MW, 3:30pm to 4:45pm
Class will not meet on:
Class will meet on:
Monetary policy and financial regulation are constantly in the news. In the aftermath of the global financial crisis, the role of central banks has been on prominent display through their active role in trying to stabilize economies and financial systems. This Stern Economics elective course examines the institutions that conduct macroeconomic and financial policy and explains how they work. The financial crisis will be a point of emphasis throughout the course. Among several of the broad questions we will be addressing, are:
ECON-UB.0001 and ECON-UB.0011
Tentative Course Schedule
·January 23, 25
Introduction, Money and Financial Institutions
Why is financial development related to economic development?
How and why are financial institutions evolving?
Readings: Chapters 1, 2 and 3
·January 30, February 1
Economics of Financial Intermediation
How do financial institutions earn profit?
What accounts for shifts between bank finance and other types of finance?
What makes financial institutions vulnerable?
Readings: Chapters 11 and 12
Problem Set #1 Due January 30 before class
February 6, 8
Financial Industry Structure and Regulation (I)
Why are there so many banks in the United States?
What is the lender of last resort?
Do we need the government safety net?
How is regulation structured in different countries?
Readings: Chapters 13 and 14
Problem Set #2 Due February 6 before class
·February 13, 15
What is systemic risk and how can regulators address it?
How will the global financial crisis affect regulation going forward?
·February 20(no class) PRESIDENT’S DAY HOLIDAY
·February 22, 27
Case Study: The Crisis of 2007-09 and the Lender of Last Resort
What caused the crisis? Why was it so broad, deep and prolonged?
What were the early signs of the crisis?
What role did the lender of last resort play?
How to distinguish between illiquidity and insolvency?
What is the long-run impact of the Fed’s approach?
Are any companies “too big to fail?”
What are the similarities between this crisis and previous?
Problem Set #3 Due February 22 before class
February 29, March 5
Case Studies: The Great Depression and Japan’s Lost Decade
What caused the crises? Why were they so deep and prolonged?
How did policymakers address the crises? Compare and contrast.
Problem Set #4 Due February 29 before class
·March 12 (no class), 14 (no class)SPRING BREAK
·March 19, 21
Central Banks in the World Today
What do central banks do? Do we need them?
How do monetary and fiscal policy differ?
How are monetary fiscal policy related?
Why does the 2025 budget matter today?
How are the Fed and the ECB similar? How are they different?
Readings: Chapters 15 and 16
The Central Bank Balance Sheet and the Money-Supply Process
How does an open-market operation work?
How does a foreign exchange intervention work?
Can the central bank control the quantity of money in the economy?
Readings: Chapter 17
Problem Set #5 Due March 26 before class
·March 28, April 2
Monetary Policy: Stabilizing the Domestic Economy
Why do central banks usually choose to control interest rates?
What is inflation targeting? How does it work? How does it relate to the risk of deflation?
What is the role for monetary policy as a stabilization tool?
Readings: Chapter 18
Money Growth, Money Demand and Monetary Policy, Monetary Unions
Why, when it is high, is inflation higher than money growth?
What are the arguments for and against targeting a monetary aggregate?
What is the ECB’s reference value for money growth? Does it make sense?
The European Crisis: Bailouts or Defaults?
Readings: Chapter 20; TBA
·April 9, 11
Exchange Rate Policy and the Central Bank
The Trilemma of Open-Economy Monetary Policy
How are exchange rates and interest rates linked?
How should we understand China’s exchange rate regime?
Can a country have a fixed exchange rate, free movement of capital and an independent monetary policy?
What are the advantages and disadvantages of a monetary union?
Readings: Chapter 19
Problem Set #6 Due April 9 before class
·April 16, 18
Output, Inflation and Monetary Policy
What is the monetary policy reaction curve? How do policy changes affect the economy?
Readings: Chapter 21
·April 23, 25
Output, Inflation and Monetary Policy (continued)
How does stabilization policy work?
What is the role of policy rules?
What can monetary policy do when interest rates are at zero?
What are “quantitative easing” and “credit easing?”
How is monetary policy transmitted when the financial system is impaired?
Readings: Chapter 22
Problem Set #7 Due April 23 before class
·April 30, May 2
Key Challenges Facing Central Bankers
What are the biggest challenges facing monetary policymakers over the next decade?
How should central banks address asset price bubbles?
How should they manage policy in light of the zero bound?
What is the future of “unconventional monetary policy?”
Readings: Chapter 23; TBA
Practice Problems Chapter 23: 5, 6, 10, 11, 19 (Do not turn in these practice problems)
Problem Set #8 Due April 30 before class
Two Sides of Economics and Monetary Policy: Hayek and Keynes.
How current is this debate? What is the evidence for and against each theory?
Readings: Caldwell, “The Collected Works of F. A. Hayek, Contra Keynes and Cambridge”, Volume 9.
Final Exam 2:00pm-3:50pm (Location to be announced)
Stephen G. Cecchetti and Kermit L. Schoenholtz, Money, Banking and Financial Markets, McGraw-Hill Irwin, 2010 (ISBN: 978-0073375908).
Other Course Materials
Course readings not found in the textbook will be available on Blackboard. Powerpoint slides for the lectures will be posted on Blackboard. Students are expected to keep informed about monetary policy developments around the world and to read the Wall Street Journal and the Financial Times.
Course Requirements and Grades
Course grades will be based on a mix of eight problem sets (totaling around one-third of the course grade) and two examinations (an in-class midterm accounting for around 30% of the course grade and a final examination representing the remaining portion). Attendance and class participation also will contribute to the grade in the case of outliers (good or bad). Problem sets submitted after the deadline will not be accepted. Please note the midterm and final exam dates. The Stern Code of Conductapplies to all work in this course.
Guidelines for Group Projects
Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.
Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole: its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.
It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.
You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.
At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter. In general, students in undergraduate core courses can expect a grading distribution where:
Note that while the School uses these ranges as a guide, the actual distribution for this course and your own grade will depend upon how well you actually perform in this course.
The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.
If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.
In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior. Students who fail to do so may be asked to leave the classroom.
Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission.
Course evaluations are important to us and to students who come after you. Please complete them thoughtfully.
Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:
The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:
Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505
To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin. Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications. Additionally, your document will become part of the Turnitin database.
Your class may be recorded for educational purposes
If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend. If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.