Economics 3215 --- Money and Banking - Lakehead University

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Winter 2007 ... Academic thinking about money and banking has changed ... Mishkin, F. S, and Serletis, A. (2005), “The Economics of Money, Banking, and ...
Economics 3215 --- Money and Banking Lakehead University Winter 2007

Hamza Ali Malik Office: RC-3016C Phone: 343-8638 [email protected] http://flash.lakeheadu.ca/~hmalik

Introduction and Objectives ‘Money and banking’ study the role of money in the economy, the functions that financial markets perform, and their interrelationships. Academic thinking about money and banking has changed drastically over the past 15 years and so has the practice of monetary policy and dynamics of financial system. Keeping in view the recent developments, we focus less on monetary and banking theory and more on the implications of monetary policy and financial structure for the functioning of the economy. Our objective in the course is threefold. First, to understand the concept and role of ‘interest rate’. Second, to analyze the aims, conduct, influence and limitations of monetary policy. Third, to study basic macroeconomic models in which monetary policy plays a central role. To this end, we will develop simple intuition behind key concepts and will make use of basic mathematics such as linear algebra and total differentiation. In addition, we will study dynamic macroeconomic models that will involve working with differential and difference equations. By the end of the course, you should not only have a firm grasp of the fundamental issues in monetary policy and an appreciation of the importance of a well-functioning financial system but also learn some useful mathematical techniques.

Lecture Times and Location Tuesdays and Thursdays: 0830 --- 1000 in AT-2015. I strongly recommend that you attend all the lectures, as I will provide sufficiently detailed notes and some additional material during the lectures.

Office Hours Mondays and Wednesdays: 1230 --- 1400. If these times are inconvenient and/or if you need additional times please do not hesitate to make appointments.

Texts and Other Readings A) - Required Textbook Mishkin, F. S, and Serletis, A. (2005), “The Economics of Money, Banking, and Financial Markets”, Second Canadian Edition, Pearson Education Canada Inc.

B) - Other Useful Books 1) - McCallum, Bennett, (1989), “Monetary Economics: Theory and Policy”, Prentice Hall Publishers. 2) - Laidler, David, (1993), “The Demand for Money: Theories, Evidence and Problems”, Fourth Edition, Harper Collins Publishers.

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3) - Bofinger, Peter, (2001), “Monetary Policy: Goals, Institutions, Strategies, and Instruments”, Oxford University Press. 4) - Thiessen, Gordon, (2001), “The Thiessen Lectures”, Lectures delivered by Gordon Thiessen, Governor of the Bank of Canada 1994 – 2001, Bank of Canada. http://www.bankofcanada.ca/en/pdf/thiessen-eng-book.pdf 5) - Blinder, Alan, (1998), “Central Banking in Theory and Practice”, The MIT Press. 6) - Solow, Robert and John Taylor, (2001), “Inflation, Unemployment, and Monetary Policy”, The MIT Press.

