Central Banking

obligatory courses

Remote learning

1. The role of Central Banks

• Functions of central bank (the currency issuer; the bankers’ bank - the lender of last resort; the government’s bank);

• Price stability and financial stability (monetary policy and macroprudential policy);

• Mandates (hierarchical mandates, dual mandate, multi-goal mandate);

• Strategies (inflation targeting; monetary targeting; nominal GDP targeting; exchange rate targeting);

• Review of mandates and strategies of the European Central Bank (ECB), Federal Reserve System (Fed) and the Bank of England (BoE);

• Structure of central banks: ECB, Fed, BoE – based on Mishkin et al. (2013), Chapter 13 “The goals and structure of central banks”.

2. Money creation, bank runs and the payment system

• Money creation in the modern economy (money as an IOU, a debt contract and a social relation; the principle of endogenous money – based on Bank of England (2014);

• Interbank market (market for central bank reserves)

• Bank runs; lender of last resort (LOLR) function of central banks;

• Modern monetary and payment systems infrastructure (dealer of last resort (DOLR) function; the Treasury bonds market; Polish payment systems: Elixir and SORBNET).

3. Implementation of Monetary Policy

• Frameworks and structural banking sector liquidity (corridor and floor systems);

• Intermediate targets (short-term market interest rates);

• Instruments (official interest rates; open market operations – OMOs; reserve requirements; exchange rate policy).

4. Unconventional Monetary Policy

• Balance sheet policies (QE policy), negative interest rates, forward guidance;

• Case study of the post-crisis Monetary Policy of the ECB;

• General monetary transmission mechanism.

5. The Future of central banking

• Central bank digital currency (CBDC)

• Helicopter money – its relation to Universal Basic Income (UBI) [case study: Hong Kong 2020 ‘cash handouts’]

• Modern Monetary Theory (MMT) – fiat-money view on the workings of the economy, the monetary and fiscal nexus of neo-chartalism; the credit and state theories of money – based on Mitchell et al. (2019), Chapters 9 and 10.

• Quantitative Easing (50 shades of QE – green QE, climate issues; rising inequality concerns; QE for people [positive money]);

• Sovereign money (SM); full-reserve banking (FRB) proposals.

Books (selected book chapters are obligatory)

Mishkin F. S., Matthews K., Giuliodori M. (2013). The Economics of Money, Banking and Financial Markets. Harlow, UK: Pearson (European edition).

Literature (non-obligatory)

Aglietta, M., & B. Mojon (2012). “Central Banking”, in: The Oxford Handbook of Banking, edited by A. N. Berger, P. Molyneux, and J. O. S. Wilson, Oxford University Press.

Bank of England. (2012). The distributional effects of asset purchases. Bank of England Quarterly Bulletin, 52(3), 254–266.

Bank of England. (2014). Money Creation in the Modern Economy. Bank of England Quarterly Bulletin, 1(1), 14–27.

Bindseil, U. (2019). Central Bank Digital Currency: Financial System Implications and Control. International Journal of Political Economy, 48(4), 303–335.

Blinder, A. S. (1997). What Central Bankers Could Learn from Academics--and Vice Versa. Journal of Economic Perspectives, 11(2), 3–19.

Borio, C., & Disyatat, P. (2009). Unconventional monetary policies: An appraisal. BIS Working Papers, (292), 1–29.

Carvalho, F. J. C. (2003). “Central Banks”, in: The Elgar Companion to Post Keynesian Economics, edited by J. E. King, Northampton, MA, USA. and Cheltenham, UK: Edward Elgar Publishing.

Clarida, R., Galí, J., & Gertler, M. (1999). The science of monetary policy: A new Keynesian perspective. Journal of Economic Literature, 37(4), 1661–1707.

Grossmann-Wirth, V. (2019). What Monetary Policy Operational Frameworks in the New Financial Environment? A Comparison of the US Fed and the Eurosystem Perspectives, 2007–2019. International Journal of Political Economy, 48(4), 336–352.

Mitchell, W., Wray, L. R., Watts, M. (2019). Macroeconomics. London: Macmillan International Higher Education.

Rochon, L. P., & Rossi, S. (2007). Central banking and Post-Keynesian economics. Review of Political Economy, 19(4), 539–554.

Rochon, L. P., & Setterfield, M. (2008). The Political Economy of Interest-Rate Setting, Inflation, and Income Distribution. International Journal of Political Economy, 37(2), 5–25.

Werner, R. A. (2014). Can banks individually create money out of nothing? - The theories and the empirical evidence. International Review of Financial Analysis, 36, 1–19.

Final test on e-Nauka (50 questions) – 80%.

Presentations in groups – 20%.