European Monetary Policies (Fall 2019)

Part I (6 classes – 15 hours)

Prof. Pietro Reichlin


Office: Room 524, LUISS, Viale Romania 32

Office Hours: Wednesday, 15:00-17:00

Lectures: Nov. 12, 10:30-13:00 – Nov. 14, 9:00-11:30 – Nov. 20, 9:00-11:30 – Nov. 21, 9:00-11:30 – Nov. 27, 9:00-11:30 – Nov. 28, 9:00-11:30

Course Description.

The course provides a basic understanding of the architecture of the European Institutions presiding over monetary policies. The objective of the course is acquiring a broad knowledge of the evolvement, characteristics and motivations of the main institutions conducting monetary policies in the European Monetary Union. Getting a close look of the ECB monetary policy actions during the first twenty years of the EMU. 

Primary Reference

  • [BW] R. Baldwin, C. Wyplosz, The Economics of European Integration, 5th ed. McGraw Hill, 2015. Parts I, IV and V.
  • [DG] P. De Grauwe, Economics of Monetary Union, 12th ed., Oxford U.P., 2018.
  • [M] F. Mishkin, The Economics of Money, Banking, and Financial Markets, 12th ed., Pearson, 2019.

Additional Materials.

  • Slides provided by the instructor.
  • Bordo and H. James, “The European Crisis in the Context of the history of previous financial crisis”, NBER W.P. 19112, 2013.
  • De Grauwe, Europe Monetary Union, The New Palgrave Dictionary of Economics, in Steven N. Durlauf and Lawrence E. Blume (eds), Online Edition, 2011.
  • Central Bank: Monetary Policy”, ECB W.P. 2219, 2018.
  • ECB Economic Bulletin, Issue 6/2017.
  • Issing, “Europe’s Hard Fix: The Euro Area”, speech at the Workshop on “Regional and International Currency Arrangements”, Vienna, 24 February 2006.
  • Draghi, “Introductory remarks at the EP’s Economic and Monetary Affairs Committee”, 2014
  • P. Hartmann and F. Smets, “The First Twenty Years of the European Central Bank: Monetary Policy.”

Other materials can be suggested during the course.

Extended Course Plan & Lecture-Specific References

*Lecture Duration: 2,5 hours

Lecture 1 Topic Review of the Standard Open Economy Model and Monetary Policy in open economy. The transmission mechanism of monetary policy in closed and open economies. The Mundell-Fleming Model with flexible and fixed exchange rate regimes. The impossible trinity principle. Expectations and interest parity with exchange rate and country risk.
References BW, Ch. 13.
Lecture 2 Topic Review of the Aggregate Demand-Aggregate Supply Model. The monetary policy curve. The Taylor Principle.
References M: Ch. 22, 23.
Lecture 3 Topic Equilibrium output and inflation. Responding to demand and supply shocks. The role of expectations. The zero lower bound.
References M: Ch. 22, 23.
Lecture 4 Topic Review of the Money Supply Process. Central Banks’ balance sheet. Control of the monetary base. Deposit creation. Changing the money supply and the money multiplier. Open market operations and the target financing rate. Lending to banks, liquidity provision.
References M. Ch. 16, 17.
Lecture 5 Topic The European Central Bank. General design, structure, strategy and tools. The economic and financial structure of the Euro Area.
References DG: Ch. 9. The Monetary Policy of the ECB, ECB, 2011. Issing, “Europe’s Hard Fix: The Euro Area”, 2006. Central Bank: Monetary Policy”, ECB W.P. 2219, 2018.
Lecture 6 Topic Monetary Policy in the Euro Area. The first 10 years and the post crisis experience. Evolution of strategy and implementation of the ECB monetary policy. Comparing the Fed and the ECB policies.
References DG: Ch. 10. Draghi, “Introductory remarks at the EP’s Economic and Monetary Affairs Committee”, 2014. P. Hartmann and F. Smets, “The First Twenty Years of the European Central Bank: Monetary Policy.”



  1. Review of Monetary Models
  2. Monetary Policies and Tools
  3. The ECB and the EA monetary policy


  1. O. Issing, Europe’s Hard Fix: The Euro Area
  2. Grauwe, The European Monetary Union
  3. BORDO and JAMES, The EU crisis in the context of history
  4. Hartmann and Smets, The first Twenty Yers of the ECB
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