptions underlying the models and how well these hold in the presence of the zero lower bound on interest rates; and they can assess the arguments for and against central bank independence.

Students will also have developed the communication skills needed to set out in writing, using appropriate technical terminology and the graphical representations of the model, a structured argument on a monetary policy issue, making its assumptions and conclusions explicit. They will further have developed the ability to work independently with the reference textbook and the supplementary readings made available on DIR, and to read and interpret the official communications and analytical documents of the major central banks, thereby acquiring the tools to update their knowledge autonomously.

To meet the minimum pass level, students must demonstrate knowledge of the structure of the IS-PC-MR model and of the main monetary policy instruments, the ability to derive their implications in standard cases, and the ability to set out their reasoning intelligibly and without significant conceptual errors. For a high mark, students must be able to connect topics covered in different parts of the syllabus independently (for example the labour market, the monetary policy rule and conventional policies), critically discuss the assumptions of the models and the limits of the analysis, and formulate their own conclusions on concrete policy cases, presenting them clearly and in logically coherent form.