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EC321: Money and Banking


Course objective

This course aims to bring you up to date with modern theories of money and banking and recent developments in the analysis of monetary policy: What are the causes of inflation and deflation? What tools do central banks have, and how does monetary policy affect the economy? How do financial markets work, and why are financial intermediaries needed? In order to answer these and related questions, this course provides a set of tools to analyse monetary policy and the financial sector. The course will combine a study of the relevant theory with applications to recent events and policy debates.

Course contents

  • The transmission mechanism of monetary policy
  • The market for reserves and the instruments of monetary policy
  • Foundations of the demand for money
  • How monetary policy provides a nominal anchor: determination of the price level and inflation
  • Rules for interest-rate policy
  • Fiscal and monetary policy linkages: government debt and inflation risks
  • Nominal rigidities, the real effects of monetary policy, and the Phillips curve
  • Goals of monetary policy and optimal monetary policy
  • Rules versus discretion in monetary policy
  • Policymaking under uncertainty
  • Monetary policy at the interest-rate lower bound: forward guidance and quantitative easing
  • Financial market completeness and the value of the firm
  • Market liquidity and funding liquidity
  • Market liquidity and asymmetric information
  • Capital misallocation and TFP
  • Banking and financial intermediation
  • Asset bubbles
  • Demand and supply for safe assets

World-class LSE teaching             

The LSE Department of Economics is one of the biggest and best in the world, with expertise across the full spectrum of mainstream economics. A long-standing commitment to remaining at the cutting edge of developments in the field has ensured the lasting impact of its work on the discipline as a whole.

It is a leading research department, consistently ranked in the top 20 economics departments worldwide. This is reflected in the 2014 Research Assessment exercise which recognised the Department's outstanding contribution to the field

On this three week intensive programme, you will engage with and learn from full-time lecturers from the LSE’s economics faculty.



A collection of readings will be supplied along with lecture notes in the course pack. There is no suitable textbook for the whole course, but Walsh (2010), Monetary Theory and Policy, 3rd ed., MIT Press, may be consulted as a reference for some topics.

*A more detailed reading list will be supplied prior to the start of the programme

**Course content, faculty and dates may be subject to change without prior notice



Session: Three

Dates: 31 July - 18 August 2017

Dr Kevin Sheedy 
Dr Shengxing Zhang

Level: 300 level

Fees: Click here for information

Prerequisites: Intermediate macroeconomics and multivariate calculus

Lectures: 36 hours 

Classes: 18 hours

Assessment*: Two written examinations

Typical credit**: 3-4 credits (US)
7.5 ECTS points (EU)

How to apply?

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*assessment is optional – see FAQs

**You will need to check with your home institution. Read more about credit transfer here.