This page gives a tentative sequence of topics and dates to be covered in the class, along with readings to be completed for each day. The timing of topics and readings should be viewed as a target; changes will be announced in class as the semester progresses.
Links to readings available on the Internet are shown in blue, underlined text. Some links may be available only when you are using the Internet through the Reed network or an alternative proxy server. Readings for which no links are provided will be available through library paper reserves.
Jump to second half of reading list
Monday, January 26: Introduction to the monetary and financial system
- No readings
Wednesday, January 28: Money
- White, Lawrence H., The Theory of Monetary Institutions (Malden, Mass.: Blackwell, 1999), Chapter 1. (Henceforth, this book is simply denoted "White.")
- Goodhart, Charles A. E., Money, Information and Uncertainty, 2nd edition, Cambridge, Mass.: MIT Press, 1989, Chapter II.
- Radford, R. A., "The Economic Organization of a P.O.W. Camp," Economica 12(48), November 1945, 189-201.
Friday, January 30: American monetary history
- White, Chapter 2.
- Davies, Glyn, A History of Money from Ancient Times to the Modern Day, Cardiff: University of Wales Press, 1994, Chapter 9: American Monetary Development Since 1700. (This is a long chapter.)
- Resources for more background
- Hammond, Bray, Banks and Politics in America from the Revolution to the Civil War, Princeton, N.J.: Princeton University Press, 1957.
- Friedman, Milton, and Anna Schwartz, A Monetary History of the United States, 1867-1960, Princeton, N.J.: Princeton University Press, 1963. (These are both classics in U.S. monetary history. We shall read an important chapter from Friedman and Schwartz for our discussion of the Great Depression.)
Monday, February 2 & Wednesday, February 4: Banking system
- Croushore, Dean, Money and Banking: A Policy Oriented Approach, Boston: Houghton-Mifflin, 2007, Chapter 8.
- White, Chapters 3 through 5.
- Goodhart, Charles A. E., Money, Information and Uncertainty, 2nd edition, Cambridge, Mass.: MIT Press, 1989, Chapter V.
Friday, February 6: Securitization and financial derivatives
- Federal Reserve Bank of Boston, Tools of the Trade: A Basic Guide to Financial Derivatives, undated.
- Mengle, David, "Credit Derivatives: An Overview," Federal Reserve Bank of Atlanta Economic Review, 92(4), Fourth Quarter, 2007.
- Rosen, Richard J., "The Role of Securitization in Mortgage Lending," Chicago Fed Letter, Number 244, November 2007.
- Quigley, John M., "Compensation and Incentives in the Mortgage Business," The Economists' Voice, 5(6), Article 2, October 2008.
Monday, February 9: Fundamentals of bank regulation
- White, Chapter 6.
- Spong, Kenneth, Banking Regulation: Its Purposes, Implementation, and Effects, 5th ed., Federal Reserve Bank of Kansas City, 2000. (There is lots of relatively unimportant detail in this book, but you should try to extract the main ideas from each section to get a good overview of banking regulation.)
Wednesday, February 11: Issues in bank regulation
- Flannery, Mark J., "Supervising Bank Safety and Soundness: Some Open Issues," Federal Reserve Bank of Atlanta Economic Review 92(1-2), 2007, 83-100.
- Akerlof, George A., and Paul M. Romer, "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity 1993:2, 1-60. (Pay special attention to pp. 1-18 and 23-42.)
- Stern, Gary H., and Ron J. Feldman, "Too Big to Fail: The Hazards of Bank Bailouts," The Region (Federal Reserve Bank of Minneapolis) 22(1), 12-17, May 2008. (Excerpts from Brookings Institution Press book of the same title.)
- Jaffee, Dwight M., and Mark Perlow, "Investment Banking Regulation After Bear Stearns," Economists' Voice, 5(5), September 2008, Article 1.
- Shy, Oz, and Rune Stenbacka, "Rethinking the Roles of Banks: A Call for Narrow Banking," Economists' Voice 5(2), June 2008, Article 6.
Friday, February 13 and Monday, February 16: Great Depression and other early crises
- Kindleberger, Charles, and Robert Z. Aliber, Manias, Panics, and Crashes: A History of Financial Crises, 5th edition, Hoboken, N.J.: John Wiley & Sons, 2005, Chapters 1 and 2.
- Federal Reserve Bank of Boston, "Panic of 1907," undated.
- Noyes, Alexander D., "A Year After the Panic of 1907," Quarterly Journal of Economics, 23(1), February 1909, 185-212.
