<p> August 21, 2015</p><p>Central Banking Econ 235a Professor Browne</p><p>Mondays and Wednesdays: 12:30 p.m. – 1:50 p.m. in Lemberg Academic Center 054. Office Hours: Before or after class; e-mail to arrange. Sachar 1 B e-mail: [email protected]</p><p>Course Overview</p><p>For the past 100 years, and in some cases longer, most countries have looked to central banks to protect their financial systems and moderate fluctuations in prices and output. As the recent financial crisis highlights, the record of central banks in this regard has been mixed. The purpose of this course is to provide an understanding of the purposes and functions of central banks and the challenges they confront. What is a central bank? What is it trying to do and how does it achieve its goals? How have central banks’ activities changed over time – and why? </p><p>We will devote considerable attention to the roles of central banks’ in the 2007-2009 financial crisis and the ensuing global slowdown and to current debates over the policies that central banks followed before and after the crisis. We will consider the degree to which the crisis changed thinking regarding central banks’ responsibilities and capabilities.</p><p>Learning Goals and Outcomes Among the topics we will address are the following: What are the origins of banking and central banks? What are the purposes and functions of central banks? How are central banks organized? What does “independence” mean for a central bank? How do central banks affect the banking system and the economy? What tools do they use? Is communication a policy tool? What is the debate over rules versus discretion? What rules might a central bank follow? Should central banks have an inflation target? How should we measure inflation? Why is deflation worrisome? Should central banks react to rising asset prices? What does “lender of last resort” mean? What is a “run”? Do they still occur? What is quantitative easing and why is it controversial? What are the lessons of the 2007-9 financial crisis and the subsequent recession? How might central banks be different in the future?</p><p>1 August 21, 2015</p><p>At the end of the course, students should understand the goals and functions of central banks and the current policy debates surrounding them.</p><p>Course description The course is a combination of seminar and lecture. The instructor will generally provide an overview of key issues and points of debate. The instructor may provide illustrations based on developments in the United States. However, students will contribute actively to the group learning experience by discussing what they learned from the assigned readings and by becoming “experts” on central banks they have selected. </p><p>Readings will be assigned for each class. Students are expected (a) to have read these materials in advance and (b) to be ready talk about what they learned. After most Wednesday classes, students will prepare a short essay (2-4 pages single space) addressing the topic just covered. These papers should be submitted the following week. These essays account for 60 percent of the grade for the course. </p><p>An important part of the course is learning about developments in central banks in different countries. Each student will select a different central bank to study. Students will become the “experts” on these banks and share their insights with the group in the general discussion. Towards the end of the semester, each student will make a 10-15-minute presentation summarizing his/her analysis of the selected central bank. </p><p>Pre-requisites Students should have a practical understanding of intermediate macroeconomics, including the money supply process, as well as the basics of banking and financial markets (ECON 82b or ECON 202a or equivalent.)</p><p>Evaluation Grades will be based on the short papers prepared each week, class participation and the presentation at the end of the course on their central bank. </p><p>Grading: Short weekly papers (nine) 60 percent Class participation 20 percent Central bank presentation 20 percent</p><p>Short papers are assigned most Wednesdays. These assignments are normally due at the next Wednesday class. Assignments are listed in the syllabus after each topic’s readings.</p><p>Issues to be covered in central bank presentations include but are not limited to the following: central bank history, governance, functions (especially any regulatory role), monetary policy objectives, monetary policy tools, exchange rate </p><p>2 August 21, 2015 regime, how the country was affected by the 2007-9 crisis and how the central bank responded, current challenges and policy debates. Presentations will take place November 23 and 30 and December 2 and possibly December 7. Dates for each student’s presentation will be determined in early October.