ECONOMICS 645 FINANCIAL MACROECONOMICS Prof. J.A. KREGEL WINTER 2011 Class Location, Times and Dates: Location: Flarsheim Hall Room 00262 Time: Friday sessions, 1‐3pm; Saturday sessions, 9am‐12pm Dates: Session 1 January 14‐15 Session 2 January 28‐29 Session 3 Febraury 18‐19 Session 4 March 11‐12 Session 5 April 22‐23 Possible Reserve Session Contact Information: Professor Kregel: kregelj@umkc.edu TA for this course: Devin Rafferty, devintrafferty@mail.umkc.edu
Final Exam: Evaluation and final grade will be on the basis of a take home final exam. A list of topics will be furnished or a topic may be proposed for approval. COURSE OUTLINE (and preliminary list of readings) The outline below is preliminary, depending on the speed at which we can cover the material. Most of the primary readings will be available online or by photo copy. We will be covering a lot of material and you will not be expected to cover all of the readings, they simply represent the sources for the material that we will be covering in class. Session 1.1: Introduction: 1) The Early Financial Macro Economists: Pigou, Lavington, Robertson, Keynes, Hawtrey, Hayek, Fisher: ‐Capital and interest ‐ stocks and flows, ‐The role of time preference in determining interest rates, ‐The linkage to the Quantity Theory, ‐The theory of income determination ‐Spot rates, forward rates, forward‐forward rates Kregel J.A. “Irving Fisher, Great‐grandparent of the General Theory,” Cahiers d'Economie Politique, 14‐15, 1988, pp. 59‐68. _______ . “Capital and Income in the Theory of Investment and Output: Irving Fisher and John Maynard Keynes,” in The Economics of Irving Fisher: Reviewing the Scientific Work of a Great Economist, Hans‐E. Loef and Hans G. Monissen, eds, E. Elgar: Cheltenham, 1999, pp. 271‐83. _______. “Aspects of a Post Keynesian Theory of Finance,” Journal of Post Keynesian Economics, Vol. 21:1, Fall 1998, pp. 113‐37. Session 1.2: Fisher and the Theory of Finance Major Writings of Irving Fisher: The Nature of Capital and Income (New York: Macmillan, 1906). The Theory of Interest (New York: Macmillan,1930). The Rate of Interest (New York: Macmillan, 1907) http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/fisher/RateofInterest.pdf. The Purchasing Power of Money (New York: Macmillan, 1911). Reading notes from Irving Fisher The Theory of Interest, 1930 Kregel, J.A. Queries about Coincidences and Correlations Between Fisher and Keynes, the Gibson Paradox and the Idea of Duration, mimeo _______. Keynes and Duration, mimeo _______. Fisher’s Relation, Purchasing Power Parity and the Interest Rate Parity Theorem, mimeo More technical books: Sidney Homer and Martin Liebowitz, Inside the Yield Book: New Tools for Bond Market Strategy New York Prentice‐Hall, 1972. Frank J. Fabozzi, Fixed Income Mathematics 3rd Edition, New York McGraw Hill, 1997. Marcia Stigum and Franklin Robinson, Money Market & Bond Calculations, Irwin, 1996. Session 2.1: Keynes and Derivatives Keynes: Indian Currency and Finance, A Revision of the Treaty, Tract on Monetary Reform, Treatise on Money, General Theory ‐Interest rate parity, ‐Spot and futures contracts, ‐User costs Keynes J.M. A Revision of the Treaty (1922) Chapter 6 A Tract on Monetary Reform (1923) _______. A Treatise on Money, Vol. 2 (1930) Session 2.2 Keynes ‐ The General Theory and After ‐Liquidity preference and the marginal efficiency of capital, ‐Spot and forward interest rates, duration Keynes J.M. The General Theory of Employment Interest and Money (1936). _______. The General Theory and After: Part II: Defence and Development (1973). _______. The General Theory and After: A Supplement (1979). Kregel J.A., “The Theory of Value, Expectations and Chapter 17 of the General Theory,” in A Second Edition of the General Theory, G.C. Harcourt and P. Riach, London: Routledge, 1996, pp. 251‐272. _______. “Keynesian Stabilisation Policy and Post‐War Economic Performance,” in Explaining Economic Growth, E. Szirmai, B. van Ark and D. Pilat, eds, Amsterdam: Elsevier, 1993, pp. 429‐45. _______. “Instability, Volatility and the Process of Capital Accumulation,” in Economic Theory and Social Justice, G. Gandolfo and F. Marzano, eds, London: Macmillan, 1999, pp. 149‐67. Notes for Classroom use: Interest rate study notes, mimeo Interest Rate Parity Theory Short Period Price Theory National Accounts Session 3.1: What do Interest Rates Tell Us? 1) Interest Rates, Risk and Uncertainty Kahn R.F. “Some Notes on Liquidity Preference” in Essays on Employment and Growth, Cambridge University Press, 1972. Wood, John, "Do Yield Curves Normally Slope Up? The Term Structure of the U.S. Interest Rates, 1862 ‐ 1982" Kregel J.A. “Alternative Analyses of Uncertainty and Rationality: Keynes and Modern Economics,” (with Éric Nasica) La Probabilità in Keynes: Premesse e Influenze, S. Marzetti Dall’Aste Brandolini and R. Scazzieri, eds., Bologna: Clueb, 1999, pp. 115‐38. _______."Rational Spirits and the Post Keynesian Macrotheory of Microeconomics,” de Economist, 135:4, 1987, pp. 519‐31. _______. “Keynes and the New Keynesians on the Role