- Strouse, Jean, "The Brilliant Bailout," The New Yorker, November 23, 1998, 62-77.
- Friedman, Milton, and Anna Schwartz, A Monetary History of the United States, 1867-1960, Princeton, N.J.: Princeton University Press, 1963, Chapter 7: The Great Contraction, 1929-33. (This chapter is 121 pages long and has been published separately as a book called The Great Contraction. Although there is a lot of detail that is relatively unimportant, there are no sections that can be omitted completely. Extract as much as you can of F&S's interpretation of the events and the Fed's policy response during each of the sub-periods they analyze. Skim past the gory minutia about month-to-month changes in monetary stocks.)
- Bernanke, Ben, "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review 73(3), June 1983, 257-276.
- Calomiris, Charles W., and Joseph R. Mason, "Contagion and Bank Failures During the Great Depression," American Economic Review 87(5), December 1997, 863-883.
- Temin, Peter, Lessons from the Great Depression, Cambridge, Mass.: MIT Press, 1989 (Lionel Robbins Lectures), Lectures 1 and 2.
Wednesday, February 18: U.S. financial crises of the 1980s and 1990s
- "Third-World Debt: The Disaster That Didn't Happen," Economist, September 12, 1992, 21-23.
- Schwartz, Anna J., "International Debt: What's Fact and What's Fiction," Economic Inquiry 27(1), January 1989, 1-19.
- Jaffee, Dwight M., "Symposium on Federal Deposit Insurance for S&L Institutions," Journal of Economic Perspectives 3(4), Fall 1989, 3-9.
- Kane, Edward J., "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives 3(4), Fall 1989, 31-47.
- Curry, Timothy, and Lynn Shibut, "The Costs of the Savings and Loan Crisis: Truth and Consequences," FDIC Banking Review, 13(2), 2000, 26-35.
Friday, February 20: Origins of the 2007-08 crisis
- There is a vast amount written in the last six months (and being written now) about the current financial crises. The readings below are just a slim selection. I encourage you to read broadly and deeply from newspapers, blogs, and other sources and to bring these ideas to the class discussions. However, be prepared to cite where the ideas come from and to support them with economic reasoning.
- Gorton, Gary B., "The Subprime Panic," Cambridge: Mass.: National Bureau of Economic Research, Working Paper No. 14398, October 2008. (For a more detailed examination, read instead Gorton's "The Panic of 2007," NBER Working Paper No. 14358, September 2008.)
- Taylor, John B., "The Financial Crisis and the Policy Responses: An Empirical Envestigation of What Went Wrong," NBER Working Paper No. 14631, January 2009. (An excellent analysis that places blame on the Fed's lax monetary policy in the early 2000s.)
- Brunnemeier, Markus K., "Deciphering the Liquidity and Credit Crunch, 2007-08," National Bureau of Economic Research Working Paper No. 14612, December 2008.
- Articles from recent editions of The Economist's Voice, published online by Berkeley Electronic Press. Note in particular the contributions of Stiglitz, Zingales, Carmel, and Beim.
- Articles from The Economist's survey of October 11, 2008, including "When Fortune Frowned," "A Monetary Malaise," "Of Froth and Fundamentals," "Taming the Beast."
- Articles from The Economist's survey of January 24, 2009.
- Goodman, Peter S., and Gretchen Morgenson, "By Saying Yes, WaMu Built Empire on Shaky Loans," New York Times, December 28, 2008.
- Krugman, Paul, "Wall Street Voodoo," New York Times, January 19, 2009.
- Economist blogs of note:
Monday, February 23: Rescuing the financial system
- This will be an open discussion of the 2008-09 rescue activities of the Bush and Obama Administrations and the Bernanke Fed, together with proposals for future action. Use the readings above and add your own discoveries. Come prepared to discuss and defend proposals that you favor.
Wednesday, February 25: Practice presentations for Fed symposium
- We will use this day for groups to present and critique their presentations for Thursday's Fed symposium.
Friday, February 27: Catch-your-breath day (no class)
Monday, March 2: Class visit by Barry Eichengreen (12-2 in GCC C/D)
Wednesday, March 4 and Friday, March 6: Modeling money demand
- McCallum, Bennett T., Monetary Economics: Theory and Policy, New York: Macmillan, 1989, Chapter 3.
- Teles, Pedro, and Ruilin Zhou, "A Stable Money Demand: Looking for the Right Monetary Aggregate," Federal Reserve Bank of Chicago Economic Perspectives 29(1), First Quarter 2005, 50-63.