</p><p>Class dates: August 31(M) September 2 9 10(Th) 16 21 29(Tu) 30 October 7 12 14 19 21 26 28 November 2 4 9 11 16 18 23 30 December 2 7 9</p><p>Communications: Outside of class, most communications will be by e-mail, not LATTE. Essays should be submitted by e-mail ([email protected]) and essay evaluations will be provided by e-mail. Supplementary readings will be distributed by e-mail.</p><p>Things you should do Attend class. Complete all essays. Submit essays on time. If you have questions about assignments, ask in advance of submission. Actively participate in discussions. Cite others’ work in your essays and presentation. (You may do so with footnotes or more informally, but do list your sources.)</p><p>Things you should not do Do not quote others without attribution. Do not skip an essay. Do not collaborate on the weekly essays or presentations; these are NOT team projects. However, you may talk about policy issues with your classmates and colleagues. (A possible exception to prohibition on collaboration relates to presentations on Eurozone central banks; discuss with me in advance if considering a joint presentation.)</p><p>Disability: If you are a student with a documented disability on record at Brandeis University and wish to have a reasonable accommodation made for you in this class, please see me immediately.</p><p>3 August 21, 2015</p><p>Academic Integrity is central to the mission of educational excellence at Brandeis. You are expected to be familiar with and to follow the University’s policies on academic integrity (see http://www.brandeis.edu/studentlife/sdec/ai). Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspension from the University. </p><p>Course Materials and Readings</p><p>Most of the readings are on the web; links are provided in the Course Plan.</p><p>A recurring reference is Bank for International Settlements (BIS), Issues in the Governance of Central Banks, A report from the Central Bank Governance Group, Chair: Guillermo Ortiz, May 2009 http://www.bis.org/publ/othp04.pdf This will also be of value in preparing presentations on central banks.</p><p>BIS Annual Reports are another valuable resource. http://www.bis.org/publ/arpdf/ar2011e.htm</p><p>Readings from two books have been assigned. These are relatively inexpensive. Charles Goodhart, The Evolution of Central Banks. (1988 MIT Press, Cambridge, MA) Edwin M. Truman, Inflation Targeting in the world economy. (2003 Institute for International Economics, Washington, D.C.)</p><p>Two useful but optional references are Howard Davies and David Green, Banking on the Future: The Fall and Rise of Central Banking. (2010 Princeton University Press) Lawrence H. White, The Theory of Monetary Institutions. (1999 Blackwell Publishers, Malden, MA)</p><p>There are a lot of readings, but many of the online readings are short and non- technical. In the case of long or more technical readings, the key sections are usually indicated. You may skip over models and regressions. </p><p>With respect to the books, particularly Goodhart, you should focus on the main points rather than read every word. </p><p>Optional readings are just that – optional. If the topic interests you, take a look.</p><p>The goal in all cases is to extract the main message, not to absorb all the details.</p><p>4 August 21, 2015</p><p>Course Plan and Associated Readings</p><p>Aug 31 & Sep 2 - Organizational Meeting (Aug 31) and Money Basics (Sep 2)</p><p>Discuss course format and what is expected of students (readings, papers, class participation, presentations).</p><p>Sep 2 – What purposes are served by money? How did money get started? Review your former macro text on money multiplier. OR look at Schwartz, Anna J. “Money Supply,” Library of Economics and Liberty http:econlib.org/library/Enc/MoneySupply.html</p><p>Optional: White, Lawrence, Skim Chapter 1, esp. pp.1-14, 18-19.</p><p>For those interested in the origins of money, an alternative view is summarized in Tcherneva, Pavlina R. “Chartalism and the tax-driven approach to money,” Sections 1, 2 and 4. This is an optional reading. pavlina-tcherneva.net/Tcherneva-Chartalism.pdf</p><p>Assignment: Pick a central bank (and your 2nd and 3rd choices) that you will study and about which you will become the class expert. In late November, students will give presentations on their central banks. We will finalize choices Sep. 10.