ADVANCED FINANCIAL ECONOMICS
Instructional goals
Students will be able to understand policy designs at the intersection between monetary policy and financial stability
Intended learning outcomes
Students will be exposed to advanced statistical models to understand policy designs
Course Contents
Conceptual foundations of the interaction be- tween monetary policy and financial stability. Transmission channels: interest rate channel, risk-taking channel, credit channel, and global financial cycle.
Reference Books
Research and technical policy papers will be distributed in class
Teaching Methods
Frontal Lectures
Assessment Method
Student Presentations. Final Oral Exam
Thesis assignment criteria
None
Week 1
Week 1. Introduction. Conceptual foundations of the interaction be- tween monetary policy and financial stability. Transmission channels: interest rate channel, risk-taking channel, credit channel, and global financial cycle. Ovierview of five case studies that will be discussed during the course.
Week 2
Case 1: Monetary Policy and Asset Price Booms (Dot-com Equity Bubble, 2000).
Central bank briefing during the late 1990s equity boom and subsequent crash (2000). Role of accommodative monetary policy in fueling stock market valuations. Discussion of whether central banks should react to asset price misalignments or focus solely on inflation and output stabilization.
Week 3
Case 1: Monetary Policy and Asset Price Booms (Dot-com Equity Bubble, 2000). Literature and Models.
Bernanke and Gertler (2001), Borio and Zhu (2012), Jorda` et al. (2015).
Week 4
Case 2: Monetary Policy and Bank Risk-Taking (Housing Boom: Spain and Ireland). ECB/internal supervisory perspective during the mid-2000s housing boom. Persistent low real rates and capital inflows contributed to rapid credit expansion and real estate bubbles in Spain and Ireland. Weak lending standards and bank exposure concentration.
Week 5
Case 2: Monetary Policy and Bank Risk-Taking (Housing Boom: Spain and Ireland). Literature and Models.
Dell’Ariccia et al. (2014), Jim ́enez et al. (2014).
Week 6
Case 3: Monetary Policy and Financial Market Volatility (Quantitative Easing and Market Reactions).
Post-2008 environment: introduction of unconventional monetary pol- icy (QE). Focus on announcement effects, forward guidance, and volatil- ity compression (and occasional spikes, e.g., taper tantrum). Role of central bank communication.
Week 7
Case 3: Monetary Policy and Financial Market Volatility (Quantitative Easing and Market Reactions). Literature and Models.
Bloom (2009), Bekaert et al. (2013).
Week 8
Case 4: Global Spillovers and Sovereign Risk (Euro Area Sovereign Debt Crisis).
Perspective of ECB / peripheral country authorities during 2010–2012. Sovereign spreads, redenomination risk, capital flight, and the feedback loop between sovereigns and banks. Constraints on national policy within a monetary union.
Week 9
Case 4: Global Spillovers and Sovereign Risk (Euro Area Sovereign Debt Crisis). Literature and Models.
Rey (2015), Miranda-Agrippino and Rey (2020).
Week 10
Case 5: Systemic Risk, Banking Crises, and Correlation Breakdown (Greece–Cyprus Crisis and Banking Stress).
Focus on the Greek debt crisis and the Cyprus banking crisis (2012– 2013). Bank-sovereign doom loop, deposit flight, capital controls, and systemic instability. Correlation spikes across assets and institutions during crisis.
Week 11
Case 5: Systemic Risk, Banking Crises, and Correlation Breakdown (Greece–Cyprus Crisis and Banking Stress). Literature and Models.
Adrian and Shin (2010), Brunnermeier and Sannikov (2014), Engle (2002).
Week 12
Student Presentations. Students present empirical or policy- oriented projects based on course material.