ST. FRANCIS COLLEGE. Lecture, Hayek vs. Keynes youtube, Quantitative Easing Explained youtube

Transcription

1 ST. FRANCIS COLLEGE Course Title and Course Number: Money and Banking/ ECO 2306 Course Credits & Prerequisite: Three Credits/ ECO 1201 Course Hours: Wednesdays, 6-9PM Course Location: tbd Course Instructor: Cameron M. Weber Office Hours: before class and by appointment Office Hours Location: Address: Website: cameroneconomics.com (relevant class materials found under teaching page) Course description in catalogue: Money and credit; commercial banking; central banking; monetary theory and practice; financial regulation. Course Objectives: learning financial terms and concepts exploring the role of money in the economy studying financial institutions and markets; and how they are related to each other understanding the concept of interest, and calculation of interest rates based on yield to maturity examining the behavior of interest rates with respect to factors responsible for changing equilibrium interest rates studying the U.S. banking industry: its history, structure, and regulation understanding the Federal Reserve System with respect to its structure, economic goals, monetary targets, and monetary tools developing a critical approach to the conduct of the monetary policy of the Fed, and its impact on the contemporary U.S. economy Course Outline: Prequel: Review of thinking like an economist I. Keynesian vs. Hayekian ideal-types: aggregate modeling vs. growth economics II. Keynesian vs. Hayekian ideal-types: differing views on business cycle, economy as a system vs. economy as process, stability vs. creative destruction Lecture, Hayek vs. Keynes youtube, Quantitative Easing Explained youtube PART I: Introduction to Money and Banking I. Functions of money Chapter 3 II. Money and capitalism in historical context; early capitalism and the gold standard, modern capitalism, Bretton Woods and fiat money Ch. 2 & 21, Lecture III. Relationship between money and the real economy; classical equation of Exchange (MV=PQ); velocity of money; Keynesian, Monetarist, Austrian views on money supply effects; skyscraper index Ch. 1& 22, Lecture

2 IV. Distributional effects of inflation Doug French youtube, Lecture V. Evolution of payments system; commodity money, fiat money, checks, electronic payments, e-money Ch. 3 VI. Class discussion on Bitcoins VII. Definition of money supply, M1, M2, MZM Ch. 3 VIII. Introduction to fractional reserve banking; money multiplier, Federal Open Market Committee (FOMC) operations Ch. 17, Lecture PART II: Financial Markets I. Introduction to interest rates; the natural rate of interest, the Loanable Funds market; government borrowing and crowding out Lecture, Ch. 5 II. Forms of business enterprises; sole proprietorship, general and limited Partnerships, corporations; debt and equity capitalization; Initial Public Offerings (IPOs) and secondary markets Ch. 2, Lecture III. Portfolio vs. Foreign Direct Investment capital flows Ch. 22 IV. Introduction to bond term structures and risk classifications; sovereign, Government Sponsored Enterprises (GSEs), corporate bonds Ch.6 V. Bond yield curves; entrepreneurship, time and ignorance New York Times, Lecture VI. LIBOR and variable rate debt instruments VII. Bond ratings, asymmetrical information, regulatory capture theory Ch. 2 VIII. Debt instrument cash flow analysis: magic of compound interest; simple loan, future value, present value; coupon bond; relationship between bond price and market interest rate Ch. 4 IX. Marxian fictitious capital and relationship to crisis; Mortgage-backed bonds as fictitious capital Lecture X. Fisher effects and negative interest rates; International Fisher effects and capital flows Ch. 4, Lecture PART III: Banking and Bank Management I. Difference in Balance Sheets between banks and other corporations and rationale for bank regulation; timing mismatches and deposit insurance Ch. 10, Lecture II. Sources and uses of funds, liquidity and liability management Ch. 11 III. Risk management: default risk, systemic (policy) risk, risk risk premia; Ch. 10 IV. Trade-offs between profits and capital adequacy; earnings Multiplier and leverage ratio Ch. 10 V. Liquidity management (cont.): borrowing at federal funds rate; management of investments; borrowing at discount rate; loan management Ch. 10 PART IV: Central Banking and Monetary Policy I. Historical development of US banking system; dual banking System, national and state banks Ch. 12, [Smith 1990], Fed Explained youtube II. Origination of Federal Reserve System; changes under Great Depression and Great Recession Ch. 12, Lecture, Selgin youtube Money and Banking - 2

