This fully revised second edition of Bain and Howells' Monetary Economics provides an up-to-date examination of monetary policy as it is practised and the theory underlying it. The authors link the conduct of monetary policy to the IS/PC/MR model and extend this further through the addition of a simple model of the banking sector. They demonstrate why monetary policy is central to the management of a modern economy, showing how it might have lasting effects on real variables, and look at how the current economic crisis has weakened the ability of policymakers to influence aggregate demand through the structure of interest rates. The second edition: * features a realistic account of the conduct of monetary policy when the money supply is endogenous * provides a detailed and up-to-date account of the conduct of monetary policy and links this explicitly to a framework for teaching macroeconomics * includes recent changes in money market operations and an examination of the problems posed for monetary policy by the recent financial crisis Monetary Economics is an ideal core textbook for advanced undergraduate modules in monetary economics and monetary theory and policy.