Prof. Maurice Weinrobe
Jonas Clark Hall 126
Office Hours: M, W 3 - 4 PM
The description of this course in the Clark University Catalogue is as
"Econ 113, Monetary Economics: Theory and Policy, Monetary economics investigates the structure of the financial system, the institutions and customs of that system, and the role of money in the economy. The macroeconomics of money and the Federal Reserve (and other central banks) are studied."
While all business or industrial structures change over time, the structure of the financial "industry" has changed more than most. This course was at one time a course on Money and Banking. Indeed, that is close to the title of the text we are using. Today such course coverage would be woefully incomplete. Econ 113 is about money to be sure, but it is also about financial assets and liabilities that are similar to money. It is about banks, but it is also about financial institutions that compete with banks. In essence it is a course about the financial system and its regulation, the most important components of which are money, the banking industry, and the central bank. The particular financial system to be studied is that of the U.S., with very limited attention given to other countries and their systems.
Econ 113 is as much about institutions as it is about economic theory and policy. Much of the time spent will concern how financial things work in an advanced (industrialized, financially sophisticated) economy, how instruments and institutions have evolved, and how well the financial system does in allocating resources. Attention is given to macroeconomics and to monetary policy, but those are not the principal areas of concern.
The Internet is important in this class. It is a convenient, reliable, and up-to-date source of economic and financial data. Additionally, the publisher and author of your text have developed a very convenient and useful web site for our use. We will use Blackboard as a backbone for most things electronic in this course. A couple of comments are in order on each of these.
Data. We will occasionally have reason to use data from government agencies, and the best and easiest way to make yourself familiar with such data is through the Internet. I will mention the sources as the semester proceeds, but it is helpful to have some basic places for you to get information. An excellent site to begin from is the Clark Library Home Page. This provides links to various Internet (or electronic) Reference Sources. In fact, that's the name of the site where you want to begin, and then go to Economic Data. A number of sites are available from there. The White House provides a site I find quite helpful for quick economic information. It can be clicked on here: The Economic Statistics Briefing Room. It is now possible to view The Economic Report of the President on line. It has quite a bit that is of interest to students of money, especially with regard to macroeconomics. It also has very good supplementary tables with annual data.
All of the regulators of financial institutions, trade groups and associations of financial institutions, and many of the financial institutions themselves have web sites. The most important and useful of such sites is that of the Board of Governors of the Federal Reserve System. It contains a great deal of information on money, monetary policy, banks and the banking system, as well as links to the Federal Reserve Banks and other regulators. A few other sites of regulators and trade associations include the FDIC, the Investment Company Institute (for information on mutual funds), and the American Insurance Association (for information on property and casualty insurance companies). A good site relating to life insurance is A M Best. This also has links to many other sites for all kinds of insurance intermediaries. Finally, the Ohio State University Business School has a Financial Data Finder that is superb. It has links to a very wide range of sites. More references will be mentioned during the semester.
News. Financial news is now available on a timely basis. It comes from a very wide variety of sources, including Yahoo, CNN Financial, major newspapers such as The Wall Street Journal, government agencies, and others. There is no excuse for being ill informed.
Text Web Site. The publisher of your text has developed a web site that is an excellent complement to the text. The Cecchetti web site has a Student Edition section with study questions, supplementary articles, power point summaries, glossaries, and other materials. We will use this site in a variety of ways. Check it out weekly and don't wait to be told to do so.
Blackboard. Blackboard is the starting point for most things electronic in the course. You will be asked to set up your own “student homepage” in Blackboard. I can help you with this, including helping you get a photo for the homepage. Assignments will be posted regularly on Blackboard. This assignment list will provide a list of all assignments made and their due dates. A second type of posting will be actual homework assignments. Old exams will also be posted on Blackboard (in Course Documents). The old exams are there to provide you with examples of the type of questions I tend to ask.
The required work for the course will consist of exams, homework, and weekly
quizzes. Tentative dates for the
Midterm exam: March 20, 2006 (Monday)
Final exam: May 8, 2006 10:30 - 12:30 (Monday)
Homework assignments will be made irregularly, and typically will be due one week from the assignment date. A few assignments will be on one financial intermediary so that you can get to know an intermediary in some depth.
Each week we will have a short quiz. This will occur at the end of class on Thursday. The quiz will be based on a topic covered during that week.
There is a single text for the course. It is Money, Banking, and Financial Markets, by S. G. Cecchetti. I would also like you to read the Wall Street Journal. There is (or should be) a pre-paid subscription to the WSJ that is part of your textbook purchase. If this is not the case you should see me and purchase a subscription independently. Note that your subscription to the WSJ also entitles you to access the Web based WSJ Interactive Edition. You must notify Dow Jones to activate your subscription.
Note: All specific reading assignments shown are in Cecchetti or on the web. The Cecchetti web site has some readings that may be assigned. As mentioned above, additional material from public sources will be suggested throughout.
The key element of any introduction to a course is a disclosure of topics to be covered. This should result in a leveling of student background. Here the topics of money and financial instruments will be covered.
Assignment: Cecchetti chapters 1-3. [Optional: "Trends in the Use of Payments Instruments in the United States" Federal Reserve Bulletin, Spring 2005.] [Optional: "The Treasury Securities Market: Overview and Recent Developments" Federal Reserve Bulletin, December 1999.]
II. Financial Markets and Instruments
Financial markets are the conceptual "places" where the economics of money and banking transpires. It is here that the demands and supplies of financial instruments are brought together. A major part of this section is the study of interest and interest rates. In addition to the text assignments, you will be looking at the Wall Street Journal in depth. Note that there are more mechanical parts to this section than to other parts of the course. Think of this as the tool kit of the monetary economist.
Assignment: Cecchetti chapters 4 - 7.
III. Financial Intermediaries: Banks and Others
Historically, commercial banks have dominated other financial intermediaries. However, the economics of financial institutions is anything but static. The dominance of banks in regulated borrowing and lending markets is a lure to entry of non-banks, and as non-bank financial intermediaries prosper (such as insurance companies or pension funds), banks fight back and try to regain power and influence. This process of change of power and influence is influenced enormously by the government and the regulators of the financial system. Part of the force for change in this industry has been regulation, and the two principal regulators (of banks) are the Federal Reserve and the FDIC. They both provide information on banks (including vast quantities of data), advice to consumers, and even jobs for economists.
Assignment: Cecchetti, chapters 11 - 14. [Optional: "Japanese Banking: A Time of Crisis." FDIC Banking Review, Vol. 11, No. 2. Optional: "The Japanese Banking Crisis: of the 1990s: Sources and Lessons." IMF WP 00/7.]
IV. Central Banks and Monetary Policy
Virtually all countries have central banks (Japan, sure, Norway, Sweden and Finland, why not, Costa Rica, yes, even the small countries), and these institutions are important in a number of respects. Central banks are the primary regulators and overseers of commercial banks. Central banks are responsible for the conduct of monetary policy. For these and other reasons, the average citizen probably knows more about the central bank of his or her country and its head (as of this writing in the U.S. it is still the long serving (since 1987) Alan Greenspan but it will soon be Ben Bernanke) than any other economic policymaker. One of the more interesting and novel central bank is the European Central Bank. It faces a variety of challenges that other central banks have not known.
Assignment: Cecchetti, chapters 15, 16, 18.
V. Money, Macroeconomics and Inflation
This is not a course in macroeconomics, nor is it intended to substitute for our course in macroeconomics. The intention here is to study enough macro to fit money into the model. We will only scratch the surface.
Assignment: Cecchetti, chapters 20 - 22.