</p><p>Sep 9 & 10 – History of Money and Banking</p><p>Bordo, Michael David, “The Classical Gold Standard: Some Lessons for Today,” Federal Reserve Bank of St. Louis, May 1981 http://research.stlouisfed.org/publications/review/81/05/Classical_May1981.pdf</p><p>Bernanke, Ben S. “Money, Gold and the Great Depression,” Remarks, March 2, 2004. http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.ht m and “Chapter 1. The Macroeconomics of the Great Depression,” Essays on the Great Depression, Princeton University Press, http://press.princeton.edu/chapters/s6817.html</p><p>Norman,Ben, Rachel Shaw and George Speight, “The history of interbank settlement arrangements: exploring central banks’ role in the payment system, Bank of England Working Paper No. 412 June 2011 http://www.ecb.int/home/pdf/research/Working_Paper_412.pdf Skim pages 3-19. Read balance for next week.</p><p>5 August 21, 2015</p><p>Optional: Dolan, Ed “Whatever Became of the Money Multiplier,” Ed Dolan’s Econ Blog http://www.economonitor.com/dolanecon/2013/09/23/whatever-became-of-the- money-mulitplier/ Explains criticisms of the money multiplier. If you have trouble with the link, use the EconoMonitor search function.</p><p>Optional: White, Lawrence, Chapter 2, pp. 37-42, 48-49; Chapter 7, pp. 138-142. </p><p>Optional: Officer, Lawrence H., “Gold Standard,” EH.net http://eh.net.encyclopedia/gold-standard/ A lot of detailed information about the gold standard. Useful if you have questions about how it worked.</p><p>Assignment: Write short paper on the pros and cons of the gold standard compared to a fiat money system? Short means 2-4 single-space pages. Due Sep.16.</p><p>Sep 16 – History and Functions of Central Banks</p><p>BIS material is most important. Bordo is short and interesting.</p><p>Bank for International Settlements (BIS), Issues in the Governance of Central Banks, A report from the Central Bank Governance Group, Chair: Guillermo Ortiz, May 2009 http://www.bis.org/publ/othp04.pdf Chapter 1, pp. 5-16. (Note definition in introduction.) Chapter 2, esp. pp. 18-20 and 28-37. (Skim rest.) Chapter 6, pp. 103-105. </p><p>Norman,Ben, Rachel Shaw and George Speight, “The history of interbank settlement arrangements: exploring central banks’ role in the payment system,” Bank of England Working Paper No. 412 June 2011 http://www.ecb.int/home/pdf/research/Working_Paper_412.pdf Read pages 20 on. </p><p>Bordo,Michael, “A Brief History of Central Banks”, Federal Reserve Bank of Cleveland Economic Commentary, December 2007 https://www.clevelandfed.org/Newsroom and Events/Publications/Economic Commentary/2007/ec 20071201 a brief history of central banks.aspx</p><p>Goodhart, Charles, The Evolution of Central Banks, Chapter 1</p><p>For rankings of central bank independence and transparency, see </p><p>6 August 21, 2015</p><p>Dincer, N. Nergiz and Barry Eichengreen “Central Bank Transparency and Independence: Updates and New Measures,” International Journal of Central Banking, March 2014, Tables 1 and 8. http://www.ijcb.org/journal/ijcb14q1a6.pdf and Crowe, Christopher and Ellen E. Meade, “Central bank independence and transparency: Not just cheap talk,” VOX, July 27, 2008 http://www.voxeu.org/article/central-bank-independence-and-transparency-not- just-cheap-talk-part-1?quicktabs_tabbed_recent_articles_block=1 </p><p>Optional: White, Lawrence, Chapter 4.</p><p>Assignment: Write a short paper describing your central bank: when created, why created, primary functions, and the degree to which it is independent. Explain your reasoning about your central bank’s independence. On your central bank’s balance sheet, what are the most important asset categories? What are the most important liabilities? A small summary table may be helpful in presenting major assets and liabilities. Have the level and composition of assets and liabilities changed substantially since 2008 (or thereabouts)? Due Sep. 30.</p><p>Sep 21, 29 & 30 – Monetary Policy (Objectives and Tools)</p><p>Ortiz, Issues in Governance, Chapter 2, esp. pp.18-25, 28-33 and Chapter 4, pp.77-78 and 85-90 http://www.bis.org/publ/othp04.pdf</p><p>Meyer, Laurence H., “Inflation Targets and Inflation Targeting,” http://research.stlouisfed.org/publications/review/01/11/1-14Meyer.pdf First two pages are relevant to this topic, the balance to the next - rules vs. discretion.</p><p>Keister, Todd, Antoine Martin and James McAndrews, “Divorcing Money from Monetary Policy” Economic Policy Review, September 2008 http://www.newyorkfed.org/research/EPR/08v14n2/0809keis.pdf Section 2 (pages 43-46) and Section 4. OR Clews, Roger, Chris Salmon and Olaf Weeken, “The Bank’s money market framework,” Bank of England Quarterly Bulletin Money Market Articles, 2010Q4 www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb100404.p df Both articles discuss the market for reserves, the Keister article from the Fed’s perspective and the Clews’ piece from the BOE’s view. Read one.