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Syllabus: Economics 411W Money & Banking Spring 2017 Sheila Tschinkel Tuesday, Thursday and Friday 9:00 to 9:50AM

Office Hours: Tuesdays & Thursdays 11:00 – 12:30 Rich 311B This is a W class, which means you need to research and write papers. There is information about the writing center at Emory at the end of this syllabus.

This is an interesting but difficult time to take Econ 411. The financial environment is continuing to change rapidly. We now need to understand “shadow banks” as well as banks.

This class centers on macroeconomic policy and institutional issues, and especially on change. Central banks in developed economies no longer target the money supply. Even though economists know what money is in theory, it is almost impossible to know what it is in fact. Technology has also led to faster growth of “shadow banks” to where their aggregate size is as large as traditional banks.

The Federal Reserve (the Fed), the US central bank has said it is likely to raise interest rates three times this year. But, its forecasting record has not been good. Its actions will also depend on what the Congress and a new President do with fiscal policy. Moreover, domestic monetary policy should also depend on what is happening in the rest of the world. This is less predictable these days.

There are also many important debates these days a return to a “normal” monetary policy. Bank reserves have quadrupled since 2008. Policy interest rates in the US have been less than 1% for eight years. In some countries they are negative (less than zero). These conditions are not normal.

Financial regulation was greatly changed for large banks after the great recession of 2007-2009 and members of the US Congress have said they want to repeal some of the changes.

Textbook: M&B by Dean Croushore ISBN-13-978-1-285-16796-1 You can purchase this used and in good condition. It is not at the bookstore but can be found on line if you search by the ISBN number. It is important to have the third edition. See me if you need help.

Readings: Articles from newspapers, magazines, central banks, the IMF and other sources will be assigned and posted on Blackboard.

News: You should follow financial market news regularly. Even though some commentators have no idea what they are talking about, you will learn how to decide 2 this for yourself. You can access the Financial Times, The Wall Street Journal and the New York Times through Emory. The Business School has direct links you can ask to use.

Initiatives: This W class means you will work on your writing skills while you learn the subject. You will write four short papers and one well-researched long paper. There will also be a midterm exam and a comprehensive final.

Attendance Policy

Attendance is mandatory. Individual review sessions are not an alternative. I do not repeat textbooks and I introduce other material. It is much harder to do well in the course if you miss classes.

You will sign an attendance sheet each time and the percentage of your attendance counts for 5% of your grade. You can be excused in advance if you have an excellent reason or afterwards with a note from the infirmary.

Grading Policy

Your writing assignments will account for 50% of your grade. The four short papers will count for a total of 15%. (Paper 1=2%, Paper 2=3% and papers 3 and 4 = 5% each.) The long paper will count for 35% (10% for the first draft and another 25% for the final paper). The mid-term will be 15 % and the comprehensive final 30% percent. Attendance will count for 5%.

Make-Up Exams will only be given under extraordinary circumstances and with a written request from your dean. Please see policy information from the Office for Undergraduate Education.

Writing Assignments

Your short papers should be about three typewritten pages at 1.5 spacing, before bibliography and other documentation. Your well-researched term paper should be about 20 pages before bibliography and other documentation. Please use a 12-point font and normal margins. Tables, charts or visual documentation do not usually count as writing. Your papers should refer to course material. Do not quote. Just show me you understand what you have been studying. If you want to write a highly quantitative paper we can discuss requirements for this.

The first paper will be about Bitcoins. You should read about Bitcoins in articles and news sources. You should discuss why you believe they are or are not money or why you do not know. It is due by 5PM on January 27, 2015 3

The second paper should be about a financial institution or market regulatory issue. It is due by 5PM on February 10, 2015 The third paper should indicate what you are researching for your long paper on. It is due by 5PM on February 17.

Your completed proposal for your long paper is due on March 3, 2017. We should agree on your subject before Spring break and can discuss this.

The fourth paper will be about Federal Reserve monetary policy. You will read policy statements and minutes of any two-day meeting of the Federal Open Market Committee after 2008. You can find background materials about forecasts on the Federal Reserve website and in articles and commentary about the Fed at that time. You should evaluate and explain what the Fed did and indicate if you thought, with hindsight, the agreed upon policy was appropriate. You should refer to course materials. It is due by 5PM on March 17, 2017

The first draft of your long paper is due by 5PM on March 31, 2017. The final draft of your long paper is due on by 5PM on April 21

Grades on papers turned in late are reduced by 0.1 per day. Three days late makes a B+ a B.

I am always willing to discuss subjects and proposals for papers with you. Discussion with other students is a great idea. Still, each submission must be your own writing and not a joint product.

Note: We will not start a lot of work on monetary policy and the Federal Reserve until your proposal for the long paper is due. Even so, you can choose a topic in this area. You can look in the Croushore Book and the readings (and the footnotes and references). Starting with the early classes, I will note how the topics under discussion relate to monetary and regulatory policy questions.

Papers should be in Microsoft Word and not in Adobe pdf. This lets me comment on them directly instead of preparing a separate memo. If needed, you can submit Excel files with papers. You should submit files in the following format: “Last name, First name, Paper 1, 2, 3, 4 or 5” when you save and name them. Send them to [email protected]. Please use library computers if you do not have your own.

