Download Syllabus - Brandeis University

August 23, 2016
Central Banking
Econ 235a
Professor Browne
Mondays and Wednesdays: 12:30 p.m. – 1:50 p.m.
Location: Lemberg 054
Office Hours: Before or after class; e-mail to arrange. S - 017
e-mail: [email protected]
Course Overview
For the past 100 years, and in some cases longer, most countries have looked
to central banks to protect their financial systems and moderate fluctuations in
prices and output. As the recent financial crisis highlights, the record of central
banks in this regard has been mixed. The purpose of this course is to provide an
understanding of the purposes and functions of central banks and the challenges
they confront. What is a central bank? What is it trying to do and how does it
achieve its goals? How have central banks’ activities changed over time – and why?
We will devote considerable attention to the roles of central banks’ in the
2007-2009 financial crisis and the ensuing global slowdown and to current debates
over the policies that central banks followed before and after the crisis. We will
consider the degree to which the crisis changed thinking regarding central banks’
responsibilities and capabilities.
Learning Goals and Outcomes
Among the topics we will address are the following:
What are the origins of banking and central banks?
What are the purposes and functions of central banks?
What does “independence” mean for a central bank?
How do central banks affect the banking system and the economy?
What tools do they use?
Is communication a policy tool?
What is the debate over rules versus discretion?
What rules might a central bank follow?
Should central banks have an inflation target?
How should we measure inflation?
Why is deflation worrisome?
Should central banks react to rising asset prices?
What does “lender of last resort” mean?
What is a “bank run”? Do they still occur?
What is quantitative easing and why is it controversial?
What are the lessons of the 2007-9 financial crisis and the subsequent recession?
How might central banks be different in the future?
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At the end of the course, students should understand the goals and functions
of central banks and the current policy debates surrounding them.
Course description
The course is a combination of seminar and lecture. The instructor will
generally provide an overview of key issues and points of debate, with illustrations
based on developments in the United States. However, students will contribute
actively to the group learning experience by discussing what they learned from the
assigned readings and by becoming “experts” on central banks they have selected.
Readings will be assigned for each class. Students are expected (a) to have
read these materials in advance and (b) to be ready talk about what they learned.
Most weeks, students will prepare a short essay (2-4 pages single space) addressing
the topic just covered. These papers are normally due the following week. These
essays account for 60 percent of the grade for the course.
An important part of the course is learning about developments in central
banks in different countries. Each student will select a different central bank to
study. Students will become the “experts” on these banks and share their insights
with the group in the general discussion. Towards the end of the semester, each
student will make a 10-15-minute presentation summarizing his/her analysis of the
selected central bank.
Pre-requisites
Students should have a practical understanding of intermediate
macroeconomics, including the money supply process, as well as the basics of
banking and financial markets (ECON 82b or ECON 202a or equivalent.)
Evaluation
Grades will be based on the short papers prepared each week, class
participation and the presentation at the end of the course on their central bank.
Grading:
Short weekly papers
Class participation
Central bank presentation
60 percent
20 percent
20 percent
Assignments and due dates are listed in the syllabus after each topic’s readings.
Make sure you have the correct assignment.
Issues to be covered in central bank presentations include but are not limited
to the following: central bank history, governance, functions (especially any
supervisory role), monetary policy objectives, monetary policy tools, exchange rate
regime, how the country was affected by the 2007-9 crisis and how the central bank
responded, and current challenges and debates.
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Presentations will take place November 21, 28 and 30 and possibly December
5. Dates for each student’s presentation will be determined in early October.
Class dates:
M
W
M
W
M
W
M
W
M
W
Aug 29
31
Sep 7
8
12
14
19
21
26
28
Oct 5
10
19
25
26
31
Nov
2
7
9
14
16
21
28
30
Dec 5
7
Note that we have many holidays and two “Brandeis Mondays” – Thursday, Sep 8
and Tuesday, Oct 25.
