ECONOMICS 3215: MONEY, BANKING AND FINANCIAL MARKETS
Instructor: Mike Shannon Winter 2017
Office: Regional Centre RC3016D e-mail:
Office Hours: Tuesday 12:00-2:00pm, Thursday 12:00-2pm
Required Text:
F. Mishkin and A Serletis. The Economics of Money, Banking and Financial Markets. Toronto: Pearson Publishing. 6th Canadian edition. Copies of the text are available from the bookstore. You can also buy access to an e-book version of the text which gives you access for six months.
Overheads and Course Website
Electronic copies of the text overheads will be made available through the course web page: http://flash.lakeheadu.ca/~mshannon/ec3215.html. The overheads will be in Word format. Other electronic sources and reference materials will also be made available through the web page.
Marking Scheme:
Midterm 25% (February 14)
Assignments 30%
Final 45%
There will be at least three assignments. These will expose you to some data sources and have you read some sources (including textbook chapters) not covered in class.
Course Outline (sources may be updated as the course progresses)
Introduction to Money and the Financial System
Source: Mishkin and Serletis, Ch.1 (read this on your own)
Part 1: Money Creation, Central Banking and Monetary Policy
1. The Roles and History of Money and the Payments System
- What is money? What forms does it take? Its history.
- Money and macroeconomics: Quantity theory; recessions and money.
Sources: Mishkin and Serletis, Ch. 3, also pp. 513-521 on the ‘Quantity theory’.
Money Supply Data from the Bank of Canada website (link on website)
J. Powell A History of the Canadian Dollar (see course page link to the Bank of
Canada website: provides additional detail on the evolution of money in Canada).
P. Krugman (1998) “The Babysitting the Economy” Slate August, 1998 (see website)
2. Central Banks
- Roles of a Central Bank
- Bank of Canada: a Brief History.
Sources: Mishkin and Serletis, Ch. 14
Bank of Canada website.
M. Bordo and A. Redish (2006) “70-Years of Central Banking: the Bank of
Canada in an International Context”. Bank of Canada Review Winter 2005-06.
3. Money Creation: Roles of Banks and Central Banks
- Reserves, Deposit Expansion and Money Multipliers. Mishkin and Serletis Ch. 15
- The Bank of Canada's balance sheet and money creation. Mishkin and Serletis, Ch. 16
- Monetary Policy tools of the central bank, Ch. 16
4. Central Banks as Interest Rate Setters
- A model of the Overnight Market, Mishkin and Serletis, Ch. 16
- Why might this be a good way to think about monetary policy? Ch. 16, Bank of
Canada website.
5. Monetary Policy and Economic Activity: a macroeconomic model
- The IS Curve, Ch. 21
- The MP Curve and Aggregate Demand, Ch. 22
- Aggregate Demand and Aggregate Supply with Inflation, Ch. 23
6. Monetary Policy in the Macroeconomic Model
- Monetary Policy as a tool for stabilizing the economy, Ch. 24
- Transmission Mechanism: the channels by which monetary policy affects the
economy, Ch. 26
Sources: Fenton and Murchison ToTem: the Bank of Canada's New Projection and
Policy Analysis Model" Bank of Canada Review Autumn 2006.
7. What should monetary policy do?
- Objectives of Monetary Policy: Price Stability and/or Stabilization?
- Monetary policy and bubbles: another role?
Mishkin and Serletis, Ch. 17
C. Ragan (2006) Why Monetary Policy Matters?: a Canadian Perspective (Bank of
Canada website).
Basics of Financial Economics
8. The Financial System: an Overview
- What does the financial system do?
- Instruments (assets), markets, institutions, borrowers and lenders.
- The national balance sheet: a snapshot of the Canadian financial system.
- An economy's flow of funds constraint.
Source: Mishkin and Serletis, Ch.2
Statistics Canada, National Balance Sheet Accounts (see CANSIM website:
Financial and Wealth Accounts tables)
VoxEu Debates feature “Why do we need a financial sector?” various lead
articles (http://www.voxeu.org/ and class website)
9. Present Value, Yields and Interest Rates
- What is an asset? - Present value
- Calculating yields and rates of return
- Nominal and real interest rates.
Source: Mishkin and Serletis, Ch.4
10. A Supply-Demand Model of a Financial Market
- Supply-demand applied to financial markets.
- What determines asset prices and yields? A supply-demand perspective.
Source: Mishkin and Serletis, Ch.5, also handouts for applications.
11. The Structure of Interest Rates and Yields:
- Risk structure of interest rates
- Term structure of interest rates: the “Yield Curve”
- International interest rates linkages (Mishkin and Serletis, Appendix to Ch. 18)
Source: Mishkin and Serletis, Ch. 6
Bank of Canada Financial System Review., Bank of Canada rates and statistics.
12. Stock Markets and Asset Market Bubbles
- Stocks as financial assets: basic models of stock valuation
- The Theory of Efficient Markets:
- Bubbles: what? do they exist? how rational are financial markets?
- Behavioral Approaches: Shillers model of a bubble.
Sources: Mishkin and Serletis, Ch.7
B. Malakiel, B. A Random Walk Down Wall Street. (e-book of 1999 version is
available from the library website)
R. Shiller Irrational Exuberance (book and website data)
K. Lansing (2007) “Asset Price Bubbles” Federal Reserve Bank of San
Francisco Economic Letters (see course website)
R. Shiller (2003) “From Efficient markets to Behavioral Finance” Journal of
Economic Perspectives (see pp. 91-101)
P. Garber (1990) “Famous First Bubbles” Journal of Economic Perspectives,
35-54.
C. Noussair, S. Robin and B. Ruffieux (2001) “Price Bubbles in Laboratory
Asset markets” Experimental Economics, 87-105.
J.M. Keynes (1936) The General Theory of Employment, Interest and Money,
Ch. 12 (online -- see link from course website)
13. The Economic Analysis of Financial Structure and Financial Crises
- Roles of financial intermediaries (FIs).
- Adverse selection and moral hazard: implications for financial structure.
- Economics of banks and banking.
- Financial crises and information problems.
Source: Mishkin and Serletis, Ch.8,9
14. Financial Intermediaries in the Canadian Financial System
- Banks and Near Banks in Canada
- Other FIs in Canada.
Mishkin and Serletis, Ch. 11,12
Office of the Superintendent of Financial Institutions
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3
15. Financial Crises and the Role of Government
- Financial crises: Causes? Effects? Examples.
- Subprime Crisis: What happened and why?
- Government responses to financial crises.
Sources: Mishkin and Serletis, Ch.1, 10
Bank of Canada Financial System Review (issues since Dec. 2007).
B. Bernanke (2010) Statement to the Financial Crisis Inquiry Commission
(website)
O. Blanchard (2009) “The Crisis: Basic Mechanisms and Appropriate Policies”
MIT Economics Working Paper 09-01 (on course website).
R. Shiller (2008) The Subprime Solution. Princeton University Press
S. Cechetti, M. Kohler and C. Upper (2009) Financial Crises and Economic
Activity. Presented at Federal Reserve Bank of Kansas City
Jackson Hole Symposium August, 2009.
L. Summers (2008) Okun Lecture: Learning from and Responding to the
Financial Crisis (Yale University Speech April 2008) – transcript on website.
L. Ball and G. Mankiw (1995) “What do government deficits do?”
C. Reinhart and K. Rogoff (2009) This Tine is Different: Eight Centuries of
Financial Folly. MIT Press.
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