of Uncertainty and Information,” Nouvelles Perspectives de la Macroéconomie, Mélange en l'honneur du Doyen Alain Barrère, ed., G. Grellet, Paris: Publications de la Sorbonne, 1995, pp. 209‐20. Tymoigne, Eric. Demand for money and expectations, mimeo. Bernanke, Ben, Remarks by Chairman Ben S. Bernanke before the Economic Club of New York, New York, New York, March 20, 2006 Session 3.2: Economic Forecasting and Interest Rates Marvin Goodfriend, “Using the Term Structure of Interest Rates for Monetary Policy,” Economic Quarterly, Richmond Federal Reserve Bank, Summer, 1998 Joseph G. Haubrich, “Term Structure Economics from A to B,” Federal Reserve Bank of Cleveland Economic Review, third quarter, 1999. European Central Bank,. “The information content of interest rates and their derivatives for monetary policy,” European Central Bank Monthly Bulletin, May 2000. Harvey, Campbell, "Term Structure Forecasts Economic Growth," Financial Analysts Journal May/June 1993 Harvey, Campbell, "Forecasts of Economic Growth from the Bond and the Stock Markets" Financial Analysts Journal, Sept/Oct 1989 Harvey, Campbell. "The Term Structure and World Economic Growth" The Journal of Fixed Income, Vol 1, No. 1 Buttler, H‐J. "The information content of the yield curve" BIS Papers No. 12. Smithers, Andrew, "Was the Yield Curve a 20th Century Abberation?" Working Paper No. 272 Smithers and Co. LTD., 2006. Wheelock, David C. and Mark E. Wohar, “Can the Term Spread Predict Output Growth and Recessions? A Survey of the Literature” Federal Reserve Bank of St. Louis REVIEW, September/October 2009 Vol. 91, No. 5, Part 1, pp. 419‐440 Other References http://www.nytimes.com/2006/03/05/business/yourmoney/05fund.html http://www.streetauthority.com/terms/y/yieldcurve.asp http://www.garynorth.com/public/department81.cfm http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve http://www.treas.gov/offices/domestic‐finance/debt‐management/interest‐rate/yield.html Session 4.1: Minsky‐Fisher, Financial Instability Kregel J.A. “Minsky's 'Two Price' Theory of Financial Instability and Monetary Policy: Discounting vs. Open Market Intervention,” in S. Fazzari and D. Papadimitriou, eds, Financial Conditions and Macroeconomic Performance: Essays in Honor of Hyman P. Minsky, Armonk, N.Y.: M.E. Sharpe, 1992, pp. 85‐103. _______. “Margins of Safety and Weight of the Argument in Generating Financial Fragility,” Journal of Economic Issues, June, 1997, pp. 543‐8. Minsky H.P. Stabilizing an Unstable Economy (1986); _______. “The financial instability hypothesis: a restatement,” in P. Arestis and A. Skouras, Post Keynesian Economic Theory, 1985 Irving Fisher “The Debt Deflation Theory of Great Depressions,” Econometrica, 1933 Session 4.2: Minsky‐ Fisher Financial Globalisation and Emerging Markets Michael Pettis, The Volatility Machine, Oxford University Press, 2001 Evsey Domar, "The Effect of Foreign Investment on the Balance of Payments", American Economic Review, December, 1950. Kregel, J.A., “External Financing for Development and International Financial Instability,” G‐24 Discussion Paper Series No. 32, Geneva, United Nations, October 2004. ____________, “Can we create a stable international financial environment that ensures net resources transfers to developing countries?”, Journal of Post Keynesian Economics, Summer 2004. Tonveronachi, Mario, “Foreign debt and financial fragility in the perspective of emerging countries,” BNL Quarterly Review, March 2006 Session 5.1: Using Minsky to Understand the US Experience of Financial Fragility: Real Estate Markets Wray, L.R., “Money Manager Capitalism and the Global Financial Crisis,” Levy Economics Institute Working Paper No. 578, September 2009 Richard Bookstable, A Demon of Our Own Design, New York, Wiley, 2007. Whalen, Charles, “The U.S. Credit Crunch of 2007 A Minsky Moment”, Levy Economics Institute Public Policy Brief, No 92, October 2007. Kregel, J.A., “Minsky’s Cushions of Safety and the Subprime Crisis, Levy Economics Institute Public Policy Brief, No. 93, December 2007 _________, “Changes in the US Financial System and the Subprime Crisis”, Levy Economics Institute Working Paper No. 530, April 2008 _________, “Is This the Minsky Moment for Reform of Financial Regulation?” Levy Economics Institute of Bard College, Working Paper No. 586, February 2010 Bullard, James, Christopher J. Neely, and David C. Wheelock, “Systemic Risk and the Financial Crisis: A Primer,” Federal Reserve Bank of St. Louis REVIEW, September/October 2009 Vol. 91, No. 5, Part 1,pp. 403‐
418. Session 5.2 Commodites Futures Makets Masters, M. Testimony before the Financial Crisis Inquiry (Angelides) Commission, June 30, 2010 Masters, M. Testimony before the Committee on Homeland Security and Governmental Affairs United States Senate, May 20, 2008 “Excessive Speculation in the Wheat Market,” Majority and Minority Staff Report, Permanent Subcommittee on Investigations, United States Senate, June 24, 2009 Wray, L. R., “The Commodities Market Bubble,” Public Policy Brief No. 96, Levy Economics Institute of , Bard College, October 2008