Communications: Outside of class, most communications will be by e-mail, not
LATTE. Essays should be submitted by e-mail ([email protected]) and essay
evaluations will be provided by e-mail. Supplementary readings will be distributed
by e-mail.
Things you should do
Attend class.
Ask questions and share your own thoughts.
Complete all essays.
Submit essays on time. If you have questions, ask in advance of submission.
Cite others’ work in your essays and presentation. (You may do so with footnotes or
more informally, but list your sources. Direct quotations must be in quotation
marks.)
Things you should not do
Do not quote others without attribution!
Do not skip an essay.
Do not collaborate on the weekly essays. However, you are encouraged to talk
about policy issues with your classmates and colleagues.
Disability: If you are a student with a documented disability on record at Brandeis
University and wish to have a reasonable accommodation made for you in this class,
please see me immediately.
Academic Integrity is central to the mission of educational excellence at Brandeis.
You are expected to be familiar with and to follow the University’s policies on
academic integrity (see http://www.brandeis.edu/studentlife/sdec/ai). Instances of
alleged dishonesty will be forwarded to the Office of Campus Life for possible
referral to the Student Judicial System. Potential sanctions include failure in the
course and suspension from the University.
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Course Materials and Readings
Most of the readings are on the web; links are provided in the Course Plan.
A recurring reference is
Bank for International Settlements (BIS), Issues in the Governance of Central Banks, A
report from the Central Bank Governance Group, Chair: Guillermo Ortiz, May 2009
http://www.bis.org/publ/othp04.pdf
This will also be of value in preparing presentations on central banks.
BIS Annual Reports are another valuable resource.
http://www.bis.org/publ/arpdf/ar2011e.htm
Readings from two books have been assigned. These are relatively inexpensive.
Charles Goodhart, The Evolution of Central Banks. (1988 MIT Press, Cambridge, MA)
Edwin M. Truman, Inflation Targeting in the world economy. (2003 Institute for
International Economics, Washington, D.C.)
Two useful but optional references are
Howard Davies and David Green, Banking on the Future: The Fall and Rise of Central
Banking. (2010 Princeton University Press)
Lawrence H. White, The Theory of Monetary Institutions. (1999 Blackwell
Publishers, Malden, MA)
There are a lot of readings, but many of the online readings are short and nontechnical. In the case of long or more technical readings, the key sections are usually
indicated. You may skip over models and regressions.
With respect to the books, particularly Goodhart, you should focus on the main
points rather than read every word.
Optional readings are just that – optional. If the topic interests you, take a look.
The goal in all cases is to extract the main message, not to absorb all the details.
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Course Plan
and Associated Readings
Aug 29 & 31 - Organizational Meeting (Aug 29) and Money Basics (Aug 31)
Discuss course format and what is expected of students (readings, papers, class
participation, presentations).
Aug 31 – What purposes are served by money? How did money get started?
Review your former macro text on money multiplier.
OR
look at Schwartz, Anna J. “Money Supply,” Library of Economics and Liberty
http:econlib.org/library/Enc/MoneySupply.html
Optional: White, Lawrence, Skim Chapter 1, esp. pp.1-14, 18-19.
For those interested in the origins of money, an alternative view is summarized in
Tcherneva, Pavlina R. “Chartalism and the tax-driven approach to money,” Sections
1, 2 and 4. This is an optional reading.
pavlina-tcherneva.net/Tcherneva-Chartalism.pdf
Assignment: Pick a central bank (and your 2nd and 3rd choices) that you will study
and about which you will become the class expert. In late November, students will
give presentations on their central banks. We will finalize choices Sep. 7.
Sep 7 & 8 – History of Money and Banking
Bordo, Michael David, “The Classical Gold Standard: Some Lessons for Today,”
Federal Reserve Bank of St. Louis, May 1981
http://research.stlouisfed.org/publications/review/81/05/Classical_May1981.pdf
Bernanke, Ben S. “Money, Gold and the Great Depression,” Remarks, March 2, 2004.
http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.ht
m and
“Chapter 1. The Macroeconomics of the Great Depression,” Essays on the Great
Depression, Princeton University Press,
http://press.princeton.edu/chapters/s6817.html
Norman,Ben, Rachel Shaw and George Speight, “The history of interbank settlement
arrangements: exploring central banks’ role in the payment system, Bank of England
Working Paper No. 412 June 2011
http://www.ecb.int/home/pdf/research/Working_Paper_412.pdf
Skim pages 3-19. Read balance for next week.