</p><p>For transparency rankings look at Table 1 in Dincer, N. Nergiz and Barry Eichengreen “Central Bank Transparency and Independence: Updates and New Measures,” International Journal of Central Banking, March 2014. 7 August 21, 2015 http://www.ijcb.org/journal/ijcb14q1a6.pdf</p><p>Optional: BIS Communication of monetary policy decisions by central banks: What is revealed and why. BIS Papers No. 47, May 2009. http://www.bis.org/publ/bppdf/bispap47.pdf Results of a survey of central bank communications. </p><p>Optional: Hoover, Kevin D. “Phillips Curve,” Library of Economics andLiberty, http://www.econlib.org/library/Enc/PhillipsCurve.html Short review of Phillips Curve.</p><p>Optional: BIS Markets Committee, MC Compendium: Monetary policy frameworks and central bank market operation, May 2009. http://bis.org/publ/mktc04.pdf Skim information on 2-4 central banks to get a sense of similarities and differences. If your bank is one of those covered in this compendium, you may find the information helpful. However, some central banks have changed their practices in response to the financial crisis of 2007-9.</p><p>Assignment: Write a short essay summarizing your central bank’s objectives and key tools for implementing monetary policy. What is the overall objective? If multiple objectives, are they prioritized? Are there specific targets? How is policy implemented? Does your bank engage in open market operations? If so, what does it buy/sell? If not, what tools does it use? Assess your bank’s transparency. (If your bank is an inflation targeting bank, you should look at Gil Hammond in the references for the next topic – rules vs. discretion.) Due Oct.7.</p><p>Oct 7 – Monetary Policy (Rules vs. Discretion)</p><p>Hammond provides a good summary of the inflation targeting approach and information on 27 inflation targeting central banks.</p><p>Buol, Jason L. and Mark D. Vaughan, “Rules vs. Discretion: The Wrong Choice could Open the Floodgates, The Regional Economist, Federal Reserve Bank of St. Louis. http://www.stlouisfed.org/publications/re/articles/?id=426 Conceptual discussion of case for rules.</p><p>Taylor, John, “Discretion versus Policy Rules in Practice” in Carnegie-Rochester Series on Public Policy, December 1993 http://www.stanford.edu/~johntayl/Papers/Discretion.PDF Influential article. The “Taylor rule” is used widely in evaluating monetary policy. The original rule is on p.202.</p><p>Jevcak, Anton, “Monetary policy frameworks: gradual implementation of steadily evolving theory,” ECFIN Economic Brief, Issue 29, January 2014.</p><p>8 August 21, 2015 ec.europa.eu/economy_finance/publications/economic_briefs/2014/pdf/eb29_en.p df First five pages; these summarize evolution of monetary policy (up to “Monetary actions in response to the 2008/09 global financial crisis”)</p><p>Inflation targeting</p><p>Truman, Edwin M., Inflation Targeting in the World Economy. Chapters 1 through 3. Skip the regression analysis. </p><p>Hammond, Gill, State of the art of inflation targeting - 2012, Centre for Central Banking Studies, Bank of England http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb29.pdf Summarizes key features of inflation targeting and describes how individual countries implement this approach.</p><p>Meyer, Laurence H., “Inflation Targets and Inflation Targeting,” http://research.stlouisfed.org/publications/review/01/11/1-14Meyer.pdf</p><p>Optional (if you are interested in emerging market countries, especially in Latin America): Mishkin, Frederic S., “Can Inflation Targeting Work in Emerging Market Countries?” Festschrift in Honor of Guillermo A. Calvo April 15-16 2004. http://www.imf.org/external/np/res/seminars/2004/calvo/pdf/mishki.pdf</p><p>Optional (if you are interested in Africa): Masson, Paul, “Anchors for Monetary Policy” in Central Banks and the Challenge of Development discusses anchors, particularly inflation targeting, for African countries on pp. 89-104. http://www.bis.org/events/cbcd06.pdf?noframes=1</p><p>Exchange rates</p><p>Obstfeld, Maurice and Kenneth Rogoff, “The Mirage of Fixed Exchange Rates” NBER Working Paper 5191, July 1995. http://www.nber.org/papers/w5191.pdf Why exchange rates are not a good anchor today. Skim.</p><p>Assignment: Write a short assessment of the advantages and disadvantages of an inflation-targeting regime in general and for your central bank in particular. If your bank does not use an inflation-targeting approach, why not? Should it? If it does, has performance been satisfactory or would another approach have been superior? Due Oct. 14.