ECON 6235: MONETARY AND FINANCIAL THEORY Syllabus for Fall :30 p.m. 8:15 p.m. W Center City 504

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1 ECON 6235: MONETARY AND FINANCIAL THEORY Syllabus for Fall :30 p.m. 8:15 p.m. W Center City 504 Instructor Rob Roy McGregor 227C Friday Building Phone rrmcgreg@uncc.edu Office Hours Main Campus: 2:30 p.m. 4:00 p.m. MW Center City: 4:45 p.m. 5:30 p.m. W and immediately after class I will hold my Center City office hours in Center City 713. Catalog Course Description ECON Monetary and Financial Theory. (3) Prerequisites: ECON 6112 and either ECON 6201 or Theory and empirical tests of money supply, money demand, and financial markets; portfolio theory with special attention to portfolio choices of banks; term structure of interest rates; dynamic models of money and economic activity. (On demand) Course Objective Students will develop a familiarity with theoretical and empirical work that addresses how monetary institutions and monetary policy actions affect important variables like interest rates, prices, employment, and production. Means of Student Evaluation Course grades will be determined by student performance on three in-class tests and several problem sets. These components will have the following weights in the calculation of students final grades: Test #1 20% Test #2 20% Test #3 20% Problem Sets 40% Letter grades for the course will be based on the following scale: A 90% and above B 80%-89.99% C 70%-79.99% U below 70% Test Dates The first test will be on September 26; the second, on November 7; and the third, in the final exam slot for the course (5:30 p.m. 8:00 p.m. on December 12). 1

2 Academic Integrity All students are required to abide by the UNC Charlotte Code of Student Academic Integrity. Violations of the Code of Student Academic Integrity, including plagiarism, will result in disciplinary action as provided in the Code. Definitions and examples of plagiarism are set forth in the Code. The Code is available from the Dean of Students Office or online at Disability Accommodations Students in this course seeking accommodations to disabilities must first consult with the Office of Disability Services and follow the instructions of that office for obtaining accommodations. Other The standards and requirements set forth in this syllabus may be modified at any time by the course instructor. Notice of such changes will be by announcement in class and by . The last day to withdraw from a class with a grade of W (and retain other classes) is October 29, and the last day to withdraw from all classes with grades of W is November 19. The Center City Building will be closed the week of Labor Day because of the Democratic National Convention. Our September 5 class meeting will therefore be held in Friday 130 on the main campus. There will be no class meeting on November 21 (Thanksgiving Break). I will always try to be on time for each class during the semester. If I must be absent because of illness, emergencies, or University business, I will make every effort to notify you as far in advance as possible. On any given class day, though, if I am more than 30 minutes late for class and you have received no notification from me to the contrary, you may assume that class is canceled. Between class meetings, any communication that I need to have with the class will be done by , so students should check their University-assigned accounts on a regular basis. The Belk College of Business strives to create an inclusive academic climate in which the dignity of all individuals is respected and maintained. Therefore, we celebrate diversity that includes but is not limited to ability/disability, age, culture, ethnicity, gender, language, race, religion, sexual orientation, and socioeconomic status. Textbooks and Other Resources There is no required textbook for this course, but there is an extensive reading list (see the Course Outline and Required Readings below). Most of the readings are available in Atkins Library or can be obtained easily through the Library s electronic resources. I will provide copies of any readings that are not available through Atkins Library. Course Outline and Required Readings Important: Readings appear in the order in which I recommend that you do them. I. Basic Macroeconomic Framework with Applications and Extensions A. The IS-LM Model and Aggregate Demand B. The Classical Aggregate Supply Function and the Classical AD-AS Model C. The Keynesian Aggregate Supply Function and the Keynesian AD-AS Model 2

