ECONOMICS OF FINANCIAL AND EXCHANGE MARKETS

The course aims to understand how the financial markets react to the economic policies and the publication of macro data, by affecting the future international macroeconomic scenario. In the first part of the course, theoretical topics about the behaviour of the Authorities, that define the economic policies, and the financial markets are presented. The effects of inflation, interest and exchange rates? expectations on the effectiveness of economic policies will be analysed. The second part is based on the perspective followed by financial operators to generate their expectations.

The student have to be able to analyze the macroeconomic scenario, interpret monetary and fiscal policy interventions based on the language of the policy makers, evaluate the impact of financial market expectations on the real economy.

No pre-requirements. Knowledge of basic economic policy concepts is suggested

PART I: THEORETICAL TOPICS
Economic policies: goals and instruments
- The goals of economic policies
- The instruments of economic policies
- Effects on the equilibrium
- The Keynesian and Monetarist theories on the effectiveness of economic policies
The effectiveness of economic policies under the IS-LM model with expectations
- Expected inflation
- Expected interest rates
- Economic policies' effectiveness on the stock market taking into account the expectations
The effectiveness of economic policies in open economies
- Basic concepts in open economy
- Expected exchange rates
The exchange rate regimes
- Floating exchange rate regimes: clean or dirty floating
- Fixed exchange rate regimes: fixed peg, bands, crawling peg, currency board, dollarization, currency union
- A comparison between the currency board and the bands

PART II: APPLICATIONS
The financial markets
- The money, capital and foreign exchange markets
- The most relevant interest rates, the exchange rate: their publication on `Il sole 24 ore'. Exercises
How the financial markets generate their expectations
- The role of the Central Banks and the interpretation of their communication language
- Macroeconomic analysis of a Country: annual, quarterly and monthly data. The current international scenario

At the beginning of the course it will be available material about the highlights of the topics.

Written exam. Exercises containing several theoretical (definitions or demonstrations)and practical questions (applying the theory to the macroeconomic scenario or financial markets (for example, interest or exchange rate exercises)

The teaching method will be frontal. Examples of application of the theory to the current macroeconomic scenario will be analyzed

written