PrefaceGuided tourAuthors' acknowledgementsPublisher's acknowledgementsIntroduction Part 1 Introduction 1 Why study money, banking and financial markets?Why study financial markets?Why study financial institutions and banking?Why study money and monetary policy?Why study international finance?How will we study money, banking and financial markets?Web exercisesConcluding remarksSummaryKey termsQuestions and problemsWeb exercisesNotesWeb referencesAppendix to Chapter 1 Defining aggregate output, income, the price level and the inflation rate 2 An overview of the financial systemFunction of financial marketsStructure of financial marketsFinancial market instrumentsInternationalization of financial marketsFunction of financial intermediaries: indirect financeTypes of financial intermediariesRegulation of the financial systemSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 3 What is money? A comparative approach to measuring moneyMeaning of moneyFunctions of moneyEvolution of the payments systemMeasuring moneyWhich is the most accurate monetary aggregate?SummaryKey termsQuestions and problemsWeb exercisesNotesWeb references Part 2 Financial markets 4 Understanding interest ratesMeasuring interest ratesThe distinction between interest rates and returnsThe distinction between real and nominal interest ratesSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 5 The behaviour of interest ratesDeterminants of asset demandSupply and demand in the bond marketChanges in equilibrium interest ratesSupply and demand in the market for money: the liquidity preference frameworkChanges in equilibrium interest rates in the liquidity preference frameworkSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 6 The risk and term structure of interest ratesRisk structure of interest ratesTerm structure of interest ratesSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 7 The stock market, the theory of rational expectations and the efficient market hypothesisComputing the price of common stockHow the market sets stock pricesThe theory of rational expectationsThe efficient market hypothesis: rational expectations in financial marketsBehavioural financeSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references Part 3 Financial institutions 8 An economic analysis of financial structureBasic facts about financial structure throughout the worldTransaction costsAsymmetric information: adverse selection and moral hazardThe lemons problem: how adverse selection influences financial structureHow moral hazard affects the choice between debt and equity contractsHow moral hazard influences financial structure in debt marketsConflicts of interestSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 9 Financial crises and the subprime meltdownFactors causing financial crisesDynamics of past financial crises in developed countriesThe subprime financial crisis of 2007-8Dynamics of financial crises in emerging market economiesDynamics of the eurozone financial crisisSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 10 Banking and the management of financial institutionsThe bank balance sheetBasic bankingGeneral principles of bank managementManaging credit riskManaging interest-rate riskOff-balance-sheet activitiesSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 11 Economic analysis of financial regulationAsymmetric information and financial regulationAdvantages and disadvantages of bank regulationBanking crises throughout the worldWhither financial regulation after the subprime financial crisis?SummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 12 Banking industry: structure and competitionThe single banking market in EuropeCompetition and bank consolidationFinancial innovation and the growth of the 'shadow banking system'Structure of the European commercial banking industryInternational bankingSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references Part 4 Central banking 13 The goals and structure of central banksThe price stability goal and the nominal anchorOther possible goals of monetary policyShould price stability be the primary goal of monetary policy?Structure of central banksThe Bank of EnglandThe Federal Reserve SystemThe European Central BankOther central banks around the worldShould the central banks be independent?SummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 14 The money supply processThree players in the money creation processThe central bank's balance sheetControl of the monetary baseMultiple deposit creation: a simple modelThe money multiplierFactors that determine the money supplyOverview of the money creation processLimits of the central bank's ability to control the money supplySummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 15 The tools of monetary policyThe market for reserves and the overnight interest rateOpen market operationsStanding facilitiesReserve requirementsSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 16 The conduct of monetary policy: strategy and tacticsMonetary targetingInflation targetingMonetary policy with an implicit nominal anchorTactics: choosing the policy instrumentTactics: the Taylor ruleCentral banks' response to asset-price bubbles: lessons from the subprime crisisSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references Part 5 International finance and monetary policy 17 The foreign exchange market: exchange rates and applicationsForeign exchange marketExchange rates in the long runExchange rates in the short run: a supply and demand analysisExplaining changes in exchange ratesSummaryKey termsQuestions and problemsWeb exercisesNotesWeb referencesAppendix to Chapter 17 The interest parity condition 18 The international financial systemIntervention in the foreign exchange marketBalance of paymentsExchange rate regimes in the international financial systemCapital controlsThe role of the IMFInternational considerations and monetary policyTo peg or not to peg: exchange-rate targeting as an alternative monetary policy strategyCurrency boards, dollarization and monetary unionsSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references Part 6 Monetary theory 19 The demand for moneyQuantity theory of moneyIs velocity a constant?Keynes's liquidity preference theoryFurther developments in the Keynesian approachFriedman's modern quantity theory of moneyDistinguishing between the Friedman and Keynesian theoriesEmpirical evidence on the demand for moneySummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 20 The ISLM modelDetermination of aggregate outputThe ISLM modelISLM approach to aggregate output and interest ratesSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 21 Monetary and fiscal policy in the ISLM modelFactors that cause the IS curve to shiftFactors that cause the LM curve to shiftChanges in equilibrium level of the interest rate and aggregate outputEffectiveness of monetary versus fiscal policyISLM models in the long runISLM model and the aggregate demand curveSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 22 Aggregate demand and supply analysisAggregate demandAggregate supplyEquilibrium in aggregate demand and supply analysisSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 23 Transmission mechanisms of monetary policy: the evidenceFramework for evaluating empirical evidenceTransmission mechanisms of monetary policyLessons for monetary policySummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 24 Money and inflationMoney and inflation: evidenceMeaning of inflationViews of inflationOrigins of inflationary monetary policyThe discretionary/non-discretionary policy debateSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references 25 Rational expectations: implications for policyThe Lucas critique of policy evaluationNew classical macroeconomic modelNew Keynesian modelComparison of the two new models with the traditional modelImpact of the rational expectations revolutionSummaryKey termsQuestions and problemsWeb exercisesNotesWeb references GlossaryIndex

This European adaptation of Mishkin's market leading The Economics of Money, Banking and Financial Markets places the central themes in context for European students providing an in-depth overview and comparison of the structures, goals, tools and strategies of the European Central Bank, the Bank of England and the US Federal Reserve.