3 McCallum, Bennett T Monetary Economics: Theory and Policy. New York, NY: Macmillan Publishing Company. Read chapter 5. D. Intermediate Targets and the Practice of Monetary Policy Poole, William Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model. Quarterly Journal of Economics 84(2): E. Output-Inflation Tradeoffs Phillips, A.W The Relationship Between Unemployment and the Rate of Change of Money Wages in the United Kingdom, Economica 25(100): Samuelson, Paul A., and Robert M. Solow Analytical Aspects of Anti-Inflation Policy. American Economic Review 50(2): Friedman, Milton The Role of Monetary Policy. American Economic Review 58(1): Friedman, Milton Nobel Lecture: Inflation and Unemployment. Journal of Political Economy 85(3): Lacker, Jeffrey M., and John A. Weinberg Inflation and Unemployment: A Layperson s Guide to the Phillips Curve. Federal Reserve Bank of Richmond Economic Quarterly 93(3): F. Analysis of a Steady Inflation McCallum, Bennett T Monetary Economics: Theory and Policy. New York, NY: Macmillan Publishing Company. Read chapter 6. Okun, Arthur M Inflation: Its Mechanics and Welfare Costs. Brookings Papers on Economic Activity 1975(2): (including Comments and Discussion). II. Money, Credit, and Aggregate Demand A. Money Demand and Money Supply Ott, David J., Attiat F. Ott, and Jang H. Yoo. Macroeconomic Theory. New York, NY: McGraw-Hill, Inc. Read chapter 9. McCallum, Bennett T Monetary Economics: Theory and Policy. New York, NY: Macmillan Publishing Company. Read chapter 4. B. Money, Credit, and Aggregate Demand Bernanke, Ben, and Alan Blinder Credit, Money, and Aggregate Demand. American Economic Review 78(2): Bernanke, Ben, and Mark Gertler Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives 9(4):

4 Brunner, Karl, and Allan H. Meltzer Money and Credit in the Monetary Transmission Process. American Economic Review 78(2): Meltzer, Allan H Monetary, Credit, and (Other) Transmission Processes: A Monetarist Perspective. Journal of Economic Perspectives 9(4): III. Interest Rate Policy Rules, Inflation Targeting, and the Conduct of Monetary Policy A. Interest Rate Policy Rules and the IS-MP Approach to Aggregate Demand Romer, David Keynesian Macroeconomics without the LM Curve. Journal of Economic Perspectives 14(2): Taylor, John B Discretion versus Policy Rules in Practice. Carnegie-Rochester Conference Series on Public Policy 39 (December): Taylor, John B The Monetary Transmission Mechanism: An Empirical Framework. Journal of Economic Perspectives 9(4): B. Inflation Targeting Walsh, Carl E Teaching Inflation Targeting: An Analysis for Intermediate Macro. Journal of Economic Education 33(4): Bernanke, Ben, and Frederic Mishkin Inflation Targeting: A New Framework for Monetary Policy? Journal of Economic Perspectives 11(2): C. Issues in Conducting Monetary Policy Wicksell, Knut The Influence of the Rate of Interest on Prices. Economic Journal: 17(66): Nelson, Edward The Future of Monetary Aggregates in Monetary Policy Analysis. Journal of Monetary Economics 50(5): Chevapatrakul, Thanaset, Tae-Hwan Kim, and Paul Mizen Monetary Information and Monetary Policy Decisions: Evidence from the Euroarea and the UK. Journal of Macroeconomics 34(2): Williams, John C Heeding Daedalus: Optimal Inflation and the Zero Lower Bound. Brookings Papers on Economic Activity (Fall): 1-49 (including Comments and Discussion). Svensson, Lars E.O Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others. Journal of Economic Perspectives 17(4): IV. Empirical Evidence on the Effects of Monetary Policy on Output, Employment, and Prices Friedman, Milton, and Anna Jacobson Schwartz A Monetary History of the United States, Princeton, NJ: Princeton University Press. Read chapter 13. 4

