COURSE AIMS AND OBJECTIVES: Course is based on and represents an extension of Macroeconomics course. Monetary economics establishes relations between real variables (production, employment, real interest rates) and nominal variables (nominal interest rates, money supply, inflation rate). In addition to the basic analysis of money supply and demand mechanisms and monetary policy objectives and conduct, this course puts special emphasis on the functioning of the foreign exchange market. Due to high level of currency substitution exchange rate mechanism is by far the most important transmission channel of the monetary policy in Croatia. Therefore, we study in more detail that market and that particular transmission mechanism.
COURSE DESCRIPTION AND SYLLABUS:
1. Introduction to monetary economics (various definitions of money, use of money, measuring the money supply, price of money - interest rate, exchange rate...)
2. Law of one price (purchasing power parity, exchange rate deviations)
3. Law of one price in financial markets (uncovered and covered interest rate parity)
4. Money market, interest rate determination
5. Macro and micro structure of foreign exchange market
6. Banking market and non-bank financial intermediators
7. Bond market
8. Inflation (definition, measurement, costs of inflation)
9. Monetary policy (monetary policy goals, instruments, policies)
10. Exchange rate regimes and monetary policy
11. Monetary policy in the European Monetary Union (EMU, Euro, E(S)CB, transmission mechanisms, policy instruments and developments)
12. Monetary policy in Croatia - case study
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