KING'S COLLEGE LONDON

(University of London)

King’s Business School

6QQMN972: MONETARY THEORY AND POLICY

2023-2024

Module Outline

This is an advanced course in monetary theory and central bank policy. It involves theoretical
modelling and econometric concepts.

This module has three main parts. The first part of the module covers elements of monetary
theory. Topics include the evolution of money, the reasons for holding money, the demand for
money, the supply of money, monetary aggregates, and the money creation process.

The second part of the module focuses on the monetary aspects of the mainstream
macroeconomic frameworks used for policy analysis and the implications of money and
monetary policy for the business cycle. In discussing the transmission mechanism of monetary
policy, we will explore the role of financial intermediation.

The third part of the module focuses on central banking and monetary policy. We start with a
discussion on the development of central banks, and their goals and functions in an international
context and present the tools of monetary policy. We then provide the theoretical foundations
for the understanding of the modern institutional design of monetary policy and the strategies
and tactics of monetary policy as well as the competing monetary policy frameworks. We
discuss the conduct of monetary policy, both conventional and unconventional. We consider
aspects of monetary policy and financial markets interactions and the challenge of financial
stability.

Teaching
This is a course in monetary economics and central banking involving analytical economic
reasoning and elements of macroeconomic modelling. Intermediate Macroeconomics (e.g.,
Macroeconomics 5QQMN937 at KBS) is a prerequisite for this module. Some lectures will
involve the use of calculus.

Lectures
The lectures are schedule on Monday 16:00-18:00. There are no lectures in the Reading Week.
Lecture presentation notes and problem sets used for tutorials will be available on KEATS. The
lecture presentation notes can help you to organise your study, but their availability does not
dispense the reading of the recommended chapters of the compulsory textbook and other
assigned readings. Studying the assigned readings (including the textbook chapters) is an
absolute requirement for passing the course. Additional reading will be provided during the
course. Lecture and tutorial attendance is essential for a good performance.

Tutorials
The tutorial leader is Mr. Riccardo Russo.

1
Each student will also attend an in-class tutorial session once every two weeks. The tutorial
meetings will take place on the weeks commencing on October 2, October 16, November 6,
November 20, and December 4. There are no tutorials in the Reading Week.

Students will be assigned to tutorial groups by the programme officers. In case you want to
switch of tutorial groups you should contact the programme officers. Please do not ask the
lecturer to authorise any switch of tutorial groups.

Tutorial questions, for which answers are to be prepared in advance, will be posted on KEATS
the week before the tutorial. An answer key to the tutorial questions will be posted after the
tutorials. It is important to attend the tutorials because the answer key cannot be as detailed as
the tutorial presentation.

Textbooks
The module will cover material from various textbooks. The required readings will be from the
two textbooks below and any other additional material that will posted on KEATS and will be
designated as required reading.

• Mishkin, Frederic S., (2018) The Economics of Money, Banking and Financial Markets:
Global Edition, 12th edition (or any other edition), Pearson.
• K. Bain and P. Howells, (2009), Monetary Economics: Policy and its Theoretical Basis,
Palgrave.

One important reason for designating the above textbooks as required is that they are available
online (please follow the link “Reading list” on KEATS).

Other useful textbooks include

• Carlin, W. and D. Soskice (2014). Macroeconomics: Institutions, Instability, and the
Financial System, Oxford University Press
• Cecchetti, S. G., K. L. Schoenholtz, and J. Fackler, Money, Banking, and Financial Markets,
5th Edition, McGraw-Hill, 2019.
• Mishkin, F. S., K. Matthews, and M. Giuliodori, The Economics of Money, Banking and
Financial Markets, European Edition, Pearson, 2013.
• Gali, J., (2015) Monetary Policy, Inflation, and the Business Cycle: An Introduction to the
New Keynesian Framework, 2nd Edition, Princeton University Press. (#)
• Lewis, M.K. and P.D. Mizen, (2000) Monetary Economics, (Oxford; New York: Oxford
University Press
• Walsh, C., (2017), Monetary Theory and Policy, 4th Edition (or any other edition), MIT
Press, Cambridge Massachusetts & London, England. (#)
(#) denotes advanced material

Additional readings from academic journals and from policymaking institutions will be
assigned.

