Macroeconomics of Finance

obligatory courses

Master's level course.

The aim of this course is to familiarize students with the key topics in finance and macro-economics. The first part of the course discusses various asset classes (stocks, bonds, FX), the concepts of risk and return, as well as the key models for pricing assets and financial derivatives. The second part of the course gives macroeconomic perspective of financial markets. In particular the role of monetary and fiscal policy is underlined and exchange rate systems and exchange rate determinants are discussed.

The detailed content of the course is presented below.

Part one (finance)

• Preliminaries: basic financial arithmetic

• Risk and return principles: the Markowitz framework

• Capital Asset Pricing Model: theory and applications

• Introduction to derivatives

Part two (macroeconomics)

• Monetary policy: instruments and goals, monetary policy rules, monetary transmission mechanism,

• Exchange rates: exchange rate regimes, determinants of exchange rates, currency crises;

• Fiscal policy: determinants of sovereign bonds yields, public debt dynamics, fiscal sustaina-bility;

• Financial cycles and business cycles

Literatura do części dr Jabłeckiego:

Blake, D. (2000). Financial market analysis, Wiley

Blyth, S. (2013). An Introduction to Quantitative Finance.

Oxford University Press.

Derman, E. (2013). The Young Person’s Guide to Pricing

and Hedging. Mimeo, www.ederman.com

Hull, J. C. (2009). Options, Futures, and Other derivatives

Literatura do części dr Joanny Mackiewicz-Łyziak:

Baldacci, E., Kumar, M. (2010). Fiscal Deficits, Public Debt, and Sovereign Bond Yields. IMF Working Paper 10/184.

Bofinger, P. (2001). Monetary Policy: Goals, Institutions, Strategies, and Instruments. Oxford: Oxford University Press.

Bohn, H. (1998). The Behavior of U.S. Public Debt and Deficits. The Quarterly Journal of Economics, 113, 949-963

Borio, C. (2012). The financial cycle and macroeconomics: What have we learnt? BIS Working Paper No 395.

Friedman, B. (2005). Deficits and Debt in the Short and Long Run. NBER Working Paper 11630

Gandolfo, G. (2002). International Finance and Open-Economy Macroeconomics. Berlin: Springer Verlag.

Mishkin, F. (2014). The Economics of Money, Banking and Financial Markets. 11th ed. Boston: Pearson International Edition.

The student after completion of this course should:

• know the concept of mean-variance portfolio efficiency;

• distinguish between idiosyncratic and systematic risk factors and understand why investors are only rewarded for taking systematic risk;

• understand that the expected value of something is not a good guide to its price;

• understand the role of the central bank and be able to explain how the central banks operate;

• know different exchange rate regimes and be able to explain their advantages and disadvantages;

• know theory of exchange rate determination;

• be able to analyze the public debt dynamics and understand risks associated with high public debt;

• know the concept of financial cycle

Final assessment is based on the following components:

• Mid-term – 50%

• Final exam – 50%