Monetary Economics

Course Objective: 

 

This course explores the practical aspects of money and banking within the economy. Topics will include money creation, banking operation, central banking system-conduct of monetary policy, and monetary management in an open economy.  Emphasis is given to the changing role of financial institutions as well as new financial instruments. The course develops a number of theoretical frameworks for the analysis of domestic economic perspective related to money, banking operation, monetary transmission mechanisms, which provides a base for the understanding of classical and Keynesian approaches for monetary theory and their empirical evidence. The course also focuses on the issues of monetary policy implementation in the closed and open economy contexts, like determinants of the price level, rate of inflation, exchange rate in different regimes.

Course Outcomes:  The students will be able to

1

Understand the basic concepts of money including its origin, functions

2

Understand the role of money, money demand and money supply in the economy

3

Describe the process of money creation by the banking system and the role of the central bank

4

Understand the general principles of bank management

5

Identify the key banking sector reforms in India and policy implications of those reforms with respect to development of Indian economy

6

Elucidate the liability and asset portfolio management "problem" of banks

7

Assess and evaluate the conduct of monetary policy by the central bank with respect to an open economy management

8

Understand the analysis of market for reserves and federal funds rate with special reference to changes in monetary policy tools

9

Asses the changing role of financial institutions as well as new financial instruments in the economy

Course Content:  

 UNIT I

Money: Concept, functions, measurement; Supply of money: Mechanics of money supply creation; measures of money supply in India. Demand for money: Fisher, Cambridge, and Keynesian and Friedman theories.


Money: Concept, functions, measurement; Supply of money: Mechanics of money supply creation; measures of money supply in India. Demand for money: Fisher, Cambridge, and Keynesian and Friedman theories.

10 hrs

 UNIT II

Commercial Banking System: Meaning, functions, assets and liabilities-Balancing liquidity with profitability, process of credit creation by commercial banks. reforms.

10 hrs

 UNIT III

General principles of banking management, Indian banking system: Changing role and structure; banking sector

10 hrs

 UNIT IV

Central Banking: Meaning and functions, techniques of credit control with special reference to India, conduct of monetary policy: Goals, targets, indicators and instruments of monetary control; Analysis of market for reserves and federal funds rate with special reference to changes in monetary policy tools. Monetary management in an open economy.

10 hrs

UNIT V

Financial Institutions: Economic analysis of financial structure; Basic puzzles about financial structure throughout the world, transaction costs and its impact on financial structure,

10 hrs

UNIT VI

Problem of asymmetric information – adverse selection and moral hazard and its impact on financial structure. Role of financial markets and institutions in Economic development.

10 hrs

Internal Assessment: 

 CIA 1

Unit I, Unit II 

 

 CIA 2

Assignment submission and/or presentation 

 

Text Books: 

1.       SurajB.Gupta, Monetary Economics, S. Chand and Company Ltd

2.       Frederic S. Mishkin., The Economics of Money, Banking and Financial Markets, Pearson, Addison, Wesley. Newyork, 7th Edition (2004)

3.       Peter Howells and Keith Bain., the Economics of Money and Banking, Pearson, Education Limit. 3rdEdtion (2005).

 Reference Books: 

4.       SurajB.Gupta., Monetary Planning for India, University Press, New Delhi.

5.       L. M. Bhole and J. Mahukud, Financial Institutions and Markets, Tata McGraw Hill, 5th

edition, 2011.