## 1. Introductory Lecture ## Source details **Canonical URL:** [1. Introductory Lecture](https://www.imf.org/-/media/files/icd/mp.pdf) ## Other formats - [Markdown version](/-/media/files/icd/mp.pdf.md) - [Structured JSON version](/-/media/files/icd/mp.pdf.json) --- ### Course purpose, target audience, and qualifications - Target audience: junior to mid-level officials mostly from emerging markets and low-income countries interested in implementation of monetary policy and its interaction with the rest of the economy. - Qualifications: advanced degree in economics or equivalent experience; comfortable using Excel and Excel-based applications. - Course purpose (IMF Institute): comprehensive overview of monetary policy regimes, monetary transmission mechanisms, and the role of monetary policy in macroeconomic stabilization; bridge theory, empirical evidence, and operational experience through lectures, hands-on workshops, and case studies. ### Course objectives and evaluation - Upon completion participants should be able to: - Analyze how monetary policy decisions are made under various regimes to deliver price stability. - Identify how these decisions are transmitted to the real economy. - Evaluate how the economy and monetary policy respond to macroeconomic shocks under various frameworks, demonstrated through a group presentation. - Central bank practitioners: (i) Design a sound monetary policy framework; and (ii) Prescribe policies consistent with the chosen framework. - Performance evaluation: - Two multiple-choice tests will be given, one at the beginning and one at the end of the course; performance recorded in participants’ evaluation. ### Course progression, customization, and recommended sequencing - Recommended sequencing: - Attend after Financial Programming and Policies (FPP) and Macroeconomic Diagnostic (MDS) or after online modules for those courses. - For technical central bank staff: take this course ahead of Model-Based Monetary Policy Analysis and Forecasting (MPAF) and Monetary and Fiscal Policy Analysis with DSGE Models. - Monetary policy practitioners: strongly recommended to attend Exchange Rate Policy (ERP) and Managing Capital Flows (MCF) in the same two year period. - Customization: - Basic material for all regions with different regional case studies. - Auxiliary units may be added in certain regions replacing other lectures. - Some workshops may be extended depending on regional interests and interaction. ### Structure, timing, and pedagogical approach - Course organization: - Units combining lectures (1.5h) and workshops/case studies (typically 1.5h) with hands-on Excel exercises and model-based simulations. - Pedagogical features: - Lectures motivate concepts and tradeoffs. - Workshops use a user-friendly small New‑Keynesian model interface (drop-down menus for policy rules and shocks) to simulate responses. - Case studies tailored to regional/country experiences (examples include Latvia, Tanzania, Chile, Malaysia, Latvia, Uruguay). - Emphasis on coordination among money market operations, foreign exchange operations, and government operations. ### Core substantive themes and instructional units - Institutional foundations and goals (Unit 2): - Role of price stability as overarching goal; institutional arrangements: central bank autonomy, accountability, governance, and transparency. - Interactions between monetary policy, exchange rate regime, fiscal policy, and financial policy. - Monetary policy frameworks and regime choice (Units 3, 10–13): - Taxonomy of frameworks: hard and soft pegs (including currency unions), managed exchange rate regimes, monetary targeting and evolving regimes, inflation forecast targeting, eclectic frameworks, price level and nominal income targeting. - Exercises and model fits used: - Latvia model for hard peg responses around the global financial crisis. - Tanzania model for reserve money targeting and evolving regimes. - Chile model for inflation-forecast targeting. - Malaysia model for hybrid/managed float regime. - Operational implementation and instruments (Unit 4): - Operational targets, instruments, money and foreign exchange market operations, central bank and consolidated banking sector balance sheet consequences. - Liquidity forecasting, management of bank reserves, reserves remuneration. - Workshop focus: aligning operations and instruments with desired policy stance; moving from quantity targeting to short-term policy rates. - Measurement, diagnostics and transmission (Units 5–6): - Key concepts: Phillips curve relationship, natural levels (trend GDP, NAIRU, natural interest rate, real exchange rate), core inflation. - Excel exercises: measure core inflation, trend GDP, natural interest rate, NAIRU. - Transmission channels: (a) interest rate, (b) exchange rate, (c) asset prices, (d) expectations, (e) bank balance sheet, (f) bank lending channel; risk-taking channel discussed in Unit 15. - Identified impediments