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Economics 311: Money & Banking, Winter 2009

Adam S. Hersh
Lecture: M-F 12:30-3:00pm, Machmer W-23
Office Hours: M 10:30-11:30am; W 3:30-4:30pm; and by appointment
Gordon Hall 213 (Map)
email: ahersh[at]econs[dot]umass[dot]edu

**REVISED Class Schedule
Downloadable Syllabus (txt)
Final Exam (pdf)

The Two (2) Most Important Things to Know for This Course:

1. ALL course materials and information will be posted on the course website: http://people.umass.edu/ahersh/econ311.htm

DO NOT email me asking for these things.

2. SNOW POLICY: Information on UMass closings and inclement weather may be found here or by calling: (413)545-3630
Arrangements will be made to make up any time lost to snow days.

Course Goals

This course has two goals:

I. Build a foundation of financial literacy, intuition and core competency.

II. Understand the importance of POWER in financial relations from historical, institutional, and political economy perspectives.

We will achieve these by:

  • Learning key terminology and financinal "mechanics" (e.g., algorithmic manipulation)
  • Developing theories of market determination of interest rates, asset prices, and foreign exchange rates; and theories of monetary governance
  • Exploring the relationship between coordination failures in financial markets and different finanicial structures (institutional configurations)
  • Mapping contemporary (post-Bretton Woods) U.S. financial history, with an eye to the path of institutionl changes, financial crises, and key stylized empirical facts

    • Text and Readings

    We will primarily use The Economics of Money, Banking, and Financial Markets, 8th Edition by Frederic S. Mishkin. New and used copies are available at Food For Thought Books in downtown Amherst, as well as from a number of online sources. (NOTE: The 8th Edition is not available from the Five Colleges library system). We will NOT be using the "MyEconLab" application, so if your book does not come with an access code, there is no need to purchase one.

    I want you to think of Mishkin's book as a cookbook of sorts--he provides you with a lot of fundamental skills and basic definitions. But Mishkin's is not the only philosophy of cooking out there. So, there will also be a number of required readings to supplement and complement Mishkin. I will provide these to you.

    **UPDATE: We will also be using computer spreadsheet software for doing calculations and making graphs. While many students may already have such software, there are several good free options available to you as well, such as Open Office or Google Docs.

    Additionally, I strongly encourage you to begin actively reading economic and financial media, such as:
  • The New York Times
  • The Financial Times
  • The Economist

    • Blogs
  • Beat the Press
  • Econobrowser
  • Brad DeLong
  • Brad Setser
  • Calculated Risk

    • Suggestions for further readings of general interest follow the course schedule below.

    Grading

    Problem sets (3)40%
    Critical reading responses/class presentations25-30%
    Final exam (sched. January 23rd)20-25%
    Pop Quiz (1)5%
    Subjective class participation5%

    All assignments MUST BE TYPED. You may either email me assignments, submitting additional hand written graphs and mathematical solutions to problems (show your work!!!), or you may print and hand it in all in one batch. ALL papers must be STAPLED and NUMBERED (e.g. "P. n of N"). You may (and are encouraged) to work in groups on problem sets, but each individual must submit one's own assignment. Illegible work will be marked down! Late assignments WILL NOT be accepted--excepting extenuating circumstances (e.g. family or medical emergencies). You should tell me prior to due dates, or at the earliest possible time. I will strictly uphold the university's Academic Honesty Policy.

    Course Schedule

    (*optional reading; CR denotes Critical Reading assignment)

    January 5: Course Intro - Money and Power
    Mishkin Chs. 1-3
    Lecture 1 (pdf)

    January 6: Money and Interest Rates
    "Fictitious Capital" - Dictionary of Marxist Thought
    Mishkin Chs. 3-5
    *Prof. James Crotty's notes on bond prices and interest rates (doc)
    Lecture 2 (pdf)

    January 7: Snow Day

    January 8: Money and Interest Rates (cont.)
    Mishkin Chs. 5-6, *Ch. 17
    Handout: Exchange Rate Determination Models
    *Rembrandt's The Mercantilists and Mercantilism
    CR Stiglitz and Greenwald. 2003. Towards a New Paradigm in Monetary Economics. Ch. 1
    or Ray.     "Money and Inflation" (pdf)
    *Macroblog: "Credit storm hitting the high seas?"
    Lecture 3 (pdf)

    January 9: Financial Structure
    CR Pollin, Robert. "Financial Structures and Egalitarian Economic Policy." Pp. 26-53 (especially 44-53)
    Mishkin Ch. 8
    *Bowles, Samuel. "Prologue." Microeconomics: Behavior, Institutions, and Evolution
    *Kindleberger, Charles. 1989. Ch. 5: Swindles (pdf). Manias, Panics, and Crashes: A History of Financial Crises.
    *Ron Chernow, "Where is Our Ferdinand Pecora?". New York Times. 1/5/09.
    Lecture 4 (pdf)

    January 12: Stock Markets and Wealth Distribution
    Mishkin Ch. 7
    CR State of Working America, 2006/2007 Ch.5: Wealth (pdf)
    *Gerald Epstein and Arjun Jayadev. 2004. "The Rise of Rentier Incomes in OECD Countries: Financialization, Central Bank Policy and Labor Solidarity."
    *Kristopher S. Gerardi and Paul S. Willen. Subprime Mortgages, Foreclosures, and Urban Neighborhoods. Boston Fed.
    Lecture 5 (pdf)

