Financial Markets and Economic FluctuationsProfessor William Parke Economics 423107 Gardner Hall Summer 2007Office Hours: M-F, 1:30-2:30Telephone: 966-2383E-mail: [email protected]://parke.econ-courses.comGoalsThis course examines in some detail the relation between financial markets and macroeconomics, focusingon how economic behavior by agents in financial markets might influence outcomes for other sectors of theeconomy. The particular topics studied include the institutional characteristics of financial markets, theunique role played by paper money, and supply and demand for financial securities.Prerequisite:Completion of Economics 132. It would be helpful if you have taken a statistics course because ourdiscussion of mean-variance analysis of portfolio risk and return does involve means and variances, but I doexplain those concepts during the course.Requirements and GradesEach student will complete two midterm exams and a final exam. Grades are on a total points basis. Iconsiderincompletes only under special circumstances (e.g. verifiable health problems) and will not awardone simply to extend the due dates. The approximate point distribution will be midterms (50%), and finalexam (50%). In addition, the course requirements include homework. While not graded on a formal exampoints basis, the homework is a very important in my assessment of your efforts in this course. Failure tocompletethe course requirements, including the exams and the homework in a timely fashion will result ina reduced or failing grade.Required Reading1. Frederic Mishkin, Money, Banking, and Financial Markets..2. The Wall Street Journal, Section C, “Money and Investing”.3. The Econ Review, www.econreview.com.4. Classic Economic Models, www.econmodel.com/classic.5. The Economics Roundtable, www.rtable.netCourse OutlineFoundations of EconomicsSupply and DemandTheory of the FirmTheory of the ConsumerInterest Rates and Asset ValuesAnalysis of Fixed Income Securities: Mortgages & BondsDuration and Interest Rate RiskIntertemporal SubstitutionInflation and Real Interest RatesExchange RatesPurchasing Power ParityInterest Rate ParityInvestmentBusiness Investment DecisionsStudent Investment DecisionsProduction Possibility FrontiersRiskUtility-Based Valuation of RiskMean-Variance AnalysisThe Term Structure of Interest RatesOptions and Derivative SecuritiesMonetary EconomicsThe Transactions Demand for MoneyMoney Supply in a Fractional Reserve SystemMacro ModelsClassical EconomicsThe IS/LM FrameworkMonetary and Fiscal PolicyThe Phillips' CurveAggregate Supply and DemandRational ExpectationsThe New Classical EconomicsThe IS/MP