Syllabus - Fall 2007 Economics 321 Money and Banking

INSTRUCTOR: Wayne Carroll OFFICE: Schneider 471 PHONE: 836-3388; leave a message if I'm not there. E-MAIL: carrolwd OFFICE HOURS: 2:00 - 3:00 MW, 11:00 – 12:00 TuTh, and other times when I’m in the office.

This course surveys the institutional details and theoretical concepts you need to know to understand the economics of money, banking, and monetary policy. Primary goals of the course are to develop an understanding of the terms and concepts used by economists who work in or study the banking industry, to show how standard economic concepts can be used to investigate the role of money and banking in the economy, and to introduce some specialized analytical tools used by monetary economists.

Lectures - Since most of the material in this course will be presented in the lectures, it is essential that you attend class regularly. While class attendance will not be taken into account directly in the determination of your course grade, it is likely to be reflected in your performance on exams. If you miss a lecture, you should obtain that day's notes from someone else in class, and then ask me about any remaining questions you have.

Readings - The text for this course is the eighth edition of The Economics of Money, Banking, and Financial Markets by Frederic Mishkin. Reading assignments from the text are listed in the course outline that follows.

Outside Reading Requirement - As we go through the semester you will be expected to follow current news concerning banking and monetary policy. By the end of the course you should be able to understand discussions of monetary and financial matters in sources such as the New York Times, the Economist, or the Wall Street Journal. You can subscribe to the online edition of the New York Times for free at www. nytimes.com, or you can buy (or share) a student subscription to the Wall Street Journal or the Economist for the semester.

Online Resources – Additional readings are available from two online sources. First, your required readings will include material from the textbook publisher’s site: www.myeconlab.com/mishkin. You might also want to take advantage of online quizzes and other materials you can find there. Second, a version of my summer online course is available on Desire2Learn (D2L), which you can reach by clicking on the Current Students pull-down menu on the university’s web page. There you’ll find additional readings, explanations of the projects, and written versions of many of the lectures.

Syllabus - Economics 321 Fall 2007 page 1 Grading - Your grade in this course will be based on your performance on the following: 3 exams during the semester 300 points possible Comprehensive final exam 100 points Quizzes and short assignments 50 to 100 points 2 projects 100 points Exam dates are: Exam #1 3 October Exam #2 31 October Exam #3 7 December Final Exam 20 December at noon in the usual room

Makeup exams - You may take a makeup exam only if you contact me before the regularly scheduled exam is given. Makeup exams will be harder than the regularly scheduled exams. Late homework assignments must be turned in no later than the beginning of the second class after they are assigned.

Relationship of this course to the goals of the University’s Baccalaureate program – The following are goals of UWEC’s undergraduate program that are likely to be addressed in this course:

The baccalaureate experience shall develop for students an:

 understanding of a liberal education.

 appreciation of the University as a learning community.

 ability to inquire, think, analyze.

 ability to write, read, speak, listen.

 understanding of numerical data.

 historical consciousness.

 international and intercultural experience.

 understanding of science and the scientific methods.

 understanding of values.

 understanding of human behavior and human institutions.

Any student who has a disability and is in need of classroom accommodation should contact the instructor and the Services for Students with Disabilities Office in Old Library 2136 at the beginning of the semester.

Syllabus - Economics 321 Fall 2007 page 2 Tentative Schedule of Topics All readings listed below are from Mishkin. Each reading assignment listed in the schedule is to be completed before the next class meeting. Other required readings might be added later.

5 September Introduction Real and Nominal Quantities  The Price Level  Real and Nominal Quantities Read Chapters 1 and 2 in the text and Keep It Simple – Part 1 from D2L 7 September Review: Money and Inflation Project #1 assignment Read Chapter 3 and Keep It Simple – Part 2 from D2L 10 September Money  Barter economies  Commodity money 12 September  Fiat money Read Chapter 4 14 September Interest Rates  Bonds  Present value  Bond prices and yields 17 September  Relationship between interest rates and bond prices (Last day to drop)  Real vs. nominal interest rates Read Chapter 5 19 September Bond Market Model  Effects of deficits  Effects of business cycles 21 September Money Market Model  The demand for money  Money market equilibrium 24 September  The liquidity and price-level effects  Effects of a change in the money supply on interest rates 26 September  Effects of monetary policy on interest rates Read Chapter 6 28 September The Term Structure of Interest Rates  Measures of term structure  Determinants of term structure 1 October  Interpreting term structure evidence 3 October Exam #1 Read Chapter 8 5 October Pass back Exam #1 Transaction Costs and Asymmetric Information Problems Read Chapter 9 and the online Appendix, “Measuring Bank Performance,” on the text website 8 October Banks  The bank balance sheet  Performance and condition ratios

Syllabus - Economics 321 Fall 2007 page 3 10 October  Financial innovations  Off-balance-sheet activities Read Chapters 10 and 11 and the online Appendix, “Evaluating FDICIA and Other Proposed Reforms,” on the text website 12 October Project #2 assignment 15 October Bank Regulation  Structure of the banking industry  Multiple bank regulatory agencies  Regulation of bank branching: the McFadden and Riegle-Neal Acts  Separation of banking from other industries: Glass-Steagall and the Gramm-Leach-Bliley Act 17 October Capital Requirements and Bank Failure  Fractional reserve banking and bank failure 19 October  Deposit insurance 22 October  The FDIC’s role in resolving bank failures 24 October  Capital requirements  The FDIC Improvement Act 26 October Bank Industry Concentration  Measuring concentration  Bank merger standards 29 October Review 31 October Exam #2 Read Chapter 12 2 November The Federal Reserve System  Structure  Independence Read Chapters 13 and 14 and the online Appendix, “Explaining the Behavior of the Currency Ratio,” on the text website 5 November Determinants of the Money Supply  The money multiplier  Factors that influence the money supply 7 November  Behavior of the factors that influence the money supply  How much control does the Fed have over the money supply? Read Chapter 15 9 November The Fed’s Monetary Policy  Three policy tools  Open market operations Read Chapter 16 12 November Monetary Policy Strategy (last day to drop  Monetary policy goals with a W)  Monetary targeting 14 November  Inflation targeting  The Taylor Rule Read Chapter 17 16 November The Foreign Exchange Market  Exchange rate basics 17 November  Purchasing Power Parity

Syllabus - Economics 321 Fall 2007 page 4 19 November  Interest parity Read Chapter 18 21 November The International Financial System  Foreign exchange market intervention  Fixed vs. floating exchange rates 23 November Thanksgiving Break 26 November  International finance and monetary policy  Exchange-rate targeting 28 November International Monetary Policy Issues Read Chapter 19 and the online Appendix, “Empirical Evidence on the Demand for Money,” on the text website 30 November The Demand for Money  Why it matters  The quantity theory and velocity  Determinants of money demand 3 December  Empirical evidence on money demand  The Case of the Missing Money  Implications for the Fed 5 December Review 7 December Exam #3 Read Chapter 24 10 December Pass back Exam #3 Money and Inflation  Historical evidence 12 December  Do deficits cause inflation? 14 December Review 20 December Final Exam (at 12:00 in the usual room)

Syllabus - Economics 321 Fall 2007 page 5