in emerging markets: shallow/illiquid markets, colluded banking systems, less flexible exchange rates; specific disconnects between policy rate and long-term rates, interbank money market, and bank lending rates. - Quantitative modeling and forecasting (Units 7–8): - Use of a small New‑Keynesian structural model: aggregate demand, Phillips curve, policy/Taylor rule variants (including roles for monetary aggregates and exchange rate). - Role of models in systematic policy analysis and interpretation of simulation results. - Forecasting and Policy Analysis System (FPAS): organization of forward‑looking monetary policy, medium-term inflation targets, role of the inflation forecast as an intermediate target, reporting and institutional organization. - Central bank communications (Unit 9): - Principles of effective communication, including forward guidance, credibility, transparency and case studies. - Unconventional monetary policy (Unit 14): - Concepts of quantitative easing (QE) and unconventional policy; effects on central bank balance sheets, monetary aggregates, inflationary impact, spillovers to emerging markets and low-income countries; exit preparations. ### Monetary policy, financial stability and macroprudential policy (Unit 15) - Key topics: - Tradeoffs between financial and economic stabilization and the “leaning against the wind” debate. - Risk‑taking channel of monetary transmission and how accommodative policies in large developed countries exacerbate tradeoffs and generate spillovers via capital flows to emerging and low-income countries. - Joint design and implementation of monetary policy and macroprudential policies to ensure price and financial stability, even when output is close to potential. - Instructional focus: - Theory, empirical evidence, operational implications, and policy design to preempt crises. ### Auxiliary thematic units - Unit A1: Monetary policy in Fund supported programs - Role of monetary conditionality under different frameworks: (i) fixed exchange rate regimes, (ii) money targeting, (iii) inflation targeting, (iv) evolving regimes; empirical evidence on adherence to program targets. - Unit A2: Monetary policy and inequality - Analysis of transmission mechanisms from monetary policy to inequality; case study: Philippines and Czech Republic. - Unit A3: Central Bank Digital Currencies (CBDCs) - Coverage of Fintech ABCD, virtual currencies and cryptocurrencies, blockchain/DLT, and implications of CBDCs for central banking and the financial sector. ### Recurring simulation shocks and country case emphases - Repeated workshop simulation shocks analyzed across regimes: - External demand, world commodity prices, domestic demand, and risk premium. - Country-focused case studies: - Latvia (hard peg, 2008 crisis), Tanzania (reserve money targeting), Uruguay (money targeting transitions), Chile (inflation‑forecast targeting), Malaysia (managed float), and discussion of broader experiences (e.g., Latvia, Uruguay, Chile, Malaysia). ### Timing and unit allocation (Core and Auxiliary) - Core Units: Titles and Allocated Time - Institutional Frameworks, Goals and Links with Other Policies 1.5 - Monetary Policy Frameworks 1.5 - Monetary Policy Instruments and Operations 1.5 1.5 - Main Concepts and Measurement Used in Monetary Policy Analysis 1.5 1.5 - Monetary Policy Transmission Mechanism 1.5 1.5 - A Quantitative Framework for Monetary Policy Analysis 1.5 - Role of Forecasting and Policy Analysis System 1.5 - Role of Central Bank Communications 1.5 - Monetary Policy in Hard Pegs 1.5 1.5 - Monetary Policy in Reserve Money Targeting and Evolving Regimes 1.5 1.5 - Monetary Policy in Inflation Forecasting Targeting Regimes 1.5 1.5 - Monetary Policy in Managed Exchange Rate Regimes 1.5 1.5 - Unconventional Monetary Policies 1.5 - Monetary Policy, Financial Stability and Macroprudential Policy 1.5 1.5 - Subtotal 22.5 12 - Auxiliary Units - A1. Monetary policy in fund supported programs 1.5 - A2. Monetary Policy and Inequality 1.5 1.5 - A3. Central Bank Digital Currencies 1.5 - Subtotal (Core and Auxiliary units) 27 13.5 - Other Components (Course Logistics and Activities) - Admin Briefing 0.5 - Opening: Introductory Remarks, Welcome, Initial Quiz 1 - Preparations for group presentations 6 - Group presentations 1.5 - Closing: Final Quiz, Course evaluation, Closing remarks 1.5 - Subtotal 3 7.5 - Totals - Total 30 21 *Source: IMF Institute course "Monetary Policy, Financial Stability and Macroprudential Policy".