NYU Stern School of Business

Undergraduate College


Spring 2011

Instructor Details

Schoenholtz, Kim


After Class on Mondays

KMC 7-181

Short Biography


Course Meetings

MW, 2:00pm to 3:15pm

Tisch T-UC21

Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:


Course Description and Learning Goals

Monetary policy and financial regulation are constantly in the news. In the aftermath of the global financial crisis, central banks have the task of stabilizing both the economy and the financial system. This is a Stern Economics elective that examines the institutions that conduct macroeconomic and financial policy and explains how they work. The financial crisis will be a point of emphasis throughout the course. Several broad questions will be addressed over the course of the semester:

The course will involve a combination of lecture, discussion and case analysis.   


Course Pre-Requisites

Introductory Macroeconomics


Course Outline

Rough Outline

Week 1

Introduction, Money and Financial Institutions

Why is financial development related to economic development?
How and why are financial institutions evolving?

Week 2

Risk, Present Value and the Term Structure of Interest Rates

How does leverage increase risk?
What can interest rates tell us about the future?

Week 3

Markets for Stocks and for Foreign Exchange

Why might asset price bubbles arise?
What affects the value of the dollar?
What is the “real” exchange rate?

Week 4

Economics of Financial Intermediation

How do financial institutions earn profit?
What accounts for shifts between bank finance and other types of finance?
What makes financial institutions vulnerable?

Week 5

Financial Industry Structure and Regulation (I)

Why are there so many banks in the United States?
What is the lender of last resort?
Do we need the government safety net?
How is regulation structured in different countries?

Week 6

Regulation (II)

What is systemic risk and how can regulators address it?
How will the global financial crisis affect regulation going forward?

Week 7

Central Banks in the World Today

What do central banks do? Do we need them?
How do monetary and fiscal policy differ?
How are the Fed and the ECB similar? How are they different?

Week 8

The Central Bank Balance Sheet and the Money-Supply Process

How does an open-market operation work?
How does a foreign exchange intervention work?
Can the central bank control the quantity of money in the economy?

Week 9

Monetary Policy: Stabilizing the Domestic Economy

Why do central banks usually choose to control interest rates?
What is inflation targeting? How does it work? How does it relate to the risk of deflation?
What are the arguments for and against targeting a monetary aggregate?

Week 10

Exchange Rate Policy and the Central Bank

How are exchange rates and interest rates linked?
Why do some countries choose to fix their exchange rates?
How should we understand China’s exchange rate regime?

Week 11

Output, Inflation and Monetary Policy

What is the monetary policy reaction curve?
How do policy changes affect the economy?
What is the short-run aggregate supply curve and why is it upward-sloping?

Week 12

Output, Inflation and Monetary Policy (continued)

How does stabilization policy work?
What is the role of policy rules?
What can monetary policy do when interest rates are at zero?
What are “quantitative easing” and “credit easing?”
How is monetary policy transmitted when the financial system is impaired?

Week 13

New Challenges Facing Central Bankers

What are the biggest challenges facing monetary policymakers over the next decade?
How should central banks address asset price bubbles?
How should they manage policy near the zero bound?
What is the future of “unconventional monetary policy?”
What is the role of “macroprudential policy?”  


Required Course Materials

Required textbook. Stephen G. Cecchetti and Kermit L. Schoenholtz, Money, Banking and Financial Markets, McGraw-Hill Irwin, 2010 (ISBN: 978-0073375908).

The materials in this book, combined with current events, will form the core of what is covered in class meetings.






Assessment Components

 Course Requirements and Grades. Course grades will be based on a mix of problem sets (totaling around 30%) and two examinations (midterm and final examination representing around 30% each). Attendance and class participation also will contribute to the grade (around 10%). In lieu of a missed midterm exam -- for whatever reason -- the weight on the final examination will be increased accordingly.  



At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.



The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 2 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.


Professional Responsibilities For This Course




In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:




Classroom Norms


Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 


Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 


Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.


Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.


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