</p><p>Oct 12 & 14 - Inflation</p><p>Hellerstein, Rebecca,“The Impact of Inflation” Regional Review http://www.bos.frb.org/economic/nerr/rr1997/winter/hell97_1.htm 9 August 21, 2015</p><p>Short readable summary.</p><p>Shiller, Robert J., “Why Do People Dislike Inflation?” Cowles.yale.edu/sites/default/files/files/pub/d11/d1115.pdf Survey of public attitudes towards inflation. Skim. Note strength of opinions about inflation and differences between public and economists. And a different view below: Blanchflower, David, “Forget inflation - what hurts the most is unemployment,” The Independent, Tuesday, April 2, 2013 http://www.independent.co.uk/news/business/comment/david- blanchflower/forget-inflation--what-hurts-the-most-is-unemployment- 8556261.html</p><p>Bullard James, “Measuring Inflation: the Core is Rotten” Speech, May 18, 2011 http://research.stlouisfed.org/econ/bullard/pdf/Measuring_Inflation_May_18_201 1_FINAL.pdf Arguments for a focus on headline rather than core inflation.</p><p>Bernanke Ben, “Deflation: Making sure “it” doesn’t happen.” Speech, November 2002 http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm Famous speech. Foreshadows events in 2007-09 crisis. </p><p>Optional: Cecchetti and Moreno papers in BIS, Monetary and Economic Department, “ Monetary policy and the measurement of inflation: prices, wages and expectations,” BIS Papers No. 49, December 2009, http://www.bis.org/publ/bppdf/bispap49.pdf The Cecchetti paper provides an overview of issues for developed as well as emerging market economies. The Moreno paper provides a lot of detail on how central banks use inflation measures. It includes data for a number of EMEs and may be useful if your central bank is one of those covered.</p><p>Optional: Fischer, Stanley, “Why are Central Banks Pursuing Long-run Price Stability?” http://www.kc.frb.org/Publicat/sympos/1996/pdf/s96fisch.pdf Reviews a number of inflation issues.</p><p>Asset prices</p><p>Bernanke, Ben and Mark Gertler “ Monetary Policy and Asset Price Volatility,” http://www.kansascityfed.org/publicat/sympos/1999/S99gert.pdf Influential paper defining mainstream academic thinking. Skip model. Focus on pp.77-86, especially 78-79.</p><p>Mishkin, Frederic, “How should we respond to asset price bubbles?” Speech, May 15, 2008.</p><p>10 August 21, 2015 http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm</p><p>“Should or can central banks target asset prices?” The International Economy Fall 2009 http://www.international-economy.com/TIE_F09_AssetPriceSymp.pdf Collection of opinions from academics, business economists and business journalists. Skim.</p><p>Assignment: Write a short paper addressing the following questions. Why should central banks care about price stability? Briefly summarize the arguments for and against using headline and core inflation as the focus for price stability. What measure of inflation does your central bank emphasize? How (if at all) does your central bank respond to supply shocks, such as large changes in energy or food prices? Due Oct. 21.</p><p>Oct 19 & 21 – Lender of Last Resort; Central Banks as Supervisors</p><p>Be sure to read the article by Humphrey and the selections from the BIS papers Re- thinking the lender of last resort.</p><p>Humphrey, Thomas “Lender of Last Resort: the Concept in History,” Federal Reserve Bank of Richmond, Economic Review, March/April 1989. http://www.richmondfed.org/publications/research/economic_review/1989/pdf/ er750202.pdf</p><p>BIS, Re-thinking the lender of last resort, BIS Papers No 79, September 2014. http://www.bis.org/publ/bppdf/bispap79.htm Paul Tucker paper, pages 10-21 and 34-38, and the paper by Domanski, Moessner and Nelson, pages 43-48 and 59-61.</p><p>Goodhart, Charles, The Evolution of Central Banks, Chapters 2, 4, 7 and 8. Skim. Do NOT read word-by-word, but focus on the broad arguments and whether the debates over history have implications for banks and central banks today. </p><p>Optional: White, Lawrence, Chapter 4, pp. 71-79</p><p>Optional: De Grauwe, Paul. “The European Central Bank as lender of last resort” August 2011 http://www.voxeu.org/index.php?q=node/6884 We will discuss this concept later under “current policy debates.”</p><p>Central banks as regulators and supervisors</p><p>Ortiz, Issues in Governance, Chapter 2, Sections 3.2 and 4.2 Note the varied approaches.</p><p>11 August 21, 2015</p><p>The UK shifted responsibility for banking regulation and supervision from the Bank of England to an integrated financial services regulator in 1998, but in response to the financial crisis shifted most responsibilities back to the central bank. The Briault paper summarizes the arguments for an integrated financial services regulator; the Treasury piece discusses the post-crisis change. Briault, Clive, Revisiting the rationale for a single national financial services regulator. FSA Occasional paper series No. 16, February 2002. See pp. 6-9 and 27-31. http://www.fsa.gov.uk/pubs/occpapers/op16.pdf. HM Treasury, A new approach to financial regulation: judgment, focus and stability, July 2010. Skim pp. 3-13. