Subject:
Economics
Material Type:
Module
Level:
Community College / Lower Division, College / Upper Division
Provider:
Ohio Open Ed Collaborative
Tags:
Monetary Policy
License:
Creative Commons Attribution Non-Commercial
Language:
English
Media Formats:
eBook, Text/HTML

Monetary Policy: Course Map & Recommended Resources

Overview

This topic discusses the role of a central banks and monetary policy. Monetary policy is contextual and particular to the unique institutional features of the economy of interest. For example, Chinese Monetary policy would be very different from US Monetary Policy. In order to understand monetary policy contextually it helps to start with the historical evolution of the institution (learning objective 2). This is a good way for students to see the value of economic history as a subfield. Other important topics include an understanding of how a Central Bank conducts Monetary Policy and how this Monetary Policy affects Economic Outcomes. Also important are the pitfalls of Monetary Policy and case studies on various attempt at bank regulation which are getting more and more relevant. 

Learning Objectives

  1. Define monetary policy and the role of the central bank (the Fed) (7,9)
  2. Understand the history of monetary policy in the U.S. (7,9)

  3. Use the AD/AS model to analyze the use of monetary policy (8,9,10)

  4. Explain the shortcomings and tradeoffs of monetary policy (9)

  5. Explain the advantages and disadvantages of various central bank targets (9,10)

NOTE: This Module meets Ohio TAG's 7, 8, 9 & 10 for an Intro to Macroeconomics Course

Supplemental Content/Alternative Resources

The Federal Reserve and You v 2.0

  • The Philadelphia Federal Reserve has 70 videos that describe various aspect of the Fed, its history, money creation and how the monetary policy affects the economy. Some videos are very short about 5 mins long and can be embedded in your course management system. The whole series is available on Youtube.

  • Provided by: Philadelphia Federal Reserve Bank. 

Your Bank Account is an IOU

  • Professor Perry Mehrling presenting a simplified illustration showing how credit money works. The money in your bank account is actually an IOU from your bank to you. Many instructors will be nervous about trying to introduce this content in an economics principles course. Our experience illustrates that the simple ideas presented here are easily understood by any level of students. It also introduces a student to the idea that money can be “debt” or “tokens”. See the two following articles by Reiss and Mcleay et al.

  • Provided by: Institute of New Economic Thinking. 

Senior Economists Queue Up To Dismiss Textbook Explanations Of Our Monetary System

  • Authored by: Michael Reiss (August 27, 2013). Provided by: Positive Money Blog.

Money in the Modern Economy: An Introduction

  • Authored by: Michael McLeay, Amar Radia and Ryland Thomas (2014). Provided by: Bank of England Quarterly Bulletin.

Instruments Of Monetary Policy In China And Their Effectiveness: 1994–2006

  • Students should understand that each country has a different historical reality and economic system and so may conduct monetary policy in a different way than the Federal Reserve Bank of the United States. This article describes the Monetary Policy instruments in China.

  • Authored by: Michael Geiger (February 2008). Provided by: United Nations Conference on Trade and Development – Discussion Paper No. 18

Topic Exercise

This exercise will give students an understanding of the Fed’s “Beige Book”. Point students to the website below and ask students to locate the most recent report. Students should then find their Fed Reserve District and give a report to class on current conditions. Extra credit can be assigned for students that manage to use FRED to illustrate their presentation with data. For example, if they are talking about retail sales, they can show that time series data for their district or if they are talking about unemployment, then can show the employment data. Extra credit can also be assigned for students that can draw an aggregate demand and supply model to explain the outcomes they see but one would have to change this from a district level analysis to a country level analysis. This activity addresses learning goal 3.

Federal Reserve "Beige Book: Summary of Commentary on Current Economic Conditions by Federal Reserve District"

Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.

Active Learning Exercise

Monetary policy can sometimes get boring. Please see the game described in the article below. Instructors set-up a market for loanable funds. Then the Central bank is introduced. By actively participating in a market for loanable funds, students see the role of the Fed and also the relationship between banks and the monetary policy maker. (This activity addresses learning objective 1,2, and 5).

A Classroom Game to Teach the Principles of Money and Banking

  • Authored by: Adam Hoffer & Caroline Elliott (2015) Provided by: Cogent Economics & Finance, 3:1. DOI: 10.1080/23322039.2015.1095448.