Useful websites include:

• http://www.bankofengland.co.uk/
• http://www.federalreserve.gov/
• http://www.ecb.int
• http://www.bis.org

2
Assessment
Your work will be assessed by an end of term Exam, which counts for 90% of your overall
mark and an in-class test, which counts for 10% of your overall marks. The exam will take
place during the Period 1 Assessments (January 2024).

Student Queries
When you email the lecturers please make sure that in the “subject” of the email you write the
code and name of the module, i.e., “6QQMN972 Monetary Theory and Policy”.

Office Hours and Contact Details

Professor Georgios Chortareas (Lectures)
Office hours: Monday 9:00-10:00 during term time.
King's Business School
Bush House
Fourth floor, Room 4.N24
Tel: 0207848 4164
Email: georgios.chortareas@kcl.ac.uk

Mr. Riccardo Russo (Tutorials)

Office hours: TBA
King's Business School
Bush House
Third Floor, N3.10
Email: riccardo.russo@kcl.ac.uk

3
 Topics and Readings

Lecture 1 (Week of September 25th)

Course organisation
Introduction: What is money? The evolution of money; Functions of money; Money, payments,
and liquidity; Measuring money; The classical theory of money: quantity theory. Why holding
money?
Required reading: Mishkin, chapters 1, 20
Bain & Howells 1, 2, 5
Additional readings will be posted on KEATS

Lecture 2 (Week of October 2nd)

Why holding money? Traditional approaches: liquidity preference, inventory models, portfolio
models, monetarism, and hyperinflations. Modern approaches: money in the utility function,
cash-in-advance constraints, and “new monetarist economics”.
Required reading: Mishkin, chapters 5, 20
Bain & Howells, chapter 5, 6
Additional readings will be posted on KEATS

Lecture 3 (Week of October 9th)

The supply of money: Monetary aggregates, money creation and the multiplier.
Required readings: Mishkin, chapter 15.
Bain & Howells, chapter 3
Additional readings will be posted on KEATS

Lecture 4 (Week of October 16th)

The development of central banks. The international experience. The goals and structure of
central banks. The theoretical foundations for understating modern central banking. Tools of
monetary policy.
Required readings: Mishkin, chapter 14, 16.
Additional readings will be posted on KEATS

Lecture 5 (Week of October 23rd)

Monetary policy strategies and the institutional design of monetary policy: Time-inconsistency,
inflation bias and credibility. Rules versus discretion. Central bank independence, transparency,
and communication. Monetary and inflation targeting.
Required readings: Mishkin, chapters 17, 25
Bain & Howells, chapters 8, 9
Additional readings will be posted on KEATS

READING WEEK: October 30 - November 3

4
Lecture 6 (Week of November 6th)
The conduct of monetary policy: Monetary policy instruments and tactics. Lags in monetary
policy. Monetary policy rules. Monetary policy at the zero-lower bound. Unconventional
monetary policy. Monetary policy and inflation
Required readings: Mishkin, chapters 17, 24
Bain & Howells, chapters 9, 13, 14
Additional readings will be posted on KEATS

Lecture 7 (Week of November 13th)

Monetary policy and financial markets; The term structure of interest rates.
Central banks and financial stability; The lender-of-last-resort. Macroprudential and financial
policies after the crisis.
Required readings: Mishkin, chapter 6
Bain & Howells, chapter 9, Appendix II
Additional readings will be posted on KEATS

Lecture 8 (Week of November 20th)

Money and monetary policy in the traditional and modern workhorse macroeconomic models.
Money and the business cycle.
Required readings: Mishkin, chapter 26.
Bain & Howells, chapter 7
BoE QB
Additional readings will be posted on KEATS

Lecture 9 (Week of November 27th)

The transmission mechanism of monetary policy. The role of financial intermediation. Credit
cycles. Empirical evidence on money output and prices.
Required readings: Mishkin, chapter 26.
Bain & Howells, chapter 3
BoE QB
Additional readings will be posted on KEATS

Lecture 10 (Week of December 4th)

Topics in monetary policy: Monetary policy under uncertainty; Electronic money; The natural
real interest rate. Current debates and challenges
REVISION
Required readings:
Additional readings will be posted on KEATS