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/ 81389/consult_financial_regulation_condoc.pdf</p><p>Assignment: Write a short essay on why the banking industry needs a lender of last resort and how central banks play this role. Does your central bank have regulatory or supervisory responsibility for banks or other financial institutions? Express your views – and reasoning- on the desirability of the central bank having (or not) regulatory and supervisory responsibilities for banks. Due Oct. 28.</p><p>Oct 26 & 28 – Challenges facing Developing & Emerging Market Countries</p><p>The optional pieces are relevant for different countries. If you have the central bank of a Latin American country, you should look at Mishkin and Savastano; if your country has a fixed exchange rate you should look at Yagci. If capital flows are a problem, look at Ostry.</p><p>Mishkin, Frederic S., “Can Inflation Targeting Work in Emerging Market Countries?” Festschrift in Honor of Guillermo A. Calvo, April 15-16 2004, pp. 2-14. http://www.imf.org/external/np/res/seminars/2004/calvo/pdf/mishki.pdf</p><p>Lee, Jang-Yung, “Sterilizing Capital Inflows” http://www.imf.org/external/pubs/ft/issues7/index.htm Explains why countries may need to sterilize capital movements and the challenges of doing so.</p><p>Hammond, Gill, Ravi Kanbur, and Eswar Prasad “Monetary Policy Challenges for Emerging Market Economies” Brookings Global Economy and Development Working Paper 36 August 2009 http://prasad.dyson.cornell.edu/doc/Monetary_policy_prasad_Hammond_Kanbur.p df</p><p>Knight, Malcom, “Central banks and the challenge of development: an overview of a roundtable debate” in BIS Central Banks and the Challenge of Development, pp. 11- 17, http://www.bis.org/events/cbcd06.pdf?noframes=1</p><p>12 August 21, 2015</p><p>Optional: Yagci, Fahrettin, “Choice of Exchange Rate Regimes for Developing Countries,” Africa Region Working Paper Series No. 16, April 2001. http://www.worldbank.org/afr/wps/wp16.pdf Advantages and disadvantages of different exchange rate approaches. Table 1 summarizes the issues. </p><p>Optional: Mishkin, Frederic S. and Miguel A. Savastano “Monetary Policy Strategies for Emerging Market Countries: Lessons from Latin America” Draft. January 2002 www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/01DUBROV.pdf For those interested in Latin America. Provides historical information on Argentina, Panama, Mexico, Peru, Chile, Colombia and Brazil.</p><p>Optional: Ostry, Jonathan and others, “Capital Inflows: The Role of Controls” IMF staff position note, February 2010 http://www.imf.org/external/pubs/ft/spn/2010/spn1004.pdf Figure 1 is a useful illustration of options for dealing with capital inflows.</p><p>Optional: Ho, Corrinne, “A Survey of the institutional and operational aspects of modern-day currency boards,” BIS Working Papers No 110, March 2002 http://www.bis.org/publ/work110.htm How currency boards work and how they differ from central banks.</p><p>Assignment: Write a short paper on the distinctive challenges facing central banks in developing and EME countries. Due Nov. 4.</p><p>Nov 2 & 4 - Financial Crisis of 2007-2009 and Great Recession: Causes</p><p>Be sure to read Blanchard.</p><p>Blanchard, Olivier, “The Crisis: Basic Mechanisms and Appropriate Policies” IMF Working Paper, April 2009 http://economics.mit.edu/files/6312 Good and short.</p><p>BIS 79th Annual Report 2008/2009, Chapter I Rescue, Recovery and Reform pp. 4-15 http://www.bis.org/publ/arpdf/ar2009e1.pdf and Chapter II The Global Financial Crisis www.bis.org/publ/arpdf/ar2009e2.pdf Chapter 1 provides an overview of the crisis; chapter 2 provides a chronology. Table 1.1 on p.15 of Chapter 1 highlights key stages and developments in industrial and emerging market countries.</p><p>Clarida, Richard, “What has – and has not- been learned about monetary policy in a low inflation environment? A review of the 2000s.” http://www.bostonfed.org/economic/conf/conf55/papers/Clarida.pdf Pages 1-10, especially pp. 2-3 on the pre-crisis consensus. Also pp.13-14 for a discussion of whether federal funds rate was too low before the crisis. 13 August 21, 2015</p><p>Gorton, Gary, “Questions and Answers about the Financial Crisis,” NBER Working paper 15787, February 2010 http://www.nber.org/papers/w15787.pdf Why the financial crisis was like a bank run.