    January 13: Financial Instability and Financial Crises
    Minsky, Hyman. 1983. "A Restatement of the Financial Instability Hypothesis." (pdf) Can It Happen Again?.
    Ted on Minsky - Presentation (ppt) - Essay (doc)
    CR Kindleberger. MPC. Chs. 1-2. (pdf)
    Jason on Kindleberger - Presentation (pdf) - Essay (doc)
    *Pollin, Robert. "The Relevance of Hyman Minsky."
    Lecture 6 (pdf)

    January 14: Banking
    Mishkin Ch. 9
    *Gary Dymski and John Veitch. 1994. "Credit Flows to Cities: Introducing Cindy Mae." In Reclaiming Prosperity.
    Lecture 7 (pdf)

    January 15: Banking II
    Mishkin Ch. 10-11
    CR Jane D'Arista. 1994. "Preserving Functions of Financial Markets." The Evolution of U.S. Finance: Volume II.
    Matt and Patrick on D'Arista (pptx)
    Lecture 8 (pdf)

    January 16: Central Banking
    Mishkin Ch. 12
    CR Jane D'Arista. 1994. "The Prewar Years: 1915-1916." The Evolution of U.S. Finance: Volume I. (through p. 27--skim "Introduction")
    *Jane D'Arista. 1994. The Attempt to Finance the War Through Nonbank Investors: 1917-1918." ... (pp.31-37)

    January 19
    Martin Luther King Jr. Birthday -- No Lecture

    January 20: Monetary Policy
    Mishkin Chs. 13-14
    *Econbrowser. "Federal Reserve Balance Sheet"
    Lecture 10 (pdf)

    January 21: Monetary Policy II
    Mishkin Ch. 15
    CR [Choose 1] Jeff Faux. 2006. "Ch. 6." The Global Class War: How America's Bipartisan Elite Lost Our Future - and What It Will Take to Win it Back.
    or Ha Joon Chang and Ilene Grabel. 2002. Reclaiming Development: An Alternative Economic Policy Manual Pp. 150-187, *pp. 188-199

    January 22: Finacial Crises and Crisis Management
    CR [Choose 1: 7 or 8] Kindleberger. MPC. Ch. 7 and Ch. 8.
    Mishkin Ch. 16
    Lecture 12 (pdf)

    January 23: Origins of the Current Crisis
    Keynes. 1937. "Concluding Notes on the Social Philosophy towards which the General Theory might Lead." The General Theory of Employment, Interest, and Money.
    Required Readings: A, B, and D
    A. Dean Baker. 2000. "Double Bubble: The Implications of the Over-Valuation of the Stock Market and the Dollar"
    B1. Dean Baker. 2002. "The Run-Up in Home Prices: Is It Real or Is It Another Bubble?"
    B2. Dean Baker. 2008. "The Key to Stabilizing House Prices: Bring Them Down"
    C1. Econbrowser. 2008. "Federal Reserve balance sheet"
    C2. Macroblog. 2009. "On expanding balance sheets and inflationary policy"
    C3. Eugene Fama. 2009. "Government Equity Capital for Financial Firms"
    D1. Testimony of Mark Zandi (pdf) Before US Senate Budget Committee, November 19, 2008
    D2. Testimony of Ben Bernanke, Troubled Asset Relief Program and the Federal Reserve's liquidity facilities November 18, 2008
    D3. Testimony of Henry Paulson (pdf) before the House Committee on Financial Services, November 18, 2008
    E. FRBNY. 2007. "Trends in Financial Market Concentration and Their Implications for Market Stability"
    F. Understanding the Securitization of Subprime Mortgage Credit (Read ONLY Executive Summary, pp. 1-29, 36-37))
    G. G30. "Financial Reform: A Framework for Financial Stability"
    *PBS: Credit and Credibility: What role did the credit rating agencies play in the current economic crisis?
    Lecture 13 (pdf)

    January 24: Last Day (Scheduled Snow Day)
    Final Exam (pdf)

    Suggestions for further reading (in no particular order)

    Economic history
    Dean Baker. 2007.     The United States Since 1980
    Samuel Bowles, David M. Gordon, and Thomas E. Weisskopf. 1991. After the Waste Land: A Democratic Economics for the Year 2000
    Doug Henwood. 2005. After the New Economy: The Binge and the Hangover That Won't Go Away
    Robert Skidelsky. John Maynard Keynes: Vol. 2: The Economist as Savior, 1920-1937
    Fred Block. The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present
    John Kenneth Galbraith. The Great Crash of 1929
    William Greider. Secrets of the Temple: How the Federal Reserve Runs the Country

    Financial markets and financial history
    Robert Shiller. Irrational Exuberance:
    Bruner and Carr. The Panic of 1907: Lessons Learned from the Market's Perfect Storm.
    Edward Chancellor. Devil Take the Hindmost: A History of Financial Speculation
    Michael Lewis. 1990. Liar's Poker
    James S. Henry. Blood Bankers: Tales from the Global Underground Economy
    Ron Chernow. 1997. The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor
    Ron Chernow. 2001. The House of Morgan
    Niall Fergusson. 2008. The Ascent of Money: A Financial History of the World
    Niall Fergusson. 1999. The House of Rothschild Vol. I and Vol. II

    International Political Economy
    Peter Gowan. The Global Gamble: Washington's Faustian Bid for World Dominance
    Robert Gilpin. Global Political Economy: Understanding the International Economic Order