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Optional: Dolan, Ed “Whatever Became of the Money Multiplier,” Ed Dolan’s Econ
Blog
http://www.economonitor.com/dolanecon/2013/09/23/whatever-became-of-themoney-mulitplier/
Explains criticisms of the money multiplier. If you have trouble with the link, use the
EconoMonitor search function.
Optional: White, Lawrence, Chapter 2, pp. 37-42, 48-49; Chapter 7, pp. 138-142.
Optional: Officer, Lawrence H., “Gold Standard,” EH.net
http://eh.net.encyclopedia/gold-standard/
Detailed information about the gold standard. Useful if you have questions about
how it worked.
Assignment: Write a short paper that briefly summarizes how the Gold Standard
worked in the Classical Era (1880-1914) and discusses the pros and cons of a gold
standard compared to a fiat money system. Short means 2-4 single-space pages.
Due Sep.14.
Sep 12 – History and Functions of Central Banks
BIS material is most important. Bordo is short and interesting. Look at Dincer and
Eichengreen’s rankings of independence
Bank for International Settlements (BIS), Issues in the Governance of Central Banks, A
report from the Central Bank Governance Group, Chair: Guillermo Ortiz, May 2009
http://www.bis.org/publ/othp04.pdf
Chapter 1, pp. 5-16. (Note definition in introduction.)
Chapter 2, esp. pp. 18-20 and 28-37. (Skim rest.)
Chapter 6, pp. 103-105.
Norman,Ben, Rachel Shaw and George Speight, “The history of interbank settlement
arrangements: exploring central banks’ role in the payment system,” Bank of
England Working Paper No. 412 June 2011
http://www.ecb.int/home/pdf/research/Working_Paper_412.pdf
Read pages 20 on.
Bordo,Michael, “A Brief History of Central Banks”, Federal Reserve Bank of
Cleveland Economic Commentary, December 2007
https://www.clevelandfed.org/en/newsroom-and-events/publications/economiccommentary/economic-commentary-archives/2007-economic-commentaries/ec20071201-a-brief-history-of-central-banks.aspx
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Goodhart, Charles, The Evolution of Central Banks, Chapter 1
For rankings of central bank independence and transparency, see
Dincer, N. Nergiz and Barry Eichengreen “Central Bank Transparency and
Independence: Updates and New Measures,” International Journal of Central
Banking, March 2014, Tables 1 and 8.
http://www.ijcb.org/journal/ijcb14q1a6.pdf
and
Crowe, Christopher and Ellen E. Meade, “Central bank independence and
transparency: Not just cheap talk,” VOX, July 27, 2008
http://www.voxeu.org/article/central-bank-independence-and-transparency-notjust-cheap-talk-part-1?quicktabs_tabbed_recent_articles_block=1
Optional: White, Lawrence, Chapter 4.
Assignment: Write a short paper describing your central bank: when created, why
created, primary functions, and the degree to which it is independent. Explain your
reasoning about your central bank’s independence.
On your central bank’s balance sheet, what are the most important asset categories?
What are the most important liabilities? Have the size and composition of assets and
liabilities changed substantially from pre-financial crisis levels (2006 or 2007)? A
summary table may be helpful in presenting major assets and liabilities and
highlighting important changes. Due Sep. 21.
Sep 14, 19 21 – Monetary Policy (Objectives and Tools)
Ortiz, Issues in Governance, Chapter 2, esp. pp.18-25, 28-33 and Chapter 4, pp.77-78
and 85-90
http://www.bis.org/publ/othp04.pdf
Meyer, Laurence H., “Inflation Targets and Inflation Targeting,”
http://research.stlouisfed.org/publications/review/01/11/1-14Meyer.pdf
First two pages are relevant to this topic, the balance to the next - rules vs.
discretion.