Please also consult the Emory Writing Center at http://www.writingcenter.emory.edu/ The Center opens on January 26, 2015 and has hours from 12 to 8 Sunday through Thursday and 12 to 5 on Friday. It is located at 212 Callaway North. If there is interest, I will invite someone from the center to speak to the class. 4

Outline of Classes: This is a rough outline and shows the material we will cover. A good forecast is that I am usually too optimistic about the material that can be covered in each class. Therefore, the dates do not go to the end of the semester. The last day of class is April 21. January 10 Chapters 2 Introduction and Overview

January 12 Chapter 3 What is Money? 5 January 13 Chapter 1 Financial Intermediation, the Functions of and 17 Financial Markets, Central Banks Introduce T accounts, Introduce Shadow Banking January 19, Chapter 4 and 5 Interest rates and asset prices. Differences in 20 and 24 interest rates. How the prices of debt instruments are affected by interest rate changes. January 26 Chapter 5 and 6 The term structure of interest rates. The real and 27 interest rate and how inflation affects nominal interest rates and the term structure. January 31 Supplementary Reading Quantitative Easing and the term structure of interest rates February 2 Chapter 6 continued Market efficiency and what it implies. We and 3 and Chapter 7 will not cover individual investment decisions and asset allocation (portfolio theory). February 7 Supplementary reading Market Efficiency and Information on financial assets, Asymmetry-How this relates to banks and markets and financing. other intermediaries

February 9 Supplementary reading Market Efficiency and Information on modern financial Asymmetry. Repurchase agreements and intermediation collateralized financial transactions

February 10 Start Chapter 8 T Accounts for Banks and Shadow Banks February 10, Continue with Chapter Banks and a little history of the US system. 14 and 16 8 and start 9 This class will pay more attention to large systemically important institutions. Balance sheet management by banks and shadow banks (financial intermediaries in general) February 17 Chapter 9 continued Banking industry regulation and supervision. Bank holding company structure and subsidiaries. Shadow banks. February 21 Review February 23 Midterm February 24 Review and Preview Review Midterm and Preview February 28 Chapter 10 Economic Growth and Business Cycles

March 2 Chapter 11 Modeling Money and the demand for money. Consideration of how “money” is created. March 6 to 10 SPRING BREAK WORK ON PAPERS March 3, Chapter 12 and Start on Macroeconomic models: AS-AD and March 14 and large econometric models 16 March 17 Chapter 13 The Lucas critique and a little on DSGE models March 21 Chapter 14 Interdependence; Exchange Rates 6

Power-Point presentations are used in class. Many are new for this semester. I make every effort to make them available on a timely basis. Often I edit them and make changes and tell you newer versions are available. Please comment on these presentations so that I can improve them.

The order and coverage of topics may change when we turn to monetary theory and policy. Class sessions will be shaped to include emerging developments.

In addition, I will try to set up an optional visit to the Federal Reserve Bank of Atlanta with Professor Lee and his Economics 411 classes. This will give you an opportunity to meet with staff involved in monetary policy, as well as to see money counting and the money museum. The Bank’s Directors and the Board of Governors of the Fed are in the process of searching for a new CEO and we do not know when the new one will take office. Dennis Lockhart, the current CEO, will leave at the end of February. The visit is not on the schedule because I do not know when or even if this will happen.

HONOR CODE

The honor code is in effect throughout the semester. By taking this course, you affirm that it is a violation of the code to cheat on exams, to plagiarize, to deviate from the teacher’s instructions about collaboration on work that is submitted for grades, to give false information to a faculty member, and to undertake any other form of academic misconduct. You agree that the teacher is entitled to move you to another seat during examinations, without explanation. You also affirm that if you witness others violating the code you have a duty to report them to the honor council.

Office for Undergraduate Education The Office for Undergraduate Education (OUE) central office is located in White Hall 300 Please visit or call 404.727.6069 with questions about academic affairs, concerns or policies.

All Emory College of Arts and Sciences policies may be found in the College Catalog: http://college.emory.edu/home/academic/catalog/index.html For a full list of Religious Holidays can be found here: http://www.religiouslife.emory.edu/pdf/Religious%20Holidays%202013-14.pdf

Emory Writing Center: 7

Peer Tutoring Writing Support offered by the Center Tutors in the Emory Writing Center and the ESL Program are available to support Emory College students as they work on any type of writing assignment, at any stage of the composing process. Tutors can assist with a range of projects, from traditional papers and presentations to websites and other multimedia projects. Writing Center and ESL tutors take a similar approach as they work with students on concerns including idea development, structure, use of sources, grammar, and word choice. They do not proofread for students. Instead, they discuss strategies and resources students can use as they write, revise, and edit their own work. Students who are currently enrolled in an ESL-supported section of English 101, English 123, or English 221 or who plan to take one of those courses next semester should see ESL tutors, as they are specifically trained to support students in ESL Program courses. To learn more about ESL tutoring or to make an appointment, go totinyurl.com/eslemory. All other students in the college should see Writing Center tutors who are trained to work with this broader population. Learn more and make an appointment at writingcenter.emory.edu. Please review- tutoring policies before your visit.