- For more details on money demand:
- Laidler, David E.W., The Demand for Money: Theories, Evidence, and Problems, 3rd edition, New York, Harper & Row, 1985.
- Goodhart, Charles A.E., Money, Information, and Uncertainty, 2nd edition, Cambridge, Mass.: MIT Press, 1989, Chapters III and IV.
Monday, March 9 & Wednesday, March 11: IS/LM and AS/AD models
- McCallum, Bennett T., Monetary Economics: Theory and Policy, New York: Macmillan, 1989, Chapters 4 and 5. (This is an algebraic treatment of the IS/LM model.)
- Less mathematical treatments of IS/LM and AS/AD:
- Mankiw, N. Gregory, Macroeconomics, 5th or 6th edition, New York: Worth, 2003 or 2006, Chapters 9-13.
- Blanchard, Olivier, Macroeconomics, 4th or 5th edition, New York, Pearson/Prentice-Hall, 2006 or 2009, Chapters 3-9.
Friday, March 13: Channels of monetary policy
- Bernanke, Ben S., and Mark Gertler, "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives 9(4), Fall 1995, 27-48.
Monday, March 23: Surveying the empirical evidence
- White, Chapter 7.
- Buiter, Willem H., "Seigniorage," Economics: The Open-Access, Open-Assessment E-journal, 1(2007-10), July 2007. (This is a bit laborious and mathematical, but covers essential ground.)
- Click, Reid W., "Seigniorage in a Cross-Section of Countries," Journal of Money, Credit and Banking 30(2), May 1998, 154-71.
- Optional: Cagan, Philip, "The Monetary Dynamics of Hyperinflation," in Studies in the Quantity Theory of Money, ed. by Milton Friedman, Chicago: University of Chicago Press, 1956, 25-117. (This is the classic paper on hyperinflation, but it is quite long and emphasizes a number of issues that don't concern us.)
- Fischer, Stanley, Ratna Sahay, and Carlos A. Vegh, "Modern Hyper- and High Inflations," Journal of Economic Literature 40(3), September 2002, 837-880.
- Okun, Arthur M., "Efficient Disinflationary Policies," American Economic Review 68(2), May 1978, 348-352.
- Sargent, Thomas J., "The Ends of Four Big Inflations," in Inflation: Causes and Effects, ed. by R. E. Hall, Chicago: University of Chicago Press and NBER, 1982, 41-97.
- Ball, Laurence, "What Determines the Sacrifice Ratio?" in Monetary Policy, ed. by N. G. Mankiw, Chicago: University of Chicago Press and NBER, 1994, 155-182.
- White, Chapter 10.
- Optional: Kydland, Finn E., and Edward C. Prescott, "Rules Rather than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy 85(3), June 1977, 473-491. (The paper that won the Nobel prize for this pair.)
- Optional: Barro, Robert J., and David B. Gordon, "A Positive Theory of Monetary Policy in a Natural-Rate Model," Journal of Political Economy 91(4), August 1983, 589-610. (Our treatment follows this paper more closely than Kydland and Prescott.)
- White, Chapter 11.
- Blinder, Alan, Central Banking in Theory and Practice, (Cambridge, Mass.: MIT Press, 1998), Chapters 1 and 2.
- Bernanke, Ben S., and Frederic S. Mishkin, "Inflation Targeting: A New Framework for Monetary Policy?" Journal of Economic Perspectives 11(2), Spring 1997, 97-116.
- Clarida, Richard, Jordi Galí, and Mark Gertler, "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," Quarterly Journal of Economics 115 (1), February 2000, 147-180.
A. Basics of Deficits and Debt (Friday, April 10)
- Blanchard, Olivier, Macroeconomics, 4th ed., Pearson Education, 2006, Chapter 26: "Fiscal Policy: A Summing Up."
- Auerbach, Alan J., Jagadeesh Gakhale, and Laurence J. Kotlikoff, "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives 8(1), Winter 1994, 73-94.
B. Theories of Fiscal Policy (Monday, April 13 & Wednesday, April 15)
- Feldstein, Martin S., "Rethinking the Role of Fiscal Policy," Cambridge, Mass.: National Bureau of Economic Research Working Paper No. 14684, January 2009.
- Blinder, Alan S., "The Case Against the Case Against Discretionary Fiscal Policy," in The Macroeconomics of Fiscal Policy, edited by R. W. Kopcke, G. H. B. Tootell, and R. K. Triest, MIT Press, 2006.
