1Public Affairs 974-001 Menzie D. Chinn Fall 2010 Social Sciences 7418 University of Wisconsin-Madison Monetary Policy and Financial Regulation in a Globalized Economy (provisional, subject to revision) 1. INTRODUCTION This course will cover the basics of monetary policy, including how the money supply is controlled, the role of the banking system, and the implications for analyzing macroeconomic fluctuations. The course will also address the basics of asset pricing. A portion of the course will address the analysis and implications of financial regulation. Some discussion of how monetary policy and financial regulation is conducted in emerging market and developing economies will be included. Prerequisites: PubAffr 854, Econ 302, or equivalent. 2. OFFICE HOURS Prof. Menzie Chinn: MW 4-5 7418 Social Sciences Bldg., 262-7397 e-mail: [email protected] Updated information will be posted on the course website, http://www.ssc.wisc.edu/~mchinn/web974_f10.html. 3. SCHEDULE AND READINGS There is no textbook. However, for background, one can refer to Frederic Mishkin, The Economics of Money, Banking and Financial Markets, 9th Edition (Addison-Wesley Longman, 2009), on reserve at the library. Required readings are listed below, and additional required and optional readings will be assigned during the semester from the Web. You will also be expected to refer to the following weblog for current macroeconomic commentary: http://www.econbrowser.com . LEC. DATES TEXT READING TOPICS 1 9/8 1-2 Introduction 2-4 9/13-20 IS-LM, PCO IS-LM 5 9/22 AD-AS AD-AS 6 9/27 4 Interest rates 7-8 9/29-10/4 7 EHTS Term structure of interest rates 9-10 10/6-11 Asset prices Asset prices 11-12 10/13-18 EMH/News EMH & “News”2LEC. DATES TEXT READING TOPICS 13 10/20 9 Financial structure 14 10/25 10 Mgmt of fin. Inst. 15-16 10/27-11/11 12 BBS Banking regulation 17 11/3 15 Central banks/ Federal Reserve 18-19 11/8-10 16-7 MSP Money supply process 20-21 11/15-17 18-9 Ru, Ham Monetary policy 22-23 11/22-24 CC-LM Credit channel 24 11/29 EMI Emerging mkt issues 25 12/1 Derivatives 26-27 12/6-8 GHKS,Br.,CJS Financial crisis 28-29 12/10-15 DFP,El1, El2 Post-crisis reforms • ISLM: Notes on IS-LM • PCO: Notes on Transactions and Portfolio Crowding Out • AD-AS: Notes on Aggregate Demand/Aggregate Supply • EHTS: Notes on Expectations Hypothesis of Term Structure • Asset Prices: Notes on Asset Pricing • EMH/News: Notes on the Efficient Market Hypothesis and News • BBS: Notes on Bank Balance Sheets • MSP: Notes on Money Supply Process • Ru: Glenn Rudebusch, “The Fed’s Monetary Policy Response to the Current Crisis,” FRBSF Economic Letter 2009-17, May 22, 2009. • Ham.: James Hamilton, “Concerns about the Fed's New Balance Sheet, in The Road Ahead for the Fed,” edited by John D. Ciorciari and John B. Taylor, Stanford: Hoover Institution Press, 2009. • CC-LM: Notes on CC-LM Model • EMI: Notes on Monetary and Financial Policy in Emerging Markets • GHKS: David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin, “Leveraged Losses: Lessons from the Mortgage Market Meltdown,” paper presented at US Monetary Policy Forum Conference, February 29, 2008. • Br: M. Brunnermeier, Deciphering the Liquidity and Credit Crunch, 2007-2008,” Journal of Economic Perspectives 23(1) (Winter 2009). • CJS: J.D. Coval, J. Jurek, E. Stafford, “The Economics of Structured Finance,” Harvard Business School Working Paper 09-060. Published Journal of Economic Perspectives 23(1) (Winter 2009). • DFP: Mathias Dewatripont, Xavier Freixas, and Richard Portes, editors, Macroeconomic Stability and Financial Regulation: Key Issues for the G20 (CEPR, 2 March 2009), pp. 91- . • EL1: D.J. Elliott. “Financial reform: Now it’s up to the regulators” (Washington, D.C.: Brookings Institution, July 12, 2010). • El2: D.J. Elliott, “Basel III, the banks, and the economy” (Washington, D.C.: Brookings Institution, July 23, 2010).34. GRADING Letter grading is determined as follows: 30% Problem sets (×3) 70% Term paper Late assignments will not be accepted for credit. Although the problem sets do not constitute a large portion of the grade, I strongly encourage you to do the assignments in a timely and serious fashion. The problem sets provide valuable information regarding your grasp of the concepts. 5. THE TERM PAPER A 20 page term paper will be due at the end of the semester. You will have latitude in terms of the choice of topic. However, I will be able to give you more guidance on certain topics than others. Additional details regarding this assignment, along with suggested readings, will be provided later in the term. 04.09.2010