Keister, Todd, Antoine Martin and James McAndrews, “Divorcing Money from
Monetary Policy” Economic Policy Review, September 2008
http://www.newyorkfed.org/research/EPR/08v14n2/0809keis.pdf
Section 2 (pages 43-46) and Section 4.
OR
Clews, Roger, Chris Salmon and Olaf Weeken, “The Bank’s money market
framework,” Bank of England Quarterly Bulletin Money Market Articles, 2010Q4
www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb100404.p
df
Both articles discuss the market for reserves, the Keister article from the Fed’s
perspective and the Clews’ piece from the BOE’s view. Read one.
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For transparency rankings look at Table 1 in Dincer, N. Nergiz and Barry
Eichengreen “Central Bank Transparency and Independence: Updates and New
Measures,” International Journal of Central Banking, March 2014.
http://www.ijcb.org/journal/ijcb14q1a6.pdf
Optional: BIS Communication of monetary policy decisions by central banks: What is
revealed and why. BIS Papers No. 47, May 2009.
http://www.bis.org/publ/bppdf/bispap47.pdf
Results of a survey of central bank communications.
Optional: Hoover, Kevin D. “Phillips Curve,” Library of Economics andLiberty,
http://www.econlib.org/library/Enc/PhillipsCurve.html
Short review of Phillips Curve.
Optional: BIS Markets Committee, MC Compendium: Monetary policy frameworks and
central bank market operation, May 2009.
http://bis.org/publ/mktc04.pdf
Skim information on 2-4 central banks to get a sense of similarities and differences.
If your bank is one of those covered in this compendium, you may find the
information helpful. However, some central banks have changed their practices in
response to the financial crisis of 2007-9.
Assignment: Write a short essay summarizing your central bank’s monetary policy
objectives and key tools for implementing monetary policy. What is the overall
objective? If multiple objectives, are they prioritized? Are there specific targets?
How is policy implemented? Does your bank engage in open market operations? If
so, what does it buy/sell? If not, what tools does it use?
Assess your bank’s transparency.
(If your bank is an inflation targeting bank, you should look at Gil Hammond in the
references for the next topic – rules vs. discretion.) Due Oct 5.
Sep 26 & 28 – Monetary Policy (Rules vs. Discretion)
Hammond provides a good summary of the inflation targeting approach and
information on 27 inflation-targeting central banks.
Buol, Jason L. and Mark D. Vaughan, “Rules vs. Discretion: The Wrong Choice could
Open the Floodgates, The Regional Economist, Federal Reserve Bank of St. Louis.
http://www.stlouisfed.org/publications/re/articles/?id=426
Conceptual discussion of case for rules.
Taylor, John, “Discretion versus Policy Rules in Practice” in Carnegie-Rochester
Series on Public Policy, December 1993
http://www.stanford.edu/~johntayl/Papers/Discretion.PDF
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Influential article. The “Taylor rule” is used widely in evaluating monetary policy.
The original rule is on p.202.
Jevcak, Anton, “Monetary policy frameworks: gradual implementation of steadily
evolving theory,” ECFIN Economic Brief, Issue 29, January 2014.
ec.europa.eu/economy_finance/publications/economic_briefs/2014/pdf/eb29_en.p
df
First five pages; these summarize evolution of monetary policy (up to “Monetary
actions in response to the 2008/09 global financial crisis”)
Inflation targeting
Truman, Edwin M., Inflation Targeting in the World Economy. Chapters 1 through 3.
Skip the regression analysis.
Hammond, Gill, State of the art of inflation targeting - 2012, Centre for Central
Banking Studies, Bank of England
http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb29.pdf
Summarizes key features of inflation targeting and describes how individual
countries implement this approach.