5 Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans Monetary Policy Shocks: What Have We Learned and to What End? In John B. Taylor and Michael Woodford, eds., Handbook of Monetary Economics, Vol. 1A. Amsterdam: Elsevier Science. Romer, Christina D., and David H. Romer A New Measure of Monetary Shocks: Derivation and Implications. American Economic Review 94(4): Aksoy, Yunus, and Tomasz Piskorski U.S. Domestic Money, Inflation, and Output. Journal of Monetary Economics 53(2): Coibion, Olivier Are the Effects of Monetary Policy Shocks Big or Small? American Economic Journal: Macroeconomics 4(2): V. Recent Events in Historical Perspective A. Overview Reinhart, Carmen M., and Kenneth S. Rogoff This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises. National Bureau of Economic Research (NBER) Working Paper Reinhart, Carmen M., and Kenneth S. Rogoff Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison? American Economic Review: Papers and Proceedings 98(2): Reinhart, Carmen M., and Kenneth S. Rogoff The Aftermath of Financial Crises. American Economic Review: Papers and Proceedings 99(2): Reinhart, Carmen M., and Kenneth S. Rogoff Growth in a Time of Debt. American Economic Review: Papers and Proceedings 100(2): Reinhart, Carmen M., and Kenneth S. Rogoff From Financial Crisis to Debt Crisis. American Economic Review 101(5): B. The Great Depression Friedman, Milton, and Anna Jacobson Schwartz A Monetary History of the United States, Princeton, NJ: Princeton University Press. Read chapter 7. Bernanke, Ben Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression. American Economic Review 73(3): Fisher, Irving The Debt-Deflation Theory of Great Depressions. Econometrica 1(4): C. The Great Inflation and the Great Moderation Goodfriend, Marvin Monetary Policy Comes of Age: A 20 th Century Odyssey. Federal Reserve Bank of Richmond Economic Quarterly 83(1): Orphanides, Athanasios Historical Monetary Policy Analysis and the Taylor Rule. Journal of Monetary Economics 50(5):

6 Goodfriend, Marvin How the World Achieved Consensus on Monetary Policy. Journal of Economic Perspectives 21(4): Chappell, Henry W. Jr., Rob Roy McGregor, and Todd A. Vermilyea Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee. Cambridge, MA: The MIT Press. Read chapter 10. Crowe, Christopher, and Ellen E. Meade The Evolution of Central Bank Governance Around the World. Journal of Economic Perspectives 21(4): D. The Recent Financial Crisis Bernanke, Ben Deflation: Making Sure It Doesn t Happen Here. Speech to the National Economists Club, Washington, DC, November Roubini, Nouriel Why Central Banks Should Burst Bubbles. International Finance 9(1): Posen, Adam S Why Central Banks Should Not Burst Bubbles. International Finance 9(1): Taylor, John B., and John C. Williams A Black Swan in the Money Market. American Economic Journal: Macroeconomics 1(1): Woodford, Michael Financial Intermediation and Macroeconomic Analysis. Journal of Economic Perspectives 24(4): Humphrey, Thomas M Lender of Last Resort: What It Is, Whence It Came, and Why the Fed Isn t It. Cato Journal 30(2): Blinder, Alan S Quantitative Easing: Entrance and Exit Strategies. Federal Reserve Bank of St. Louis Review 92(6): Anderson, Richard G., Charles S. Gascon, and Yang Liu Doubling Your Monetary Base and Surviving: Some International Experience. Federal Reserve Bank of St. Louis Review 92(6): Meltzer, Allan H Learning about Monetary Policy from Federal Reserve History. Cato Journal 30(2): Krishnamurthy, Arvind, and Annette Vissing-Jorgensen The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy. Brookings Papers on Economic Activity (Fall): (including Comments and Discussion). Svensson, Lars E.O Practical Monetary Policy: Examples from Sweden and the United States. Brookings Papers on Economic Activity (Fall): (including Comments and Discussion). 6