C) – Other Readings 1) - Schaechter, A. (2001), “Implementation of Monetary Policy and the Central Banks’ Balance Sheet”, IMF Working Paper No. 01/149, October. http://www.imf.org/external/pubs/ft/wp/2001/wp01149.pdf 2) - Coletti, Don., and Brian O’Reilly, (1998), “Lower Inflation: Benefits and Costs,” Bank of Canada Review, Autumn. http://www.bankofcanada.ca/en/review/1998/r984a.pdf 3) - Mackelm, Tiff. (2002), “Information and Analysis for Monetary Policy: Coming to a Decision”, Bank of Canada Review Summer 2002. http://bankofcanada.ca/en/review/2002/r02-4-eb.html 4) - Ragan, Christopher, (2005), “The Exchange Rate and Canadian Inflation Targeting”, Bank of Canada Review, Autumn. http://www.bankofcanada.ca/en/review/autumn05/ragan.pdf 5) - Mishkin, F., and A. Posen, (1997), “Inflation Targeting: Canadian Experience”, Economic Policy Review, Federal Reserve Bank of New York. http://www.ny.frb.org/research/epr/97v03n3/9708part5.pdf 6) - Ireland, Peter, (2006), “The Monetary Transmission Mechanism”, Working Paper No., 06-1, Federal Reserve Bank of Boston. http://www.bos.frb.org/economic/wp/wp2006/wp0601.pdf 7) - Mishkin, F.S., (1995), “Symposium on the Monetary Transmission Mechanism,” The Journal of Economic Perspectives, 9:4, 3—10. 8) - Bernanke Ben S., and M. Gertler, (1995), “Inside the Black Box: The Credit Channel of Monetary Policy Transmission”, The Journal of Economic Perspectives, 9:4, 27 - 48. 9) - Walsh, Carl, (2001), “The Science (and Art) of Monetary Policy”, Economic Letter, Federal Reserve Bank of San Francisco. http://www.frbsf.org/publications/economics/letter/2001/el2001-13.html 10) - Walsh, Carl, (2000), “Should Central Banks Stabilize Prices?”, Economic Letter, Federal Reserve Bank of San Francisco. http://www.sf.frb.org/econrsrch/wklyltr/2000/el2000-24.html 11) - Walsh, Carl, (1997), “Nobel Views on Inflation and Unemployment”, Economic Letter, Federal Reserve Bank of San Francisco. http://www.sf.frb.org/econrsrch/wklyltr/el97-01.html 12) - McDonough, William, (1997), “A Framework for the Pursuit of Price Stability”, Economic Policy Review, Federal Reserve Bank of New York. http://www.ny.frb.org/research/epr/97v03n3/9708mcdo.pdf

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13) - Kennedy, Mike, (2000), “Issues Concerning Inflation Targeting”, Online version, http://www.tcmb.gov.tr/yeni/evds/yayin/kitaplar/enf_kitap/6-Mike_Kennedy.pdf 14)- Mishkin, F., and A. Posen, (1997), “The Rationale for Inflation Targeting”, Economic Policy Review, Federal Reserve Bank of New York. http://www.ny.frb.org/research/epr/97v03n3/9708part1.pdf 15) - Bernake, B., and F. Mishkin, (1997), “Inflation Targeting: A New Framework for Monetary Policy?”, The Journal of Economic Perspectives, Vol. 11, Issue 2, pp. 97 – 116. 16) - Khan, M., (2003), “Current Issues in the Design and Conduct of Monetary Policy”, IMF Working paper No. 03/56, March. http://www.imf.org/external/pubs/ft/wp/2003/wp0356.pdf •

Note: there will be compulsory questions based on the readings in section (C); details will be discussed and announced in class.

Lecture Topics We will cover chapter # 2 --- chapter # 8, chapter # 15 --- chapter # 18, chapter # 21, selected topics from chapter # 22 --- chapter # 28 of the text book. I expect that you will read chapter # 1, chapter # 14 and the reading suggested in section (C) above on your own.

Course Evaluation There will be two in-class tests of 80 minutes each and a final exam of 150 minutes. Each term test will account for 25% and the final for 50% of the grade. The term tests have been scheduled for the following dates: Test # 1 --- Thursday, February 1st. Test # 2 --- Thursday, March 8th. The structure and requirements for the tests and the final exam will be discussed in detail in class. The final exam will be scheduled sometime in April. The university will announce the date.

Academic Ethics and Other Rules You are reminded that the university will levy sanctions on students who are found to have committed, or have attempted to commit, acts of academic or research misconduct. For information on categories of offenses and types of penalty, please consult the relevant section of the Undergraduate Academic Calendar. There will be no makeup tests. You must provide appropriate documentation from a doctor for a missed test. Your marks will be transferred to the other tests and final exam. Students with disabilities or special needs are advised to contact Lakehead’s Learning Assistance Center for information regarding its services and resources.

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