</p><p>Optional: Borio, Claudio and William White “Whither monetary and financial stability? The implications of evolving policy regimes” BIS Working Papers No. 147, February 2004. http://www.bis.org/publ/work147.pdf Prescient paper; writing before the crisis, the authors suggest that the combination of financial liberalization and monetary policy’s strong focus on price stability may have increased vulnerability to financial instability. The essentials of the argument can be found on pages 1, 12-15 and 32-33.</p><p>Assignment: Briefly summarize economic conditions in your central bank’s country in the period before the financial crisis (roughly 2000-2007.) What were the primary monetary policy concerns of your central bank in this period? (Inflation, unemployment, financial stability, all of the proceeding, something else.) How did your central bank address these concerns? With hindsight, should they have done anything different? Due Nov. 11. </p><p>Nov. 9 & 11 – Response to Crisis and Aftermath</p><p>BIS 79th Annual Report 2008/2009, Chapter VI Policy Responses to the crisis http://www.bis.org/publ/arpdf/ar2009e6.pdf Esp. 91-102.</p><p>Look at the interactive depiction of the FRS balance sheet at https://www.clevelandfed.org/Our%20Research/Indicators%20and %20Data/Credit%20Easing# Play around with it and see how the importance of different strategies changed.</p><p>Fawley, Brett W. and Christopher J. Neely, “Four Stories of Quantitative Easing,” Federal Reserve Bank of St. Louis REVIEW, January/February 2013. https://research.stlouisfed.org/publications/review/13/01/Fawley.pdf Describes the monetary policies of the Fed, BOE, BoJ and ECB from September 2008 through 2012, focusing on quantitative easing programs. Figures 3A,B,C and D show the balance sheets of the four central banks; Table 2 shows the magnitude of the programs. </p><p>Maurice Obstfeld “Lenders of last resort and global liquidity: Rethinking the system” http://siteresources.worldbank.org/WBI/Resources/213798- 1259968479602/outreach_obstfeld_dec09.pdf International links and swaps.</p><p>14 August 21, 2015</p><p>Michael Dooley “Central Bank responses to financial crisis” BIS papers no. 51 http://www.bis.org/publ/bppdf/bispap51g.pdf Short and provocative: The problem was ineffective supervision.</p><p>Assignment: Provide a summary of your central bank’s response to the financial crisis of 2007-2009 and the global recession and slow recovery that followed (about 2009-12). In summarizing your bank’s response, you should describe the economic and financial developments that were taking place at the time and that led them to take these actions. How successful were the bank’s actions? Were unconventional tools used? If your central bank’s country was not affected by the crisis, explain why not and discuss whether it faced any other monetary policy or financial policy challenges in the 2007-2012 period. Due Nov. 18.</p><p>Nov 16 & 18 – Current Policy Debates</p><p>General</p><p>Blanchard, Olivier, Giovanni Dell’Ariccia, Paolo Mauro, “Rethinking Macro Policy II: Getting Granular,” IMF Staff Discussion Note, April 2013 http://www.imf.org/external/pubs/ft/sdn/2013/sdn1303.pdf</p><p>Optional: Jordan, Thomas J., “Monetary policy in the financial crisis – Measures, effects, risks,” November 2012. http://www.snb.ch/en/mmr/speeches/id/ref_20121116_tjn/source/ref_20121116 _tjn.en.pdf Swiss perspective on forward guidance, QE, and foreign exchange intervention.</p><p>Inflation targeting and alternatives</p><p>Reichlin, Lucrezia and Richard Baldwin, editors, Is Inflation Targeting Dead? Central Banking after the Crisis, Centre for Economic Policy Research (CEPR), 2013. http://www.voxeu.org/sites/default/files/file/P248%20inflation%20targeting %207%20may.pdf Read the introduction and the pieces by Posen, Frankel and Whalen (and any others that intrigue you.)</p><p>Large Scale Asset Purchases (QE)</p><p>Bernanke, Ben, “Monetary Policy since the Onset of the Crisis,” speech, August 31, 2012 http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm Focus on the discussion of Balance Sheet Tools and Cost-Benefit.</p><p>Optional: Stein, Jeremy “ Evaluating Large-Scale Asset Purchases,” October 29, 2012,</p><p>15 August 21, 2015 http://blogs.law.harvard.edu/corpgov/2012/10/29/evaluating-large-scale-asset- purchases/</p><p>Optional: Turner, Adair, “Debt, Money and Mephistopheles: How do we get out of this mess?” February 6, 2013. Pages 1-3 and Section 7 (pp.24-31.) www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf Focus on the discussion of overt money finance (OMF) or “helicopter money.”</p><p>Should the Fed be required to follow a policy rule?