Syllabus

Department of Economics
Saint Louis University
Professor: Rapach
Fall 2008
ECON 420-01
Money and Banking

General Information:

Professor: David E. Rapach
Class Time, Place: Monday, Wednesday, and Friday, 10:00a–10:50a, Davis-Shaughnessy Hall 374
Office Location: Davis-Shaughnessy Hall 261A
Office Hours: Monday and Wednesday, 1:00p–4:00p; by appointment
Tel: 314-977-3601
E-mail: rapachde@slu.edu

Required Text:

Frederic S. Mishkin, The Economics of Money, Banking, and Financial Markets, Eighth Edition (Addison-Wesley, 2006) ISBN 0-321-28726-6

Prerequisites:

ECON 312 Intermediate Macroeconomics, ECON 314 Intermediate Microeconomics

Course Description:

In this course, students use fundamental economic principles to rigorously analyze the structure of financial markets, financial institution management, regulation of financial markets and institutions, determination of interest rates, and the role of monetary policy in the economy. Economic models, presented through verbal, graphical, and algebraic descriptions, are used to apply fundamental economic principles, and the models are carefully developed in a step-by-step procedure. Given growing concerns about “globalization,” we retain an international perspective throughout the class.

Grading:

The final grade is based on:

Homework: 10%
Quizzes (best 4 of 5): 30%
Exam 1: 30%
Exam 2: 30%

Homework assignments are given in class and can be found on the Homework Assignments web page. All assignments must be typed and are due at the beginning of class; none are accepted late. Please omit cover sheets, staple pages together, and clearly indicate your name, the course, and the assignment. You are permitted to work with other students in the preliminary stages when doing assignments, but you must work alone and use your own words when composing the final version to be handed in. Since the material is cumulative, it is important to keep up with homework assignments; it is difficult to catch up if you fall behind. Furthermore, understanding the homework assignments is one of the best ways to prepare for the quizzes and exams. Students may turn homework in via e-mail.

Quiz and exam dates will be confirmed in class. Students who miss a quiz or exam receive a grade of zero.

Course Outline:

The following outline reports chapters to be covered and exam dates. Supplementary readings may be added to the outline; students are responsible for all supplementary readings. Supplementary readings are available at the URLs provided. Get Adobe Acrobat Reader to view and print readings that are available as PDF files. The outline is subject to change during the semester.

