Monetary Theory and Finance
ataozk@yahoo.com
Content
Objective
To acquire knowledge of analysis on monetary theory and finance.The Monetary Theory and Finance course aims to help students understand the functions of money, the determinants of money supply and demand, the role of the financial system and banking in the economy, and the key instruments and transmission mechanisms of monetary policy. The course aims to provide students with a theoretical and institutional foundation for analyzing the relationship between monetary aggregates, inflation, interest rates, and financial markets.
Course Content
In three main sections, namely money supply, money demand, monetary policy, after processing the theory of money with examples from US, it is concluded with the analysis of the financial structure and financial markets in Turkey and US. In addition, examples from the monetary policy operation of the US Federal Reserve and the European Central Bank are given.
The course covers the functions of money and definitions of monetary aggregates, theories of money demand (classical, Keynesian, Friedman), the commercial banking system and the money multiplier, central banking and monetary policy instruments (open market operations, the discount rate, reserve requirements), monetary policy transmission mechanisms, interest rate theory (term structure, risk premium), financial markets and institutions, theories of inflation, and the relationship between monetary growth and inflation.First of all, the information that financial markets are a financial system is conveyed. For this, Kalman (1960) System theory and literature are used. The separation of deterministic systems from stochastic systems is defined and the subject of the mathematical definition of the market system in which the decision-maker behavior is active is developed.
Course Learning Outcomes
The student who successfully completes the course will achieve the following gains:
System theory, Financial markets as a financial system.
Efficient Market Hypothesis and deviant decision-making processes, rationality.
Information about the relationship between the financial sector and the real sector
Competence to understand the theoretical background of current economic events
Ability to analyze the given situation and recommend appropriate monetary policy
Explain the functions of money and the different definitions of monetary aggregates (M1, M2, M3, etc.)
Compare theories of money demand (the classical quantity theory, Keynesian liquidity preference, Friedman's modern quantity theory)
Explain the role of the commercial banking system in money creation and the money multiplier mechanism
Assess the central bank's monetary policy instruments (open market operations, the discount rate, reserve requirements) and their effects
Identify the transmission mechanisms of monetary policy (the interest rate channel, the credit channel, the exchange rate channel)
Analyze the term structure of interest rates and the determinants of the risk premium
Assess, both theoretically and empirically, the relationship between monetary growth and inflation
Acquire an analytical foundation for following current monetary policy debates (inflation targeting, quantitative easing, etc.)
Teaching and Learning Methods
The lesson is conducted with a classical method focused on teaching in the first weeks. In the coming weeks, the discussion method begins to gain weight. Lectures: presentation of concepts and theories, supported by current examples
Exercise/application sessions: calculations related to money supply, the money multiplier, and interest rates
Weekly homework: independent consolidation of the topics covered
Current data and policy discussions: in-class analysis of central bank reports and recent monetary policy decisions
Office hours: individual consultation
Assessment: midterm exam, homework, and final exam
References
Mishkin, F. S. — The Economics of Money, Banking, and Financial Markets, Pearson
Cecchetti, S. G., Schoenholtz, K. L. — Money, Banking, and Financial Markets, McGraw-Hill
Walsh, C. E. — Monetary Theory and Policy, MIT Press
Handa, J. — Monetary Economics, Routledge
Blanchard, O. J. — Macroeconomics (monetary policy chapters), Pearson
Weekly Contents
| Week | Weekly Contents |
|---|---|
| 1 | Part 1: Money supply. Part 1: The framework of the financial system |
| 2 | Episode 2. Money supply and its determinants: A. Various Monetary Sizes |
| 3 | B. Money supply and balance of payments relationship |
| 4 | C. Money supply and public budget balance relationship |
| 5 | D. Relationship between money supply and banking sector activities |
