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ECON 403 Topics in Macroeconomics: Hyper-Crises/Major-Slumps Fall 2012 MW 4 – 5:15 pm BEH 108 Instructor Bernard Malamud Office: BEH 502 Phone: 895 – 3294 FAX: 895 – 1354 email: [email protected] website: faculty.unlv.edu/bmalamud Office Hours: MW 11:30 – 12:30; 2:30 – 3:30 pm...and by appointment Please communicate with me via your Rebelmail account, by phone, or stop by my office. General Nature of the Course Extensions of macroeconomic analysis. Application of economic analysis to the study of macroeconomic phenomena. Implications for inflation, unemployment, growth, and the effectiveness of fiscal and monetary policy. Credits 3 Prerequisites: Admission to a business major/junior standing, ECON 303 and MATH 124 or equivalent. Course Objectives: In this course, we will apply and extend tools of economic analysis to major events in modern economic history. We will concentrate on the hyperinflations and global depression of the interwar years and the subprime-triggered financial crisis and ongoing slump of today. Upon completion of this course you will be conversant with the history of macroinstability and tools of analysis developed to understand instability including: i) Minsky’s financial instability hypothesis; ii) the Koo-Minsky-Fisher debt deflation hypothesis; iii) Friedman’s revised quantity theory of money and narrative methodology; iv) the rational expectations hypothesis, real business cycle theory and dynamic stochastic general equilibrium modeling; v) asymmetric information and the behavioral roots of financial crises; and vi) the roles of policy (and policy errors) in stabilizing and exacerbating crises and slumps. Course Design: This is primarily a lecture course with a considerable amount of student participation. Each student will prepare a paper and lead a discussion of a work that helps us understand one of the episodes of instability covered in the course. Summaries, outlines, and/or powerpoint slides will be distributed to members of the class before each scheduled presentation. Major Sources (available in soft-cover editions) Robert Hall, ed., Inflation: Causes and Effects {internet access} Hyman Minsky, either John Maynard Keynes or Stabilizing an Unstable Economy Milton Friedman and Anna Schwartz, The Great Contraction Peter Temin, Lessons from the Great Depression Joseph Stiglitz, Freefall Financial Crisis Inquiry Commission Report http://www.gpoaccess.gov/fcic/fcic.pdf Supplementary Sources (available in soft-cover editions) Milton Friedman, ed., Studies in the Quantity Theory of Money Charles Kindleberger, World in Depression: 1929 – 1939 George Akerlof and Robert Shiller, Animal Spirits Richard Koo, The Holy Grail of Macroeconomics Additional required and supplemental readings are called out in the course outline. Examinations and Grading A 100-point midterm exam and a 150-point comprehensive final exam will be given this semester. In addition, you will prepare a paper and lead a discussion of a work that helps us better understand one of the episodes covered in the course: i) the German hyperinflation and slump, 1919 – 1933; ii) the U.S. Great Depression, 1929-1933; iii) the stalled U.S. recovery, 1933-1939; or iv) the housing bubble, subprime-triggered financial crisis and ongoing Long Slump, 2004-present. Grading: Oct 15 Nov 17 - Dec 3 Dec 10 Classroom examination Papers/ presentations Term papers due Nov 17 Comprehensive Final examination Maximum score Approximate grade distribution: Average Score out of 350 points 90 percent 80 percent 70 percent 60 percent 100 points 100 points 150 points 350 points Final Grade Borderline ABorderline BBorderline CBorderline D- Attendance and class participation will very much affect your final grade. Makeup Policy Makeup exams may be arranged at mutual convenience if you have a compelling reason to miss a scheduled classroom exam. A makeup exam must be taken before the missed exam is returned to the class. There will be no makeup quizzes or final exam. However, a student missing a class because of observance of a religious holiday and students who represent UNLV at any official extracurricular activity shall also have the opportunity to make up assignments. Such students must provide official written notification no less than one week prior to the missed class(es). Class Conduct Your instructor and classmates deserve courtesy. If you must arrive late or leave early, do so quietly. Inform me beforehand if you must leave a class early. Smoking and eating in class are prohibited. Texting, talking to your neighbors, and reading newspapers and magazines in class is rude, disruptive, and unacceptable. While this probably need not be said, anyone found engaging in any act of academic dishonesty will be punished in accordance with UNLV policies. Other Information The Disability Resource Center (DRC) coordinates all academic accommodations for students with documented disabilities. The DRC is the official