3 III. Systemic risk, Basel Standards & mortgage-backed bonds revisited; too big too fail Ch. 11 & 18, Lecture IV. Classical lendor of last resort theory vs. modern central banking Lecture, [Bagehot 1873] V. Relationship between Keynesian fiscal policy, central banking monetary policy and the business cycle Ch. 16, Lecture VI. Philips curve: price stability, the business cycle and unemployment Ch. 19, Lecture VII. Dual vs. single mandate central banking Ch. 16, Lecture VIII. Monetary policy tools I; Money supply, Federal Open Market Committee (FOMC) operations, reserve ratio, pushing on a string, Quantitative Easing Ch. 16 & 18, youtube IX. Monetary policy tools II; Fed Balance Sheet, discount loans/discount rate and monetary base Ch. 17 &18 X. Monetary policy tools III; Fed funds rate and relationship to interest paid on reserves Ch. 17 & 18 PART V: Theories of Money and Crises I. History of financial crises Economist 2014 II. Financial innovation, subprime bonds and moral hazard Ch. 9 III. Austrian capital theory, time structures of production, entrepreneurial decision-making, interest-rates Lecture, Higgs youtube and risk premia [Prychitko 2010] Recommended Textbook: Frederic Mishkin (any edition). The Economics of Money, Banking and Financial Markets, by Mishkin. Pearson Addison-Wesley. Note that purchase of the textbook is not required, there is a copy on reserve in the campus library. In addition, students should stay current on topical financial events through reading The Economist magazine, the New York Times (especially the business section which is highly recommended), the Financial Times and/or the Wall Street Journal either in print or on-line versions. References: "The slumps that shaped modern finance", Economist magazine, April 2014, see link on Professor s website. The following texts are optional reading for students seeking further knowledge of the subjects discussed and referenced in class. Walter Bagehot (1873). Lombard Street: A Description of the Money Market. Money and Banking - 3

4 Friedrich Hayek (1990). Denationalisation of Money: The Argument Refined D.I. Prychitko (2010). Competing explanations of the Minsky moment: The financial instability hypothesis in light of Austrian theory, see link on Professor s website. George A. Selgin (1988). The Theory of Free Banking: Money Supply under Competitive Note Issue. [ 2307&Itemid=27] Vera Smith (1990) [1936]. The Rationale of Central Banking and the Free Banking Alternative. Youtube videos as references: George Selgin, A Century of Failure: Why It's Time to Consider Replacing the Fed The Federal Reserve Explained Quantitative Easing Explained Quantitative Easing Revisited Robert Higgs, Regime Uncertainty Then and Now Keynes vs. Hayek, Fear the Boom and Bust, Keynes vs. Hayek, Fight of the Century, The Real Reason Quaddafi was killed, Websites: The Fed s report on current levels of M1 and M2 (the Federal Reserve reports money supply data at 4:30 p.m. every Thursday): To access the Federal Reserve s money museum: Money and Banking - 4

5 Information on key interest rates: The financial calculator for computing the current price of a discount bond: Historical information about inflation: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt To compute what goods would have cost at some point in the past after adjusting for inflation: To find the number of bank failure in the U.S., despite the regulations that protect banks from failure. (Select the tab labeled Bank and Thrift Failures): To view information on bank regulation: To find general information about the Federal Reserve System: To find specific information on the FOMC, its schedule of meetings, statements, minutes, transcripts, members, and the beige book : To read the most recent annual report of the Federal Reserve: To review what the Federal Reserve reports as its primary purposes and functions: Grading Policy: Grade Breakdown Final Description Percent Conversion Supply & Demand Quiz 10% A Superior 95% - 100% Midterm Exam 20% A- Excellent 90% - 94% Group Project 20% B+ Accomplished 87% - 89% Class Participation 15% B Very Good 83% - 86% Final Exam 35% B- Good 80% - 82% C+ Above Average 75% - 79% Total: 100% C Average 70% - 74% C- Below Average 65% - 69% D Poor 60% - 64% F Failing Less than 60% Money and Banking - 5

6 Note Both the exams and the quiz will be as scheduled. There will be no make-up tests. If there is documented medical or family emergency we will re-weight the grading protocol. Class participation includes class attendance as well as active participation in class Q/As and discussion on current events. The only extra credit for an extra work that may be considered is to prepare a one page report after attending one of the events organized by the Economics Society at SFC. The report should be exclusively on the guest speaker s lecture and should be analytical. Depending on the quality of submitted report, the extra credit could add up to 5% to the final grade percentage. There will be no recording of class sessions. Photographs of lecture materials is allowed, but only with advanced permission. Announcement If you have a documented disability requiring accommodation in this class, please see me at office hours or by appointments. Thank you. Class Calendar First day of class: September 3, 2014 Last day to drop/add without transcription notification: September 9 Last day for pass/fail transcript option: October 1 Quiz on Supply and Demand in the Loanable Funds Market (last 30 minutes of class), and, last day for voluntary group project sign-up: October 8 Final group assignments and Midterm Exam (last half of class): October 15 In-class review of Midterm exam: October 22 Midterm grades posted due-date: October 24 Last day to drop the class, with a W on transcript: November 5 Group presentations: November 19 and December 3 Thanksgiving break, no class: November 26 Extra-credit due: December 3 Final Exam: December 10 Final grades posted due-date: December 19 Money and Banking - 6