This course is available on the MSc in Economics (2 Year Programme). This course is available with permission as an outside option to students on other programmes where regulations permit. This course uses controlled access as part of the course selection process. For information on controlled access courses, including eligibility, application processes, deadlines, and departmental contact details, please refer to the Controlled Access Courses webpage.

New course for the 2027/28 academic session.

Any external student must have successfully completed EC400 or EC451 in September and/or have approval of the Department of Economics.

Deadline for application: Please apply as soon as possible after the opening of course selection for all courses.

For queries contact: Econ.msc@lse.ac.uk

Pre-requisites:

Students must have completed EC451 or EC400 before taking this course.

Additional requisites:

Students should also have completed courses in intermediate level microeconomics, macroeconomics and econometrics.

In exceptional circumstances, students may take this course without EC400/EC451 provided they meet the necessary requirements and have received approval from the course conveners, the MSc Economics Programme Director and their own Programme Director. Contact the Department of Economics for more information (econ.msc@lse.ac.uk) regarding entry to this course.

The financial sector is central in all advanced economies, and financial markets guide every intertemporal decision, steering savings and investment. This course will cover frontier topics in macro-finance, emphasising both the two-way connection between the prices of assets and real outcomes, and the integration of banks and financial markets into models where we understand outcomes for consumption, inflation and capital flows.

Illustrative topics:

• Financial crashes and bubbles, misallocation of capital, depressions, and monetary and fiscal policies to fight them;
• Exchange rates and international capital flows with limits to arbitrage in international markets;
• Individual consumption choices as determined by banks' mortgage behaviour;
• Using financial prices, house prices, futures markets, long-term bonds to learn about;
• Equilibrium long-run prices and the impact of macro policies;
• Government bonds: their price, implications for debt sustainability, and sovereign debt crashes;
• Segmented financial markets and their implications for the transmission of monetary policy.

20 hours of lectures and 9 hours of seminars in the Winter Term.
1 hour of seminars in the Spring Term.

This course has a reading week in Week 6 of Winter Term.

• Abbas, S.A., Pienkowski, A. and Rogoff, K.S. eds., 2020. Sovereign debt: A guide for economists and practitioners. Oxford University Press.
• Brunnermeier, M. and Reis, R., 2023. A Crash Course on Crises. Princeton University Press.
• Cloyne, J., Huber, K., Ilzetzki, E. and Kleven, H., 2019. The effect of house prices on household borrowing: A new approach. American Economic Review, 109(6), pp.2104-2136
• Florez-Orrego, S., Maggiori, M., Schreger, J., Sun, Z. and Tinda, S., 2024. Global capital allocation. Annual Review of Economics, 16(1), pp.623-53.
• Gourinchas, P.O., 2022. International Macroeconomics: from the Great Financial Crisis to COVID-19, and beyond. IMF Economic Review, 71(1), p.1.
• Gourinchas, P.O., Ray, W. and Vayanos, D., 2025. A preferred-habitat model of term premia, exchange rates, and monetary policy spillovers. American Economic Review, 115(11), pp.3788-3824.
• Koijen, R. and Yogo, M., 2026. Exchange rates and asset prices in a global demand system. Journal of Political Economy, forthcoming.
• Itskhoki, O. and Mukhin, D., 2021. Exchange rate disconnect in general equilibrium. Journal of Political Economy, 129(8), pp.2183-2232.
• Badarinza, C. and Ramadorai, T., 2025. International dimensions of housing markets. Journal of Economic Perspectives, 39(3), pp.87-106.

Exam (100%), duration: 120 minutes, reading time: 15 minutes in the Spring exam period.