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Perry G Mehrling
The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Produced and sponsored by the Institute for New Economic Thinking, this course is an attempt to begin the process of new economic thinking by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.
Read more
The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Produced and sponsored by the Institute for New Economic Thinking, this course is an attempt to begin the process of new economic thinking by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.
Read more
The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Produced and sponsored by the Institute for New Economic Thinking, this course is an attempt to begin the process of new economic thinking by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.
Three features of the new system are central.
Most important, the intertwining of previously separate capital markets and money markets has produced a system with new dynamics as well as new vulnerabilities. The financial crisis revealed those vulnerabilities for all to see. The result was two years of desperate innovation by central banking authorities as they tried first this, and then that, in an effort to stem the collapse.
Second, the global character of the crisis has revealed the global character of the system, which is something new in postwar history but not at all new from a longer time perspective. Central bank cooperation was key to stemming the collapse, and the details of that cooperation hint at the outlines of an emerging new international monetary order.
Third, absolutely central to the crisis was the operation of key derivative contracts, most importantly credit default swaps and foreign exchange swaps. Modern money cannot be understood separately from modern finance, nor can modern monetary theory be constructed separately from modern financial theory. That's the reason this course places dealers, in both capital markets and money markets, at the very center of the picture, as profit-seeking suppliers of market liquidity to the new system of market-based credit.
Register for this course and see more details by visiting:
OpenCourser.com/course/jq6nva/economics
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What's inside
Syllabus
Introduction
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.
Read more
Syllabus
Introduction
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.
Read more
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
Good to know
Good to know
Know what's good ,
what to watch for , and
possible dealbreakers
Explores modern monetary systems, providing a fresh perspective on monetary economics to those looking for it
Develops key analytical tools, like the balance sheet approach, that are essential for understanding monetary economics
Suitable for those looking to delve into financial theory and the workings of modern finance in relation to money
Covers topics such as dealer market liquidity, the role of central banks, and the international monetary system, which are highly relevant to the current economic landscape
Facilitated by seasoned instructors, Perry G Mehrling, who bring extensive knowledge and expertise in monetary economics
Examines topics through a unique lens, making it suitable for those seeking to expand their understanding of monetary economics
Save this course
Save Economics of Money and Banking to your list so you can find it easily later:
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Reviews summary
Economics of money and banking
Learners say "Economics of Money and Banking" is a largely positive course that engaging assignments to help you develop your understanding of the role of banks and how the monetary system works. The course is taught by Professor Perry Mehrling, who is described as being passionate and knowledgeable about the subject matter. Students report that the course is well-structured and covers a wide range of topics, including the history of money, the role of central banks, and the impact of the financial crisis. Overall, students say that this course is a great way to learn about the economics of money and banking.
The assignments are challenging, but they help you to learn the material.
"The assignments are challenging"
"They help you to learn the material"
The course is challenging, but it is also very rewarding.
"The course is challenging"
"It is also very rewarding"
Professor Mehrling is an excellent teacher who is passionate about the subject matter.
"Professor Mehrling is an excellent teacher"
"He is passionate about the subject matter"
"He is very knowledgeable about the subject matter"
The course covers a wide range of topics related to money and banking, including:
"the history of money"
"the role of central banks"
"the impact of the financial crisis"
The course is 13 weeks long.
"The course is 13 weeks long"
Activities
Be better prepared
before
your course. Deepen your understanding
during
and
after
it. Supplement your coursework and achieve mastery of the topics covered
in Economics of Money and Banking with these
activities:
Review Key Concepts and Theories in Monetary Economics
Show steps
Refresh foundational knowledge to enhance comprehension during the course.
Show steps
-
Review textbooks, lecture notes, and articles on key concepts.
-
Attend refresher sessions or workshops.
Read 'The Evolution of the Modern Monetary System'
Show steps
Review the historical evolution of the monetary system and provide context for the course material.
Show steps
-
Read chapters 1 and 2 of the book.
-
Summarize the key points of each chapter.
-
Identify the main arguments and theories presented in the book.
Learn about the Balance Sheet Approach to Monetary Economics
Show steps
Gain a deeper understanding of one of the key analytical tools used in the course.
Show steps
-
Watch the lecture on the Balance Sheet Approach.
-
Read the lecture notes on the topic.
-
Complete the practice exercises provided.
Four other activities
Expand to see all activities and additional details
Show all seven activities
Attend a Workshop on Financial Market Analysis
Show steps
Enhance understanding of how financial markets interact with the monetary system.
Show steps
-
Identify and register for a relevant workshop.