</p><p>“Examining Federal Reserve Reform Proposals,” Testimony, House Committee on Financial Services, Subcommittee on Monetary Policy and Trade, July 22, 2015. Testimony by Paul H. Kupiec (focus on section 2.1) and Donald Kohn. The perspectives are very different. http://financialservices.house.gov/uploadedfiles/hhrg-114-ba19-wstate-pkupiec- 20150722.pdf http://financialservices.house.gov/uploadedfiles/hhrg-ba19-wstate-dkohn- 20150733.pdf</p><p>Lender of last resort to countries</p><p>DeGrauwe, Paul, “The European Central Bank as a lender of last resort” August 2011 http://www.voxeu.org/index.php?q=node/6884 Discussion of lender of last resort to sovereign governments.</p><p>Optional (if you are interested in Greece): Kashyap, Anil, “A Primer on the Greek Crisis: the things you need to know from the start until now,” June 29, 2015 http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the- Greek-Crisis_june29.pdf</p><p>Assignment: Write a medium-length paper (about 5 single-space pages) on what you think are the key monetary policy and/or financial stability issues or challenges facing central bankers today. Focus on a few major issues and explain the sources of contention. Think broadly; do not limit yourself to issues facing “your” central bank. Do you think central banks are likely to be different in the future? Should they be? Discuss this question in general and with respect to your central bank. Consult the references under Future Challenges (last class) as well as under Current Policy Debates. Due Friday Dec 4. Be prepared to discuss your conclusions on December 7 and 9. </p><p>Nov 23 & 30</p><p>Classes are devoted to students’ presentations on their central banks.</p><p>Dec 2 </p><p>16 August 21, 2015</p><p>This class is devoted to students’ presentations on their central banks.</p><p>Dec 7 & 9 – Future of Central Banking</p><p>Come to these classes prepared to discuss the challenges facing central banks and how central banks will be different – or not – in the future, based on your essay on these questions (assigned Nov 18 and due Friday Dec. 4.)</p><p>IMF, “Central Banking Lessons from the Crisis,” May 27, 2010 http://www.imf.org/external/np/pp/eng/2010/052710.pdf</p><p>Fischer, Stanley, “What have we learned from the crises of the last 20 years?” June 1, 2015 http://www.federalreserve.gov/newsevents/speech/fischer20150601a.htm </p><p>Mishkin, Frederic, “Central Banking after the Crisis,” November 2012 https://www0.gsb.columbia.edu/faculty/fmishkin/papers/12chile.pdf Focus on the main points and skip the details.</p><p>Claessens, Stijn, “An Overview of Macroprudential Policy Tools,” IMF Working Paper, WP/14/214 www.imf.org/external/pubs/ft/wp/2014/wp14214.pdf Look at Tables 1 and 2 (at the end of the paper but described in Section IV.) Read Sections II and VI.</p><p>Squam Lake Working Group on Financial Regulation, “A Systemic Regulator for Financial Markets,” May 2009. http://www.squamlakegroup.org Scroll down to find this. It is one of the earlier papers.</p><p>Paper by Don Kohn on independence in Brookings Institution, “Central banking after the Great Recessions: Lessons Learned and Challenges Ahead,” January16, 2014 http://www.brookings.edu/events/2014/01/16-central-banking-after-the-great- recession-bernanke You can download Kohn’s paper from the conference site. The proceedings are also available as an e-book.</p><p>Papadia, Francesco, Central Bank Cooperation during the Great Recession,” Bruegel Policy Contribution, June 2013, http://www.bruegel.org/publications/publication-detail/publication/782-central- bank-cooperation-during-the-great-recession Read Truman’s comment as well as the paper.</p><p>On rising debt burdens in long term: 17 August 21, 2015</p><p>Cecchetti, Stephen, MS Mohanty and Fabrizio Zampoli, “The future of public debt: prospects and implications, BIS Working Papers, No 300, March 2010 http://www.bis.org/publ/work300.pdf Especially section after p. 6 on future and implications for central banks.</p><p>On the challenges facing the ECB:</p><p>All these readings are optional. </p><p>European Commission, “The financial and economic crisis” website http://ec.europa.eu/economy_finance/explained/the_financial_and_economic_crisis /responding_to_the_financial_crisis/index_en.htm</p><p>Whelan, Karl, “Sovereign Default and the Euro,” July 2013 www.ucd.ie/t4cms/WP13_09.pdf Readable overview of reasons for sovereign debt crisis.</p><p>Klein, Ezra, “Greece’s debt crisis explained in charts and maps,” July 6, 2015 www.vox.com/2015/7/1/8871509/greece-charts Interesting explanation of Greece’s difficulties. Some of the links are also interesting (especially Yglesias, “11 things about the Greek crisis you need to know”.)</p><p>18</p>