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Programme du cours : ce que vous apprendrez dans ce cours

2 heures pour terminer


The first two lectures paint a picture of the monetary system as the essential infrastructure of a decentralized market economy. The second lecture, "The Natural Hierarchy of Money", is a kind of high-level overview of the entire course, so don't expect to fully understand it until you look back after completing the rest of the course. Nevertheless it provides essential orientation for what comes after. Lectures notes for these and subsequent lectures may be found in the very first segment of this module.

12 vidéos (Total 124 min), 2 lectures
12 vidéos
Prerequisites?7 min
What is a Bank, a Shadow Bank, a Central Bank?12 min
Central Themes13 min
Reading: Allyn Young3 min
FT: The Eurocrisis, Liquidity vs. Solvency10 min
Hierarchy of Financial Instruments9 min
Hierarchy of Financial Institutions6 min
Dynamics of the Hierarchy6 min
Discipline and Elasticity, Currency Principle and Banking Principle8 min
Hierarchy of Market Makers9 min
Managing the Hierarchy18 min
2 lectures
Lecture Notes (for download)10 min
Allyn Young10 min
3 heures pour terminer

Introduction, continued

The next two lectures are meant to introduce a key analytical tool, the balance sheet approach to monetary economics, that we will be using repeatedly throughout the course. As inspiration, first I provide a concrete example of how the approach works by "translating" the Allyn Young reading into the balance sheet language. I follow that with a more systematic introduction to this essential tool.

20 vidéos (Total 130 min), 1 lecture, 1 quiz
20 vidéos
Allyn Young: Money and Economic Orthodoxy9 min
National Banking System Before the Fed3 min
Civil War Finance, Bonds, and Loans8 min
Civil War Finance, Legal Tenders7 min
National Banking System, Origins6 min
National Banking System, Instability5 min
Federal Reserve System, Plan6 min
Federal Reserve System, Actual6 min
FT: Dealer of Last Resort5 min
Reading: Hyman Minsky3 min
Sources and Uses Accounts6 min
Payments: Money and Credit5 min
Payments: Discipline and Elasticity4 min
The Survival Constraint3 min
Payment Example: Money and Credit10 min
Flow of Funds Accounts10 min
The Survival Constraint, Redux2 min
Liquidity, Long and Short9 min
Financial Fragility, Flows and Stocks6 min
1 lecture
Hyman Minsky10 min
1 exercice pour s'entraîner
Introduction12 min
2 heures pour terminer

Banking as a Clearing System

In the next four lectures, we build intuition by viewing banking as a payments system, in which every participant faces a daily settlement constraint (a survival constraint). From this point of view, the wholesale money market plays a key role by allowing banks to relax the discipline of a binding settlement constraint, delaying final payment by putting settlement off until a later date. The relative importance of the various money markets has changed since the 2008 crisis--Fed Funds is now less important--but the conceptual framework remains valid, indeed not only for dollar money markets but also for non-dollar money markets.

20 vidéos (Total 125 min), 1 lecture, 1 quiz
20 vidéos
One Big Bank8 min
Multiple Banks, A Challenge3 min
Reading: Charles F. Dunbar2 min
Correspondent Banking, Bilateral Balances10 min
Correspondent Banking, System Network3 min
Clearinghouse, Normal Operations8 min
Clearinghouse, Private Lender of Last Resort10 min
Central Bank Clearing4 min
Central Bank Cooperation5 min
FT: European Bank Deleveraging5 min
What are Fed Funds?5 min
Payment Settlement versus Required Reserves1 min
Payment Elasticity/Discipline, Public and Private9 min
The Function of the Fed Funds Market9 min
Payment versus Funding: An Example11 min
Brokers versus Dealers2 min
Payments Imbalances and the Fed Funds Rate7 min
Secured versus Unsecured Interbank Credit5 min
Required Reserves, Redux7 min
1 lecture
Dunbar10 min
1 exercice pour s'entraîner
Banking as a Clearing System12 min
3 heures pour terminer

Banking as a Clearing System, continued

The next two lectures extend the payments system frame to non-banks by bringing in repo markets, and to the international monetary system by bringing in Eurodollar markets. Here, as in the previous two lectures, the emphasis is on settlement, and so implicitly on so-called "funding liquidity". The last three segments of the Eurodollar lecture, on the failure of two seemingly obvious arbitrage conditions, are meant to motivate the shift to market-making and "market liquidity" in the next module.