-
Attend the workshop and actively participate in discussions.
-
Apply the knowledge gained to the course material.
Practice Using Balance Sheet Analysis to Analyze Monetary Phenomena
Show steps
Build skills in applying the Balance Sheet Approach to real-world scenarios.
Browse courses on
Balance Sheet Analysis
Show steps
-
Identify the key balance sheet items for a bank.
-
Analyze how changes in these items impact the bank's financial position.
-
Use this analysis to explain real-world monetary events.
Model a Monetary Policy Decision Using Agent-Based Simulation
Show steps
Gain hands-on experience in using simulation to analyze monetary policy decisions.
Show steps
-
Learn the basics of agent-based modeling.
-
Develop a simple model of a monetary economy.
-
Test the model using different monetary policy scenarios.
Participate in a Case Competition on Monetary Policy
Show steps
Apply course knowledge to solve real-world problems and foster critical thinking.
Browse courses on
Monetary Policy
Show steps
-
Form a team and register for the competition.
-
Analyze the case study and develop a policy recommendation.
-
Present your findings to a panel of judges.
Review Key Concepts and Theories in Monetary Economics
Show steps
Refresh foundational knowledge to enhance comprehension during the course.
Show steps
Show steps
Show steps
- Review textbooks, lecture notes, and articles on key concepts.
- Attend refresher sessions or workshops.
Read 'The Evolution of the Modern Monetary System'
Show steps
Review the historical evolution of the monetary system and provide context for the course material.
Show steps
Show steps
Show steps
- Read chapters 1 and 2 of the book.
- Summarize the key points of each chapter.
- Identify the main arguments and theories presented in the book.
Learn about the Balance Sheet Approach to Monetary Economics
Show steps
Gain a deeper understanding of one of the key analytical tools used in the course.
Show steps
Show steps
Show steps
- Watch the lecture on the Balance Sheet Approach.
- Read the lecture notes on the topic.
- Complete the practice exercises provided.
Four other activities
Expand to see all activities and additional details
Show all seven activities
Attend a Workshop on Financial Market Analysis
Show steps
Enhance understanding of how financial markets interact with the monetary system.
Show steps
Show steps
Show steps
- Identify and register for a relevant workshop.
- Attend the workshop and actively participate in discussions.
- Apply the knowledge gained to the course material.
Practice Using Balance Sheet Analysis to Analyze Monetary Phenomena
Show steps
Build skills in applying the Balance Sheet Approach to real-world scenarios.
Browse courses on
Balance Sheet Analysis
Show steps
Show steps
Show steps
- Identify the key balance sheet items for a bank.
- Analyze how changes in these items impact the bank's financial position.
- Use this analysis to explain real-world monetary events.
Model a Monetary Policy Decision Using Agent-Based Simulation
Show steps
Gain hands-on experience in using simulation to analyze monetary policy decisions.
Show steps
Show steps
Show steps
- Learn the basics of agent-based modeling.
- Develop a simple model of a monetary economy.
- Test the model using different monetary policy scenarios.
Participate in a Case Competition on Monetary Policy
Show steps
Apply course knowledge to solve real-world problems and foster critical thinking.
Browse courses on
Monetary Policy
Show steps
Show steps
Show steps
- Form a team and register for the competition.
- Analyze the case study and develop a policy recommendation.
- Present your findings to a panel of judges.
Career center
Learners who complete Economics of Money and Banking will develop knowledge and skills
that may be useful to these careers:
Financial Analyst
Financial Analyst
Financial Analysts work in multiple industries, studying financial data and making recommendations on investments, business decisions, and other financial matters. This course provides the foundation needed to understand the financial system and its interdependencies with the larger economy, a necessary skill for financial analysts.
Bank Examiner
Bank Examiner
Bank Examiners are responsible for evaluating the financial health of banks and other financial institutions. They conduct audits to ensure banks are adhering to regulations and protecting the interests of depositors. This course will help you to understand the structure and operation of the financial system, a requirement for this role.
Risk Manager
Risk Manager
Risk Managers identify, assess, and manage risks that could impact a company's financial performance. This course will teach you a new conceptual framework for understanding the types of risk that exist within a financial system and the tools to assess and mitigate them.
Data Scientist
Data Scientist
Data Scientists use data to solve business problems. They work in a variety of industries, including finance, healthcare, and retail. This course will help you to gain both the technical skills and applied economics and finance knowledge, both of which are necessary to succeed as a Data Scientist.