| 6 | Part 2: Money request, Part 1: Demand for money with transaction motive |
| 7 | Chapter 2: demand for money with caution and speculation motive |
| 8 | Part 3: Monetary Policy, Part 1: Impartiality of money |
| 9 | Part 2: Central Bank behavior (Theoretical framework) |
| 10 | Part 3: Monetary Policy practices, CBRT example |
| 11 | Monetary policy and transfer channel, Money market |
| 12 | Its role in capital market and financing activities (TR example) |
| 13 | Financing structure in TR |
| 14 | Revision |
| Week | Weekly Contents |
|---|---|
| 1 | Part 1: Money supply. Part 1: The framework of the financial system |
| 2 | Episode 2. Money supply and its determinants: A. Various Monetary Sizes |
| 3 | B. Money supply and balance of payments relationship |
| 4 | C. Money supply and public budget balance relationship |
| 5 | D. Relationship between money supply and banking sector activities |
| 6 | Part 2: Money request, Part 1: Demand for money with transaction motive |
| 7 | Chapter 2: demand for money with caution and speculation motive |
| 8 | Part 3: Monetary Policy, Part 1: Impartiality of money |
| 9 | Part 2: Central Bank behavior (Theoretical framework) |
| 10 | Part 3: Monetary Policy practices, CBRT example |
| 11 | Monetary policy and transfer channel, Money market |
| 12 | Its role in capital market and financing activities (TR example) |
| 13 | Financing structure in TR |
| 14 | Revision |
Assessment System
| Activities | Number | Contribution |
|---|---|---|
| Contribution of in-term studies to overall grade | 2 | 50 |
| Contribution of final exam to overall grade | 1 | 50 |
| Total | 3 | 100 |
| Activities | Number | Contribution |
|---|---|---|
| Assignments | 0 | 0 |
| Presentation | 0 | 0 |
| Midterm Examinations (including preparation) | 0 | 12 |
| Project | 0 | 0 |
| Laboratory | 0 | 0 |
| Other Applications | 0 | 0 |
| Quiz | 1 | 20 |
| Term Paper/ Project | 0 | 0 |
| Portfolio Study | 0 | 0 |
| Reports | 0 | 0 |
| Learning Diary | 0 | 0 |
| Thesis/ Project | 0 | 0 |
| Seminar | 0 | 0 |
| Other | 0 | 0 |
| Make-up | 0 | 0 |
| Total | 1 | 32 |
Relation of Proficiency
| No | Program Learning Outcomes | Contribution | ||||
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | ||
| 1 | Demonstrate a basic knowledge of different economic theories and main discussions driving current theoretical approaches | X | ||||
| 2 | Demonstrate ability to use basic qualitative and quantitative methods to asses different economic questions of applied fields | X | ||||
| 3 | Show a sound understanding of current economic discussions and problems | X | ||||
| 4 | Have an effective and clear communication in written and oral formats in different public and professional contexts. | X | ||||
| 5 | Demonstrate basic knowledge of the world economic history and a sound knowledge of the Turkish economic history | X | ||||
| 7 | Demonstrate knowledge of standard quantitative techniques and empirical models used in economics | X | ||||
| 8 | Show ability to apply basic economic theory to an applied topic | X | ||||
| 9 | Show a basic understanding of analytical methods, both theory- and model-based | X | ||||
| 10 | Show ability to use economic concepts to discuss current economic issues | X | ||||
| 11 | Reason logically and work analytically | X | ||||
| 12 | Show awareness on social aspects of the economics in different applied and theoretical fields | X | ||||
| 13 | Identify appropriate economic models to analyse problems | X | ||||
| 16 | Show understanding of basic statistical and econometric concepts and ability to apply basic concepts to own empirical work | X | ||||
| 17 | Demonstrate a sound knowledge of the current economic issues in Turkey and a general knowledge of the issues in the world economy | X | ||||
ECTS
| Activities | Number | Period | Total Workload |
|---|---|---|---|
| Class Hours | 14 | 3 | 42 |
| Working Hours out of Class | 14 | 2 | 28 |
| Assignments | 0 | 0 | 0 |
| Presentation | 0 | 0 | 0 |
| Midterm Examinations (including preparation) | 2 | 30 | 60 |
| Project | 0 | 0 | 0 |
| Laboratory | 0 | 0 | 0 |
| Other Applications | 0 | 0 | 0 |
| Final Examinations (including preparation) | 1 | 15 | 15 |
| Quiz | 1 | 10 | 10 |
| Term Paper/ Project | 0 | 0 | 0 |
| Portfolio Study | 0 | 0 | 0 |
| Reports | 0 | 0 | 0 |
| Learning Diary | 0 | 0 | 0 |
| Thesis/ Project | 0 | 0 | 0 |
| Seminar | 0 | 0 | 0 |
| Other | 0 | 0 | 0 |
| Make-up | 0 | 0 | 0 |
| Yıl Sonu | 0 | 0 | 0 |
| Hazırlık Yıl Sonu | 0 | 0 | 0 |
| Hazırlık Bütünleme | 0 | 0 | 0 |
| Total Workload | 155 | ||
| Total Workload / 25 | 6.20 | ||
| Credits ECTS | 6 | ||