office to review and house disability documentation for students, and to provide them with an official Academic Accommodation Plan to present to the faculty if an accommodation is warranted. Faculty should not provide students accommodations without being in receipt of this plan. UNLV complies with the provisions set forth in Section 504 of the Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990, offering reasonable accommodations to qualified students with documented disabilities. If you have a documented disability that may require accommodations, you will need to contact the DRC for the coordination of services. The DRC is located in the Student Services Complex (SSC), Room 137, and the contact numbers are: VOICE (702) 895-0866, TTY (702) 895-0652, FAX (702) 895-0651. For additional information, please visit: <http://studentlife.unlv.edu/disability/>. Course Schedule Dates Aug 27 Aug 29 Topic, Reading Course Organization/The course outline—an overview of crises - Richard Koo, Balance Sheet Recession http://ineteconomics.org/richard-koo Stories of crises past - Charles MacKay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. {internet access} - Carmen Reinhardt and Kenneth Rogoff, This Time is Different. NBER W.P 13882 - Charles Kindleberger, R. Aliber, and R. Solow, 2011. Manias, Panics and Crashes. Sep 3 Labor Day Recess Sep 5 – 12 The Economic Trajectory of Weimar Germany: Hyperinflation Required Readings - Phillip Cagan, 1956. The Monetary Dynamics of Hyperinflation in Milton Friedman, ed., Studies in the Quantity Theory of Money. - Thomas Sargent, 1982. The Ends of Four Big Inflations, in Robert Hall, ed., Inflation: Causes and Effects. {internet access} - Joan Robinson, 1938. Review of Costantino Bresciani-Turroni, The Economics of Inflation, Economic Journal (September). Supplementary Readings - Giusseppe Tullio, 1995. Inflation and Currency Depreciation in Germany, 1920-1923. Journal of Money, Credit and Banking (May). - Steven Webb, 1984. The Supply of Money and Reichsbank Financing of Government and Corporate Debt in Germany, 1919-1923. Journal of Economic History (June). - ___________, 1985. Government Debt and Inflationary Expectations as Determinants of the Money Supply in Germany, 1919-1923. Journal of Money, Credit and Banking (November). - ___________, 1986. Fiscal News and Inflationary Expectations in Germany, 19191923. Journal of Economic History (September). - Richard Burdekin and Paul Burkett, 1992. Money, Credit and Wages in Hyperinflation. Economic Inquiry (July). - Paul Burkett and Richard Burdekin, 1993. Real Wages and Distributional Conflict in the German Hyperinflation. Australian Economic Papers (June). Sep 17 – 19 The Economic Trajectory of Weimar Germany: Slump and Collapse Required Readings - Knut Borchardt, 1991. Constraints and Room for Manoeuvre in the the Great Depression of the 1930s: Toward a Revision of the Received Historical Picture, in Knut Borchardt, Perspectioves on Modern German Economic History and Policy. - __________and Albrecht Ritchl, 1992. Could Brüning Have Done It? European Economic Review, 695-701. Supplementary Readings - Peter Temin, 1971. The Beginning of the Depression in Germany, Economic History Review (May). - Harold James, 1986. The German Slump. - Jonas Fisher and Andreas Hornstein, 2001. The Role of Real Wages, Productivity and Fiscal Policy in Germany’s Great Depression. Federal Reserve Bank of Richmond W.P. 01-07 (also Review of Economic Dynamics, 2002). - Hans-Joachim Voth, 1995. Did High Wages or High Interest Bring Down the Weimar Republic? Journal of Economic History (December). Sep 24 – Oct 8 America’s Great Depression: The Sickening Slide Required Readings - Milton Friedman and Anna Schwartz, 1963. The Great Contraction. - Peter Temin, 1989. Lessons from the Great Depression. - Ben Bernanke, 1993. World on a Cross of Gold: A Review of Golden Fetters. Journal of Monetary Economics, 251 – 267. Supplementary Readings - Christina Romer, 1988. The Great Crash and the Onset of the Great Depression. NBER W.P. 2639. - Irving Fisher, 1933. Debt Deflation Theory of Great Depressions. Econometrica (Oct) - Richard Koo, 2008. The Holy Grail of Macroeconomics. - Ben Bernanke, 1983. Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression. American Economic Review (June). - __________, 1994. The Macroeconomics of the Great Depression. NBER W.P. 4814 - __________ and Mark Gertler, 1989. Agency Costs, Net Worth and Business Fluctuations. American Economic Review (March). - __________ and Martin Parkinson, 1989. Unemployment, Inflation and Wages in the American Depression. American Economic Review (May). - __________ and Harold James, 1990. The Gold Standard, Deflation and the Financial Crisis in the Great Depression. NBER W.P. 3488. - Barry Eichengreen, 1992. Golden Fetters: The Gold Standard and the Great Depression, 1919 – 1939. - __________ and Peter Temin, 1997. The Gold Standard and the Great Depression. NBER W.P. 6060. - Gerald Epstein and