PART 1 Introduction
Mon, 25 Aug	CHAPTER 1 Why Study Money, Banking, and Financial Markets?
Wed, 27 Aug	CHAPTER 1 Why Study Money, Banking, and Financial Markets?
Fri, 29 Aug	CHAPTER 2 An Overview of the Financial System Diego Valderrama, “Financial Development, Productivity, and Economic Growth,” Federal Reserve Bank of San Francisco Economic Letter 2003-18, June 17, 2003 Get article
Mon, 1 Sep	Labor Day (no class)
Wed, 3 Sep	CHAPTER 2 An Overview of the Financial System
Fri, 5 Sep	CHAPTER 3 What is Money?
PART 2 Financial Markets
Mon, 8 Sep	CHAPTER 4 Understanding Interest Rates
Wed, 10 Sep	CHAPTER 4 Understanding Interest Rates
Fri, 12 Sep	CHAPTER 5 The Behavior of Interest Rates
Mon, 15 Sep	CHAPTER 5 The Behavior of Interest Rates
Wed, 17 Sep	CHAPTER 5 The Behavior of Interest Rates
Fri, 19 Sept	CHAPTER 6 The Risk and Term Structure of Interest Rates Arturo Estrella and Mary Trubin, “The Yield Curve as a Leading Indicator: Some Practical Issues,” Federal Reserve Bank of New York Current Issues in Economics and Finance, July/August 2006 Get article
Mon, 22 Sep	CHAPTER 6 The Risk and Term Structure of Interest Rates
Wed, 24 Sep	CHAPTER 7 The Stock Market, The Theory of Rational Expectations, and the Efficient Market Hypothesis Eva Sierminska and Yalena Takhtamanova, “Disentangling the Wealth Effect: Some International Evidence,” Federal Reserve Bank of San Francisco Economic Letter 2007-02, January 19, 2007 Get article
Fri, 26 Sep	CHAPTER 7 The Stock Market, The Theory of Rational Expectations, and the Efficient Market Hypothesis
PART 3 Financial Institutions
Mon, 29 Sep	CHAPTER 8 An Economic Analysis of Financial Structure Information for the public on the 2001 Nobel Prize in Economics Get article
Wed, 1 Oct	CHAPTER 8 An Economic Analysis of Financial Structure
Fri, 3 Oct	CHAPTER 9 Banking and the Management of Financial Institutions
Mon, 6 Oct	CHAPER 10 Banking Industry: Structure and Competition Timothy Clark, Astrid Dick, Beverly Hirtle, Kevin Stiroh, and Robard Williams, “The Role of Retail Banking in the U.S. Banking Industry: Risk, Return, and Industry Structure,” Federal Reserve Bank of New York Economic Policy Review, December 2007 Get article
Wed, 8 Oct	CHAPER 10 Banking Industry: Structure and Competition
Fri, 10 Oct	CHAPTER 11 Economic Analysis of Banking Regulation Nicola Cetorelli, Beverly Hirtle, Donald Morgan, Stavros Peristiani, and João Santos, “Trends in Financial Market Concentration and Their Implications for Market Stability,” Federal Reserve Bank of New York Economic Policy Review, March 2007 Get article
Mon, 13 Oct	CHAPTER 11 Economic Analysis of Banking Regulation
Wed, 15 Oct	Exam 1
Fri, 17 Oct	No class
Mon, 20 Oct	Fall Break (no class)
PART 4 Central Banking and the Conduct of Monetary Policy
Wed, 22 Oct	CHAPER 12 Structure of Central Banks and the Federal Reserve System Patricia Pollard, “A Look Inside Two Central Banks: The European Central Bank and the Federal Reserve,” Federal Reserve Bank of St. Louis Review, January/February 2003 Get article
Fri, 24 Oct	CHAPTER 12 Structure of Central Banks and the Federal Reserve System
Mon, 27 Oct	CHAPTER 13 Multiple Deposit Creation and the Money Supply Process
Wed, 29 Oct	CHAPTER 13 Multiple Deposit Creation and the Money Supply Process
Fri, 31 Oct	CHAPTER 14 Determinants of the Money Supply
Mon, 3 Nov	CHAPTER 14 Determinants of the Money Supply
Wed, 5 Nov	CHAPTER 15 Tools of Monetary Policy Olivier Armantier, Sandra Krieger, and James McAndrews, “The Federal Reserve’s Term Auction Facility,” Federal Reserve Bank of New York Current Issues in Economics and Finance, July 2008 Get article
Fri, 7 Nov	CHAPER 15 Tools of Monetary Policy
Mon, 10 Nov	CHAPER 16 What Should Central Banks Do? Monetary Policy Goals, Strategy, and Tactics Eric Swanson, “Would an Inflation Target Help Anchor U.S. Inflation Expectations?” Federal Reserve Bank of San Francisco Economic Letter 2006-20, August 11, 2006 Get article William Poole, “Market Bailouts and the ‘Fed Put,’” Federal Reserve Bank of St. Louis Review, March/April 2008 Get article Allan H. Meltzer, “Keep the Fed Away from Investment Banks,” Wall Street Journal, July 16, 2008 Get article
PART 5 International Finance and Monetary Policy
Wed, 12 Nov	CHAPTER 17 The Foreign Exchange Market Reuven Glick, “Are Global Prices Converging or Diverging?” Federal Reserve Bank of San Francisco Economic Letter 2007-24, August 10, 2007 Get article
Fri, 14 Nov	CHAPTER 17 The Foreign Exchange Market
Mon, 17 Nov	CHAPTER 18 The International Financial System
Wed, 19 Nov	CHAPTER 22 Aggregate Demand and Supply Analysis
Fri, 21 Nov	CHAPTER 22 Aggregate Demand and Supply Analysis
PART 6 Monetary Theory
Mon, 24 Nov	CHAPTER 23 Transmission Mechanisms of Monetary Policy: The Evidence
Wed, 26 Nov	CHAPTER 23 Transmission Mechanisms of Monetary Policy: The Evidence
Fri, 28 Nov	Thanksgiving Holiday (no class)
Mon, 1 Dec	CHAPTER 24 Money and Inflation
Wed, 3 Dec	CHAPTER 24 Money and Inflation
Fri, 5 Dec	CHAPTER 25 Rational Expectations: Implications for Policy
Mon, 8 Dec	CHAPTER 25 Rational Expectations: Implications for Policy
10–16 Dec	Exam 2