20 vidéos (Total 131 min), 1 lecture, 1 quiz
20 vidéos
Money Market Interest Rate Patterns3 min
What is Repo?3 min
Repo in Balance Sheets7 min
Comparison with Fed Funds5 min
Legal Construction of Repo9 min
Security Dealers Balance Sheet11 min
Repo, Modern Finance, and the Fed8 min
Interest Rate Spreads: Before the Crisis5 min
Interest Rate Spreads: After the Crisis8 min
FT: Ring-fencing and the Volcker Rule9 min
The Eurodollar Market in Crisis4 min
What are Eurodollars?7 min
Why is There a Eurodollar Market?4 min
Eurodollar as Global Funding Market11 min
Liquidity Challenge of Eurodollar Banks10 min
FRA as Implicit Swap of IOUs4 min
Forward Parity, Interest Rates, EH3 min
Forward Parity, Exchange Rates, UIP5 min
Forward Rates are NOT Expected Spot Rates2 min
1 lecture
Bagehot10 min
1 exercice pour s'entraîner
Banking as a Clearing System, continued12 min
2 heures pour terminer

Banking as Market Making

"Market liquidity" is supplied by dealers who stand ready to absorb temporary imbalances in supply and demand by taking the imbalance onto their own balance sheets, for a price. From this point of view, banks can be considered a special kind of dealer, since they absorb imbalances in payment flows. The first lecture is meant to build intuition by using our familiar balance sheet method to make sense of how this all worked in a system much simpler than our own. The second lecture introduces a formal model of the economics of the dealer function, which we will be using throughout the rest of the course.

16 vidéos (Total 114 min), 1 lecture, 1 quiz
16 vidéos
Reading: John Hicks3 min
Bagehot's World, Wholesale Money Market7 min
Economizing on Notes: Deposits, Acceptances8 min
Managing Cash Flow: Discount, Rediscount7 min
Market Rate of Interest2 min
Central Bank and Bank Rate8 min
The Bagehot Rule, Origin of Monetary Policy4 min
Limits on Central Banking: Internal vs. External Drain10 min
FT: Asymmetric Credit Growth in Europe6 min
Market Liquidity, Dealers, and Inventories7 min
Two-Sided Dealer Basics6 min
Economics of the Dealer Function: the Treynor Model11 min
Leveraged Dealer Basics7 min
Real World Dealers7 min
Arbitrage and the Assumption of Perfect Liquidity9 min
1 lecture
Hicks10 min
1 exercice pour s'entraîner
Banking as Market Making12 min
2 heures pour terminer

Banking as Market Making, continued

Here we adapt the Treynor model to banks, which we conceptualize as dealers in money, specifically term funding. Like Treynor's security dealers, banks supply market liquidity for a price. But sometimes, in a financial crisis, demand for market liquidity overwhelms supply, and that's where the central bank comes in, as dealer of last resort in money markets. And if the crisis is big enough, as 2007-2009, the central bank comes in as dealer of last resort in capital markets as well.

16 vidéos (Total 126 min), 1 lecture, 1 quiz
16 vidéos
Banks as Money Dealers, a Puzzle4 min
Security Dealers as Money Dealers, Matched and Speculative Book11 min
Adapting Treynor to Liquidity Risk6 min
Digression: Evolution of American Banking11 min
The Fed in the Fed Funds Market12 min
Return to the Initial Puzzle2 min
FT: Citibank and the SIVs5 min
The Art of Central Banking3 min
Evolution of Monetary Policy: 1951-19877 min
The Taylor Rule: 1987-20077 min
Monetary Transmission Mechanism10 min
Anatomy of a Normal Crisis8 min
Anatomy of a Serious Crisis4 min
Should the Fed Intervene or Not?8 min
The Fed as Dealer of Last Resort: 2007-200915 min
1 lecture
Treynor10 min
1 exercice pour s'entraîner
Banking as Market Making, continued12 min
1 heure pour terminer

Midterm review and exam

The first twelve lectures have introduced all of the main concepts of the course. The midterm exam gives you a chance to test whether you have mastered these concepts before extending them into new areas in the second part of the course. But before you try the exam, first use the review lecture, and the questions from students, to review the main concepts.

