310 Economics Money and Banking Summer 2008 Syllabus Instructor: Chad Hogan Office: Lorch M109 Email: [e-mail] Phone: [phone] Classes: Tuesdays, Wednesdays and Thursdays, 1:00pm 3.00pm in Angel Hall, Auditorium C Office Hours: Tuesdays, 10:00am 12:00 noon Thursdays, 3:00pm 5:00pm in Lorch M109 or by appointment Text: Mishkin, F., The Economics of Money, Banking and Financial Markets, Edition 8, Addison Wesley, 2006
Exams: There will be three exams in the course. The final exam is scheduled for Friday, August 15, 8:00 am - 10:00 am. The first and second exams will be held during class time on Thursday, July 10 and Tuesday, July 29. No alternate exam times will be scheduled, and enrollment in the course implies readiness to attend all three of these exams. In the event that illness or personal emergency prevents a student from attending one of the midterm exams, then that student will be excused from the exam (once adequate documentation has been produced) and that student's grade will be determined only by the other assessable items. The first and second exams will be multiple choice exercises. The final will be a completely written exercise, and will cover all of the material in the course. Homework: Homework assignments will be collected roughly weekly. These will be graded on a simple two point scale, reflecting work that is satisfactory or unsatisfactory. There will be homework assignments due on the following days: Tuesday, July 1 Tuesday, July 8 Friday, July 18 Friday, July 25 Wednesday, August 6 Wednesday, August 13 All assignments should be submitted via the CTools website, by 5pm on the day specified.
Assessment: A student's grade for the course will be determined by that student's standing relative to the rest of the class. A single score will be generated as the weighted sum of the student's exam scores and assignment scores. If the exams are all scored out of 100, and the assignment work is given a single score out of 100, then the following weightings show how the course score will be determined. Exam 1 Exam 2 Final Exam Assignments 25% 25% 40% 10%
Students with higher scores will get better grades. But there is no pre-determined "curve" for the course. It is impossible to tell which grades will correspond to which scores until all assessment is completed. Course Description The primary purpose of money is to mediate exchange. Money relieves the need for double coincidence of wants to motivate exchange, and so facilitates welfare-improving trade. We examine why this medium of exchange is typically by controlled the central bank, and in doing so develop an understanding of the role of the central bank in the modern macro-economy. The course hopes to provide a strong intuitive understanding of the relationships that shape money and credit markets, and how these markets influence macroeconomic outcomes. We discuss the role of money in lubricating the economy, generate various metrics of liquidity in the market, examine the central bank's role in determining the quantity of liquidity available in the market, and strive to understand the impact the central bank has on capital markets through the manipulation of interest rates. We discuss the term structure of interest rates, both to appreciate how markets for liquidity and for financial assets are interrelated, and to appreciate how the manipulation of short term interest rates by the central bank will propagate through bond markets. After developing various theories of money demand, we then examine how monetary policy will impact the macroeconomy in the context of traditional macro models like the IS-LM model, the aggregate demand/aggregate supply model and the Mundell-Fleming model. We also examine inflation as a monetary phenomenon.
Course Outline Week 1 What is money? Reading from the text: Reading from CTools:
Chapter 3 (a) Radford (b) Rockoff (c) Bryan
The Role of the Central Bank
Reading from text: Week 2 Assignment 1 due: Tuesday, June 1
Chapter 12
The banking system and the money supply Reading from text: Chapters 13 & 14 Understanding interest rates Reading from text: The bond market Reading from text:
Chapter 4,
Chapter 5
Week 3
Assignment 2 due: Tuesday, June 8 Relating interest rates: risk premia and term structure Reading from text: Chapter 6 Reading from CTools: Bernanke's yield curve speech Exam 1: Thursday, July 10, 1:00pm 3:00pm
Week 4
Monetary tools and monetary policy Reading from text: Chapters 15 The Money Market Reading from text: Assignment 3 due: Friday, July 18
Chapter 19
Week 5
A Keynesian model of aggregate spending Reading from text: Chapters 20 & 21 Aggregate demand-aggregate supply model Reading from text: Chapter 22 Assignment 4 due: Friday, July 25
Week 6
Exam 2: Tuesday, July 29, 1:00pm 3:00pm Inflation Reading from text: Reading from CTools:
Chapter 24 (a) Fisher & Modigliani (b) Bernanke price stability speech
Week 7
International Finance Reading from text:
Chapters 17, 18
Assignment 5 due: Wednesday, August 6
Week 8
Assignment 6 due: Wednesday, August 13 Final Exam: Friday, August 15, 8:00am 10:00am