Thomas Ferguson, 1984. Monetary Policy, Loan Liquidation and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932. Journal of Economic History (December). - __________, 1991. Answers to Stock Questions: Fed Targets, Stock Prices and the Gold Standard in the Great Depression. Journal of Economic History (March). Oct 10 Catch-up and review Oct 15 Classroom examination, 100 points Oct 17 – 24 America’s Great Depression: Regime Change and Recovery Required Readings - Christina Romer, 1991. What Ended the Great Depression? NBER W.P. 3829. - Peter Temin and Barrie Wigmore, 1990. The End of One Big Deflation. Explorations in Economic History, 483 -502. -Gauti Eggertsson and Benjamin Pugsley, 2006. The Mistake of 1937. Monetary and Economic Studies, Special Edition (December). Supplementary Readings - Harold Cole and Lee Ohanian, 1999. The Great Depression in the United States from a Neoclassical Perspective. FRBM Quarterly Review (Winter). - __________, 2004. New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis. Journal of Political Economy (August). - Gauti Eggertsson, 2006. Was the New Deal Contractionary? Federal Reserve Bank of New York Staff Report No. 264. - __________, 2008. Great Expectations and the End of the Depression. American Economic Review (September). - Peter Temin, 2008. Real Business Cycle Views of the Great Depression and Recent Events: A Review of Kehoe and Prescott, eds., Great Depressions of the Twentieth Century. Journal of Economic Literature (September). Oct 29 America’s Great Depression: Overview - Charles Kindleberger, 1973. The World in Depression, 1929 -1939. - Brad de Long, 1990. “Liquidation” Cycles: Old Fashioned Real Business Cycle Theory and the Great Depression. NBER W.P. 3546. - Peter Temin, 1994. The Great Depression. NBER Historical Paper No. 62. Oct 31 – Nov 7 America’s Great Recession and Slump Required Readings - Hyman Minsky, 1975. John Maynard Keynes. - Joseph Stiglitz, 2010. Freefall. - Raghuram Rajan, 2005. Has Financial Development Made the World Riskier? NBER W.P. 11728. - Barry Eichengreen and Peter Temin, 2010. Fetters of Gold and Paper. NBER W.P. 16202. - Robert Hall, 2011. The Long Slump. American Economic Review (March). Supplementary Readings - Markus Brunnermeier, 2009. Deciphering the Liquidity and Credit Crunch 2007-2008. Journal of Economic Perspectives (Winter). - Stefano Battison, et.al., 2009. Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk. NBER W.P. 15611. - Gauti Eggertsson and Paul Krugman, 2010. Debt, Deleveraging, and the Liquidity Trap. http://www.princeton.edu/~pkrugman/debt_deleveraging_ge_pk.pdf (also Quarterly Journal of Economics, 2012, 1469-1513). Suggested Further Readings - Perry Mehrling, The New Lombard Street. - George Akerlof and Robert Shiller, Animal Spirits - Raghuram G. Rajan, Fault Lines - Simon Johnson and James Kwak, 13 Bankers - Gillian Tett, Fool’s Gold -David Wessel, In Fed We Trust - Michael Lewis, The Big Short - Andrew Ross Sorkin, Too Big to Fail - Neil Barofsky, Bailout - Paul Krugman, End This Depression Now! - Stephen Cecchetti, 2009. Crisis and Response: The Federal Reserve in the Early Stages of the Financial Crisis. Journal of Economic Perspectives (Winter). - Rene Stulz, 2010. Credit Default Swaps and the Credit Crisis. Journal of Economic Perspectives (Winter). - Thomas Ferguson and Robert Johnson, 2009. Too Big to Bail: The Paulson Put, Presidential Politics and the Global Financial Meltdown. International Journal of Political Economy (Part I, Spring; Part II, Summer) - Atif Mian and Amir Sufi, 2010. The Great Recession: Lessons from Microdata. American Economic Review (May). - Alan Blinder and Mark Zandi, 2010. How the Great Recession Was Brought to an End. http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf - John Cochrane, 2009. Fiscal Stimulus, Fiscal Inflation or Fiscal Fallacies. http://faculty.chicagobooth.edu/john.cochrane/research/papers/fiscal2.htm - Financial Crisis Inquiry Commission Report http://www.gpoaccess.gov/fcic/fcic.pdf Nov 12 Veterans Day Recess Presentation of student papers Nov 14 Costantino Bresciani-Turroni, The Economics of Inflation, Chapters 2 and 8. Harold James, The German Slump, selected chapters. Nov 19 J. K. Galbraith, Jr., The Great Crash Garet Garrett, A Bubble the Broke the World (skip final two chapters) Nov 21 J. M. Keynes, selected essays and lectures Lionel Robbins, The Great Depression Nov 26 Lester Chandler, America’s Greatest Depression The financial sphere: Chapters, 1,2,5,9,10 The real sphere: Chapters 3,7,8,11,13 Nov 28 Allan Meltzer, A History of the Federal Reserve, vol. 1 (library book and internet access) New Procedures, New Problems, 1923 – 1929, Chapter 4 Why Did Monetary Policy Fail? (1929-1933) Chapter 5 Dec 3 Liaquat Ahamed, The Lords of Finance: The Bankers Who Broke the World U.S. concerns: Chapters 4,8,16,17,18,23 International concerns: Chapters 6,7,9,11,19,20,22,23 Dec 5 Catch up and review Dec 10 Comprehensive Final Examination, 4 – 6 pm