10 vidéos (Total 64 min), 1 quiz
10 vidéos
Inspiration: The Origin of the Fed3 min
Central Bank Operations, Normal Times7 min
Central Bank Operations, Crisis Times4 min
Settlement Risk, Payments, and Market-making4 min
Q: Standard and Subordinate Coin2 min
Q: War Finance as Financial Crisis4 min
Q: Forward Parity7 min
Q: Payments, CHIPS and Fedwire12 min
Q: Fed Balance Sheet Operations10 min
1 exercice pour s'entraîner
Midterm20 min
3 heures pour terminer

International Money and Banking

The next four lectures extend the "money view" perspective to the larger world of multiple national monies by thinking about the international monetary system as a payment system, and by thinking of banks as market makers in foreign exchange. The first lecture is introductory and conceptual, while the second builds intuition by "translating" Mundell's account of the development of the international monetary system into money view language (similar to what we did at the beginning of the course for Allyn Young's account of the development of the US monetary system).

18 vidéos (Total 136 min), 1 lecture, 1 quiz
18 vidéos
Key Currencies as a Hierarchical System8 min
What is Money? Chartalism versus Metallism8 min
Chartalism as a Theory of Money2 min
Quantity Theory of Money4 min
Purchasing Power Parity3 min
Metallism as a theory of money5 min
A Money View of International Payments, FX Dealers11 min
Chartallism, Metallism, and the Money View Compared4 min
Private and Public Money: A Hybrid System7 min
Hybridity in FX Market-making5 min
FT: Costs of Japan's Monetary Policy2 min
Reading: Robert Mundell10 min
Act 1 (1900-1933): Confrontation of the Fed with the Gold Standard11 min
Act 2 (1934-1971): Contradiction Between Keynesian National Management and the Bretton Woods Fixed Rate System14 min
The Dollar System7 min
Act 3 (1972-1999): Flexible exchange, Learning from Experience8 min
Act 4: Global Financial Crisis, Limits of Central Bank Cooperation17 min
1 lecture
Mundell10 min
1 exercice pour s'entraîner
International Money and Banking12 min
2 heures pour terminer

International Money and Banking, continued

The next two lectures use the Treynor model to understand how exchange rates are determined in dealer markets. In the second, we confront directly the puzzle we observed earlier in the course, namely why uncovered interest parity (UIP) fails to hold in real world markets.

15 vidéos (Total 126 min), 1 lecture, 1 quiz
15 vidéos
International Transactions under the Gold Standard11 min
Dealer Model for Foreign Exchange10 min
Central Banking, Defense of Domestic Exchange8 min
Bank of England, Defense Against External Drain12 min
Toward a Theory of Exchange, Without the Gold Standard9 min
FT: High Frequency Trading4 min
Uncovered Interest Parity (UIP) and the Expectations Hypothesis of the Term Structure (EH)2 min
FX Dealers Under the Gold Standard, Redux5 min
Private FX Dealing System10 min
Economics of the Dealer Function, Speculative Dealer5 min
Economics of the Dealer Function, Matched-book Dealer6 min
Digression: Why do UIP and EH Fail?9 min
Central Bank as FX Dealer of Last Resort16 min
Reading: McCauley on Internationalization of Renminbi10 min
1 lecture
Kindleberger10 min
1 exercice pour s'entraîner
International Money and Banking, continued12 min
3 heures pour terminer

Banking as Advance Clearing

The next four lectures extend the money view to the larger financial world of capital markets, where the price of risk is determined in dealer markets for swaps of various kinds. The first lecture is a kind of conceptual introduction, while the second translates the standard finance account of forwards and futures into money view terms, as key building block for what comes after.