* ### 1. Introductory Lecture ### 1. Introductory Lecture ### Part I: Principles and Building Blocks - 2. Institutional Frameworks, Goals, and Links with Other Policies - 3. Monetary Policy Frameworks - 4. Monetary Policy Instruments and Operations - 5. Main Concepts and Measurements Used in Monetary Policy Analysis - 6. Monetary Policy Transmission Mechanism - 7. A Quantitative Framework for Monetary Policy Analysis - 8. Role of Forecasting and Policy Analysis System - 9. Role of Central Bank Communications ### Part II: Frameworks in Practice - 10. Monetary Policy in Hard Pegs - 11. Monetary Policy in Reserve Money Targeting and Evolving Regimes - 12. Monetary Policy in Inflation Forecast Targeting Regime ### Part III: Constraints and Challenges - 13. Monetary Policy in Managed Exchange Rate Regimes - 14. Unconventional Monetary Policies *International Monetary Fund — Introductory Lecture (mp - 1. Introductory Lecture)* ### 15. Monetary Policy, Financial Stability and Macroprudential Policy ### 15. Monetary Policy, Financial Stability and Macroprudential Policy ### Target audience, qualifications, and course purpose - Target audience: junior to mid-level officials mostly from emerging markets and low-income countries interested in implementation of monetary policy and its interaction with the rest of the economy. - Qualifications: advanced degree in economics or equivalent experience; comfortable using Excel and Excel-based applications. - Course purpose (IMF Institute): comprehensive overview of monetary policy regimes, monetary transmission mechanisms, and the role of monetary policy in macroeconomic stabilization; bridge theory, empirical evidence, and operational experience through lectures, hands-on workshops, and case studies. ### Course objectives and evaluation - Upon completion participants should be able to: - Analyze how monetary policy decisions are made under various regimes to deliver price stability. - Identify how these decisions are transmitted to the real economy. - Evaluate how the economy and monetary policy respond to macroeconomic shocks under various frameworks, demonstrated through a group presentation. - Central bank practitioners: (i) Design a sound monetary policy framework; and (ii) Prescribe policies consistent with the chosen framework. - Performance evaluation: Two multiple-choice tests will be given, one at the beginning and one at the end of the course; performance recorded in participants’ evaluation. ### Course progression and customization - Recommended sequencing: - Attend after Financial Programming and Policies (FPP) and Macroeconomic Diagnostic (MDS) or after online modules for those courses. - For technical central bank staff: take this course ahead of Model-Based Monetary Policy Analysis and Forecasting (MPAF) and Monetary and Fiscal Policy Analysis with DSGE Models. - Monetary policy practitioners: strongly recommended to attend Exchange Rate Policy (ERP) and Managing Capital Flows (MCF) in the same two year period. - Customization: basic material for all regions with different regional case studies; auxiliary units may be added in certain regions replacing other lectures; some workshops may be extended depending on regional interests and interaction. ### Structure, timing and pedagogical approach - Course organization: units combining lectures (1.5h) and workshops/case studies (typically 1.5h) with hands-on Excel exercises and model-based simulations. - Pedagogical features: - Lectures motivate concepts and tradeoffs. - Workshops use a user-friendly small New‑Keynesian model interface (drop-down menus for policy rules and shocks) to simulate responses. - Case studies tailored to regional/country experiences (examples include Latvia, Tanzania, Chile, Malaysia, Latvia, Uruguay). - Emphasis on coordination among money market operations, foreign exchange operations, and government operations. ### Core substantive themes and instructional units - Institutional foundations and goals (Unit 2): - Role of price stability as overarching goal; institutional arrangements: central bank autonomy, accountability, governance, and transparency. - Interactions between monetary policy, exchange rate regime, fiscal policy, and financial policy. - Monetary policy frameworks and regime choice (Units 3, 10–13): - Taxonomy of frameworks: hard and soft pegs (including currency unions), managed exchange rate regimes, monetary targeting and evolving regimes, inflation forecast targeting, eclectic frameworks, price level and nominal income targeting. - Exercises and model fits used: - Latvia model for hard peg responses around the global financial crisis. - Tanzania model for reserve money targeting and evolving regimes. - Chile model for inflation-forecast targeting. - Malaysia model for hybrid/managed float regime. - Operational implementation and instruments (Unit 4): - Operational targets, instruments, money and foreign exchange market operations, central bank and consolidated banking sector balance sheet consequences. - Liquidity forecasting, management of bank reserves, reserves remuneration. - Workshop focus: aligning operations and instruments with desired policy stance; moving from quantity targeting to short-term policy rates. - Measurement, diagnostics and transmission (Units 5–6): - Key concepts: Phillips curve relationship, natural levels (trend GDP, NAIRU, natural interest rate, real exchange