- Alesina, Alberto, Olivier Blanchard, Jordi Galí, Francesco Giavazzi, and Harald Uhlig, Defining a Macroeconomic Framework for the Euro Area, Monitoring the Central Bank 3, (London: Centre for Economic Policy Research, 2001).
- Meltzer, Allan H., and Scott F. Richard, "A Rational Theory of the Size of Government," Journal of Political Economy 89(5), October 1981, 914-927.
- Barro, Robert J., "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives 3(2), Spring 1989, 37-54.
- Bernheim, B. Douglas, "A Neoclassical Perspective on Budget Deficits," Journal of Economic Perspectives 3(2), Spring 1989, 55-72.
C. Empirical Effects of Fiscal Policy (Friday, April 17)
- Plosser, Charles I., "Government Financing Decisions and Asset Returns," Journal of Monetary Economics 9, May 1982, 325-352.
- Barro, Robert J., "Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics 20, 1987, 221-247.
- Wachtel, Paul and John Young, "Deficit Announcements and Interest Rates," American Economic Review 77(5), December 1987, 1007-1012.
- Mountford, Andrew, and Harald Uhlig, "What Are the Effects of Fiscal Policy Shocks?" National Bureau of Economic Research Working Paper No. 14551, December 2008.
- Shapiro, Matthew D., and Joel B. Slemrod, "Did the 2008 Tax Rebates Stimulate Spending?" National Bureau of Economic Research Working Paper No. 14753, February 2009.
A. Electoral Cycles and Economic Policy (Monday, April 20 & Wednesday, April 22)
- White, Chapters 8 and 9.
- Alesina, Alberto, and Nouriel Roubini, Political Cycles and the Macroeconomy, (Cambridge, Mass.: MIT Press, 1997), Chapter 1 through 4.
B. Central Bank Independence (Friday, April 24)
- Alesina, Alberto, and Lawrence H. Summers, "Central Bank Independence and Macroeconomic Performance," Journal of Money, Credit and Banking 25(2), May 1993, 151-162.
- Acemoglu, Daron, Simon Johnson, Pablo Querunin, and James A. Robinson, "When Does Policy Reform Work? The Case of Central Bank Independence," Brookings Papers on Economic Activity 2008(1), Spring 2008, 351-417.
- Blinder, Alan, Central Banking in Theory and Practice, (Cambridge, Mass.: MIT Press, 1998), Chapter 3.
- Loungani, Prakash, and Nathan Sheets, "Central Bank Independence, Inflation, and Growth in Transition Economies," Journal of Money, Credit and Banking 29(3), August 1997, 381-99.
C. Politics and Fiscal Policy Decisions (Monday, April 27 & Wednesday, April 29)
- Rogoff, Kenneth, "Equilibrium Political Budget Cycles," American Economic Review 80(1), March 1990, 21-36. Reprinted in T. Persson and G. Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, pp. 47-70.
- Persson, Torsten, and Lars E. O. Svensson, "Why a Stubborn Conservative Would Run a Deficit: Policy with Time-Inconsistent Preferences," Quarterly Journal of Economics 104(2), May 1989, 325-345.Reprinted in T. Persson and G. Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, pp. 47-70.
- Tabellini, Guido, and Alberto Alesina, "Voting on the Budget Deficit," American Economic Review 80(1), March 1990, 37-49. Reprinted in T. Persson and G. Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, pp. 47-70.
- Grilli, Vittorio, Donato Masciandaro, Guido Tabellini, Edmond Malinvaud, and Marco Pagano, "Political and Monetary Institutions and Public Financial Policies in Industrial Countries," Economic Policy 6(13), October 1991, 341-392. Reprinted in T. Persson and G. Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, pp. 47-70.
- Grilli, Vittorio, Donato Masciandaro, and Guido Tabellini, "Erratum: Political and Monetary Institutions and Public Financial Policies in Industrial Countries," Economic Policy 7(14), April 1992, 265. (Corrects an error in Table 4. You need not read unless you are a stickler for details.)
- Possible addition: Manacorda, Marco, Edward Miguel, and Andrea Vigorito, "Government Transfers and Political Support," London: Centre for Economic Policy Research. CEPR Discussion Papers, No. 7163, February 2009. (A paper that I just found and that might be an interesting one to talk about.)
D. Economics and the Choice of Political System (Friday, May 1)
- Acemoglu, Daron, and James A. Robinson, Economic Origins of Dictatorship and Democracy, Cambridge University Press, 2006, selected chapters to be announced. (More or less, depending on how much time we have.)