Instructor: Thayer Watkins
Office: DMH 214
Hours: Mon-Thurs 0800-1130

Textbook: Frederic S. Mishkin, Money, Banking and Financial Markets, 5th ed.

Grading: There will be two midterm examinations and one final examination. These will be given on the Monday following the end of each week of class (August 3, August 10 and August 17) and they will be weighted approximately 30:30:40 in the grading. The regular examinations will be of the multiple choice type. Makeup midterm examinations, however, will be of the essay type.

Content of the course:

• I. Fundamentals
  • A. Nature of money
    Kuwait speculation
  • B. Measurement of the money supply
  • C. Measurement of the price level (index numbers)
  • D. Macroeconomic theory
  • E. Monetary policy
  
  
• II. Interest rates
  • A. Functions of interest rates
  • B. Present value calculations and Investment decisions
  • C. Term structure
  • D. Risk structure
  • E. Interest rates and inflation: nominal versus real
  • F. Foreign exchange and interest rates
  
  
• III. The Money Supply Process
  • A. Fractional reserve banking and bank management
  • B. Open market operations
  • C. Nonbank financial institutions
  • D. Financial innovation
  
  
• IV. Financial Markets and Central Banks
  • A. Stability of financial markets
  • B. Regulation of the banking industry
  
  
• V. Monetary Theory and Policy
  • A. The Quantity Theory of Money and the Equation of Exchange
  • B. The IS-LM Model
  • C. Goals and tools of policy

Schedule
Day	Date	Topic............	....Reading.....	Homework
1	7/27	Overview of Money and Banking The Quantity Theory of Money and the Equation of Exchange American Treasure and Prices in Spain 1505-1650 Hyperinflation	Chs. 1-2 Pps. 544-548 Pps. 659-666	Ch1(2,4,6)
2	7/28	The Financial System, Interest Rates	Chs. 3-4	Ch3(1-3) Ch4(1-4)
3	7/29	Interest Rates Fisher's theory of interest rates	Chs. 5-6	Ch5(1-4) Ch6(1-3)
4	7/30	Interest Rates, Financial Structure Exchange Rates	Chs. 7-8 and App	Ch7(1-5) Ch8(1-4)
5	8/3	Financial Institutions	Chs. 9-10	Ch9(1-5) Ch10(1-5)
		First Exam 8/3 10:30-11:30
6	8/4	Bank Regulation	Chs. 11-12	Ch11(1-6) Ch12(1-4)
7	8/5	Financial Innovation Money Multiplier Process	Chs. 13-14	Ch13(1-5) Ch14(1-5)
8	8/6	Money Supply	Chs. 15-16	Ch15(1-6) Ch16(1-3)
9	8/10	Federal Reserve System	Chs. 17-19	Ch17(1-5) Ch18(1-4) Ch19(1-5)
		Second Exam 8/10 10:30-11:30
10	8/11	Monetary Policy	Ch 20-21	Ch20(1-6) Ch21(1-6)
11	8/12	International Finance Demand for Money	Chs. 22-23	Ch22(1-4) Ch23(1-5)
12	8/13	Monetary Theory	Chs. 24-27	Ch24(6-8) Ch25(1-4) Ch26(1-3) Ch27(10-12)
		Final Exam 8/17 9:00-10:30

Bibliography:

• Julio Harold Cole, Latin American Inflation: Theoretical Interpretations and Empirical Results, Praeger: New York, 1987.
• Luiz Bresser Pereira and Yoshiaki Nakano, The Theory of Inertial Inflation: The Foundation of Economic Reform in Brazil and Argentina, Lynne Rienner Publishers: Boulder, Colorado, 1987.
• William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country, Simon & Schuster Inc.: New York, 1987.
• Jim Powell, The Gnomes of Tokyo: The Positive Impact of Foreign Investment in North America, American Management Association: New York, 1989.
• Pierre L. Siklos, War Finance, Reconstruction, Hyperinflation and Stabilization in Hungary, 1938-48, St. Martins Press: New York, 1991.