19 vidéos (Total 135 min), 1 lecture, 1 quiz
19 vidéos
Bagehot's World: Separation of Money Markets and Capital Markets8 min
The New World: Integration of Money Markets and Capital Markets10 min
Funding Liquidity Versus Market Liquidity2 min
Digression: Schumpeter on Banking and Economic Development4 min
Payment Versus Funding5 min
Reading: Gurley and Shaw2 min
Financial Evolution: Indirect Finance to Direct Finance13 min
Banking Evolution: Loan-based Credit to Market-based Credit11 min
Preview: Central Banking and Shadow Banking8 min
FT: Argentina in Court to Fight Debt Ruling4 min
Banking as Advance Clearing5 min
Forwards versus Futures13 min
Forward Contracts, Fluctuations in Value and Final Cash Flow14 min
Futures Contracts, Fluctuations in Value and Daily Cash Flows6 min
Cash and Carry Arbitrage, Defined7 min
Cash and Carry Arbitrage, Explained as Liquidity Risk5 min
Cash and Carry Arbitrage, Explained as Counterparty Risk2 min
Cash and Carry Arbitrage, as a Natural Banking Business3 min
1 lecture
Gurley and Shaw10 min
1 exercice pour s'entraîner
Banking as Advance Clearing12 min
3 heures pour terminer

Banking as Advance Clearing, continued

In the modern economy, the price of risk is determined in swap markets that distinguish specific forms of risk, most importantly interest rate swaps and credit default swaps. The Treynor model can be adapted to understand how the price of risk is formed in dealer markets.

19 vidéos (Total 131 min), 1 lecture, 1 quiz
19 vidéos
Reading: FOMC Report (1952)7 min
Treasury-swap Spread, a Puzzle11 min
What is a Swap?2 min
Why swap? An Example from Stigum10 min
Market Making in Swaps8 min
Money Market Swaps, Example5 min
Life in Arbitrage Land5 min
Treasury-swap Spread, Liquidity Risk or Counterparty Risk?7 min
FT: Internationalization of the Euro5 min
Credit Indices3 min
Fischer Black (1970), Risk-free Security2 min
What is a Credit Default Swap (CDS)?6 min
Corporate Bonds3 min
CDS Pricing11 min
Market Making in CDS4 min
Example: Negative Basis Trade and Liquidity Risk10 min
Example: Private backstop of Marketmaking in CDS15 min
Example: Synthetic CDO as Collateral Prepayment6 min
1 lecture
FOMC10 min
1 exercice pour s'entraîner
Banking as Advance Clearing, continued12 min
3 heures pour terminer

Money in the Real World

In this final module, we bring the entire course together. These two lectures build on everything that came before, and show how all the pieces fit together into a unified whole. Specifically, the first lecture uses the conceptual apparatus of the money view to make sense of shadow banking as the quintessential form of banking for the modern financially globalized world. And the second lecture shows how the conceptual apparatus of the money view fits with standard economics view and finance view, by drawing attention to dimensions of the world from which the standard views abstract.

17 vidéos (Total 134 min), 1 lecture, 1 quiz
17 vidéos
Shadow Banking vs Traditional Banking6 min
Liquidity and Solvency Backstops7 min
Global Dimension5 min
Evolution of Modern Finance3 min
What is Shadow Banking?12 min
Backstopping the Market Makers7 min
Regulation of Systemic Risk6 min
Regulation of Collateral and Payment Flows10 min
Private Backstop and Public8 min
FT: Future of Banking4 min
Three World Views15 min
Economics View: Commodity Exchange8 min
Finance View: Risk15 min
The Education of Fischer Black4 min
Steps From the Finance View to the Money View7 min
A Money View of Economics and Finance5 min
1 lecture
Shadow Banking10 min
1 exercice pour s'entraîner
Money in the Real World12 min
20 minutes pour terminer

Final Exam

The previous module operated in effect as a review of the entire course, so if you were able to make sense of those lectures, you are ready for the final. But maybe you first want to have a look back at the second lecture, "The Natural Hierarchy of Money", for a high-level summary of the essential concepts of the money view. For almost everybody, the money view is a new and unfamiliar way of thinking about the world, and it takes a while to get used to it. The purpose of this course is to plant the seed, by demonstrating the value of this way of thinking for making sense of real world problems. Once you are done with the final exam, the real work begins, of using the money view to make sense of whatever real world problems confront you in your own daily life.

1 quiz
1 exercice pour s'entraîner
Final Exam20 min
157 avisChevron Right


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Principaux examens pour Economics of Money and Banking

par BGJul 17th 2017

An intellectually engaging course opening a debate about how we think about markets and how we should tackle the current challenges. Accessible to non-economists. I warmly recommend it to everyone.

par AKNov 18th 2017

This course is really useful to me ... I was always interested on monetary and fiscal policies and associate mechanism in Macroeconomics and this course covers the Monetary part in good details.



Perry G Mehrling

Economics, Barnard College

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