Credit Risk Analyst
Credit Risk Analyst
Credit Risk Analysts assess the creditworthiness of banks and other financial institutions. They develop and implement risk management strategies and policies to mitigate losses. This course will help you to understand the latest developments in credit markets and risk management, which is applicable to this role.
Investment Banker
Investment Banker
Investment Bankers provide financial advice and services to corporations and governments. They help raise capital, merge with other companies, and make other financial decisions. The course’s focus on the interaction between capital and money markets will provide you with an advantage in this role.
Actuary
Actuary
Actuaries use mathematical and statistical techniques to assess risk and uncertainty. They work in a variety of industries, including insurance, finance, and healthcare. This course's topics on risk management and modeling will give you a strong foundation for this role.
Quantitative Analyst
Quantitative Analyst
Quantitative Analysts develop and implement mathematical models to analyze financial data. They use these models to make predictions about the future performance of financial markets. This course will provide you with this fundamental knowledge in economics and finance along with the statistical and mathematical modeling skills needed for this career.
Monetary Economist
Monetary Economist
Monetary Economists study the role of money in the economy. They develop and implement monetary policy to achieve economic stability and growth. This course will help you to gain a comprehensive understanding of the principles underlying monetary economics.
Economist
Economist
Economists study the production, distribution, and consumption of goods and services. They develop and implement economic policies to promote economic growth and stability. This course will help you to gain a comprehensive understanding of economic principles.
Banker
Banker
Bankers provide financial services to customers, such as checking and savings accounts, loans, and investment advice. They must understand the financial system and how to manage risk. This course will help you to acquire these skills.
Financial Advisor
Financial Advisor
Financial Advisors provide financial advice and services to individuals and families. They help clients plan for retirement, save for college, and manage their investments. This course will help you to develop the skills needed to succeed in this role.
Financial Manager
Financial Manager
Financial Managers oversee the financial operations of businesses and organizations. They develop and implement financial plans, manage cash flow, and make investment decisions. This course will help you to gain the skills needed to succeed in this role.
Market Researcher
Market Researcher
Market Researchers conduct research to understand the needs and wants of consumers. They work in a variety of industries, including marketing, advertising, and product development. This course on economics of money and banking may be useful for those who want to work in financial market research.
Software Engineer
Software Engineer
Software Engineers design, develop, and maintain software systems. They work in a variety of industries, including finance, healthcare, and manufacturing. This course on economics of money and banking may be useful for those who want to work in FinTech or who develop financial software.
For more career information including salaries, visit:
OpenCourser.com/course/jq6nva/economics
Reading list
We've selected 11 books
that we think will supplement your
learning. Use these to
develop background knowledge, enrich your coursework, and gain a
deeper understanding of the topics covered in
Economics of Money and Banking.
Complements the course's discussion of capital markets and money markets by providing a rigorous examination of the microeconomic structure of financial markets.
Save
Offers a comprehensive introduction to Modern Monetary Theory (MMT), which provides an alternative perspective on the role of money in the economy and may challenge some of the assumptions made in the course.
Provides insights into the challenges faced by central banks in the aftermath of the 2007-2009 financial crisis and discusses policy responses and reforms.
Save
Offers a historical and analytical perspective on the evolution of the international monetary system, providing context for the course's discussion of international money and banking.
This widely-used textbook provides a comprehensive overview of the financial system, covering topics such as banking, financial markets, and monetary policy.
Provides a comprehensive treatment of derivatives, which play a significant role in modern financial markets.
This popular textbook offers a broad overview of financial markets and institutions, providing a solid foundation for understanding the topics covered in the course.
Provides a comprehensive overview of the theory and practice of central banking, including monetary policy, financial stability, and international cooperation.
Save
Presents the 'money view' perspective on financial development, which key concept in the course.
This textbook provides a rigorous treatment of international finance, covering topics such as exchange rates, trade, and capital flows.
Provides a historical perspective on the development of the international financial system, offering insights into the political and economic forces that have shaped its evolution.
For more information about how these books relate to this course, visit:
OpenCourser.com/course/jq6nva/economics
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Instructor
Perry G Mehrling
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Good to know
Explores modern monetary systems, providing a fresh perspective on monetary economics to those looking for it
Develops key analytical tools, like the balance sheet approach, that are essential for understanding monetary economics
Suitable for those looking to delve into financial theory and the workings of modern finance in relation to money
Covers topics such as dealer market liquidity, the role of central banks, and the international monetary system, which are highly relevant to the current economic landscape
Facilitated by seasoned instructors, Perry G Mehrling, who bring extensive knowledge and expertise in monetary economics
Examines topics through a unique lens, making it suitable for those seeking to expand their understanding of monetary economics
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