rate), core inflation. - Excel exercises: measure core inflation, trend GDP, natural interest rate, NAIRU. - Transmission channels: (a) interest rate, (b) exchange rate, (c) asset prices, (d) expectations, (e) bank balance sheet, (f) bank lending channel; risk-taking channel discussed in Unit 15. - Identified impediments in emerging markets: shallow/illiquid markets, colluded banking systems, less flexible exchange rates; specific disconnects between policy rate and long-term rates, interbank money market, and bank lending rates. - Quantitative modeling and forecasting (Units 7–8): - Use of a small New‑Keynesian structural model: aggregate demand, Phillips curve, policy/Taylor rule variants (including roles for monetary aggregates and exchange rate). - Role of models in systematic policy analysis and interpretation of simulation results. - Forecasting and Policy Analysis System (FPAS): organization of forward‑looking monetary policy, medium-term inflation targets, role of the inflation forecast as an intermediate target, reporting and institutional organization. - Central bank communications (Unit 9): - Principles of effective communication, including forward guidance, credibility, transparency and case studies. - Unconventional monetary policy (Unit 14): - Concepts of quantitative easing (QE) and unconventional policy; effects on central bank balance sheets, monetary aggregates, inflationary impact, spillovers to emerging markets and low-income countries; exit preparations. ### Monetary policy, financial stability and macroprudential policy (Unit 15) - Key topics: - Tradeoffs between financial and economic stabilization and the “leaning against the wind” debate. - Risk‑taking channel of monetary transmission and how accommodative policies in large developed countries exacerbate tradeoffs and generate spillovers via capital flows to emerging and low-income countries. - Joint design and implementation of monetary policy and macroprudential policies to ensure price and financial stability, even when output is close to potential. - Instructional focus: theory, empirical evidence, operational implications, and policy design to preempt crises. ### Auxiliary thematic units - Unit A1: Monetary policy in Fund supported programs - Role of monetary conditionality under different frameworks: (i) fixed exchange rate regimes, (ii) money targeting, (iii) inflation targeting, (iv) evolving regimes; empirical evidence on adherence to program targets. - Unit A2: Monetary policy and inequality - Analysis of transmission mechanisms from monetary policy to inequality; case study: Philippines and Czech Republic. - Unit A3: Central Bank Digital Currencies (CBDCs) - Coverage of Fintech ABCD, virtual currencies and cryptocurrencies, blockchain/DLT, and implications of CBDCs for central banking and the financial sector. ### Recurring simulation and country case emphases - Repeated workshop simulation shocks analyzed across regimes: - External demand, world commodity prices, domestic demand, and risk premium. - Country-focused case studies used to illustrate regime-specific tradeoffs and institutional requirements: - Latvia (hard peg, 2008 crisis), Tanzania (reserve money targeting), Uruguay (money targeting transitions), Chile (inflation‑forecast targeting), Malaysia (managed float), and discussion of broader experiences (e.g., Latvia, Uruguay, Chile, Malaysia). *Source: IMF Institute course "Monetary Policy, Financial Stability and Macroprudential Policy".* ### 1. Introductory Lecture 1.5 ### 1. Introductory Lecture 1.5 ### Core Units: Titles and Allocated Time - Institutional Frameworks, Goals and Links with Other Policies 1.5 - Monetary Policy Frameworks 1.5 - Monetary Policy Instruments and Operations 1.5 1.5 - Main Concepts and Measurement Used in Monetary Policy Analysis 1.5 1.5 - Monetary Policy Transmission Mechanism 1.5 1.5 - A Quantitative Framework for Monetary Policy Analysis 1.5 - Role of Forecasting and Policy Analysis System 1.5 - Role of Central Bank Communications 1.5 - Monetary Policy in Hard Pegs 1.5 1.5 - Monetary Policy in Reserve Money Targeting and Evolving Regimes 1.5 1.5 - Monetary Policy in Inflation Forecasting Targeting Regimes 1.5 1.5 - Monetary Policy in Managed Exchange Rate Regimes 1.5 1.5 - Unconventional Monetary Policies 1.5 - Monetary Policy, Financial Stability and Macroprudential Policy 1.5 1.5 - Subtotal 22.5 12 ### Auxiliary Units - A1. Monetary policy in fund supported programs 1.5 - A2. Monetary Policy and Inequality 1.5 1.5 - A3. Central Bank Digital Currencies 1.5 - Subtotal (Core and Auxiliary units) 27 13.5 ### Other Components (Course Logistics and Activities) - Admin Briefing 0.5 - Opening: Introductory Remarks, Welcome, Initial Quiz 1 - Preparations for group presentations 6 - Group presentations 1.5 - Closing: Final Quiz, Course evaluation, Closing remarks 1.5 - Subtotal 3 7.5 ### Totals - Total 30 21 --- _Source: https://www.imf.org/-/media/files/icd/mp.pdf_