Meyer, Laurence H., “Inflation Targets and Inflation Targeting,”
http://research.stlouisfed.org/publications/review/01/11/1-14Meyer.pdf
Optional (if you are interested in emerging market countries, especially in Latin
America): Mishkin, Frederic S., “Can Inflation Targeting Work in Emerging Market
Countries?” Festschrift in Honor of Guillermo A. Calvo April 15-16 2004.
http://www.imf.org/external/np/res/seminars/2004/calvo/pdf/mishki.pdf
Optional (if you are interested in Africa): Masson, Paul, “Anchors for Monetary
Policy” in Central Banks and the Challenge of Development discusses anchors,
particularly inflation targeting, for African countries on pp. 89-104.
http://www.bis.org/events/cbcd06.pdf?noframes=1
Exchange rates
Obstfeld, Maurice and Kenneth Rogoff, “The Mirage of Fixed Exchange Rates” NBER
Working Paper 5191, July 1995.
http://www.nber.org/papers/w5191.pdf
Why exchange rates are not a good anchor today. Skim.
Assignment: Write a short assessment of the advantages and disadvantages of an
inflation-targeting regime in general and for your central bank in particular. If your
bank does not use an inflation-targeting approach, why not? Should it? If it does, has
performance been satisfactory or would another approach have been superior? Due
Oct. 12.
Oct 5 & 10 - Inflation
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Hellerstein, Rebecca,“The Impact of Inflation” Regional Review
http://www.bos.frb.org/economic/nerr/rr1997/winter/hell97_1.htm
Short readable summary.
Shiller, Robert J., “Why Do People Dislike Inflation?”
Cowles.yale.edu/sites/default/files/files/pub/d11/d1115.pdf
Survey of public attitudes towards inflation. Skim. Note strength of opinions about
inflation and differences between public and economists.
Blanchflower, David, “Forget inflation - what hurts the most is unemployment,” The
Independent, Tuesday, April 2, 2013
http://www.independent.co.uk/news/business/comment/davidblanchflower/forget-inflation--what-hurts-the-most-is-unemployment8556261.html
Bullard, James, “Measuring Inflation: the Core is Rotten” Speech, May 18, 2011
http://research.stlouisfed.org/econ/bullard/pdf/Measuring_Inflation_May_18_201
1_FINAL.pdf
Arguments for a focus on headline rather than core inflation.
Bernanke, Ben, “Deflation: Making sure “it” doesn’t happen.” Speech, November
2002
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
Famous speech. Foreshadows events in 2007-09 crisis.
Anwar, Sarah, Anis Chowdhury and Iyanatul Islam, “Inflation targeting in developing
countries revisited,” VOX CEPR’s Policy Portal
http://voxeu.org/debates/commmentaries/inflation-targeting-developingcountries-revisited (You may have to search the site by author to find the post.)
Asset prices
Bernanke, Ben and Mark Gertler “ Monetary Policy and Asset Price Volatility,”
http://www.kansascityfed.org/publicat/sympos/1999/S99gert.pdf
Influential paper defining mainstream academic thinking. Skip model. Focus on
pp.77-86, especially 78-79.
Mishkin, Frederic, “How should we respond to asset price bubbles?” Speech, May 15,
2008.
http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm
“Should or can central banks target asset prices?” The International Economy Fall
2009
http://www.international-economy.com/TIE_F09_AssetPriceSymp.pdf
Collection of opinions from academics, business economists and business journalists.
Skim.
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Assignment: Write a short paper addressing the following questions. Why should
central banks care about price stability? Briefly summarize the arguments for and
against using headline and core inflation as the focus for price stability. What
measure of inflation does your central bank emphasize? How (if at all) does your
central bank deal with supply shocks, such as large changes in energy or food
prices? Due Oct. 19.
Oct 19 – Lender of Last Resort; Central Banks as Financial Supervisors
Be sure to read the article by Humphrey and the selections from the BIS papers Rethinking the lender of last resort.
Humphrey, Thomas “Lender of Last Resort: the Concept in History,” Federal Reserve
Bank of Richmond, Economic Review, March/April 1989.
http://www.richmondfed.org/publications/research/economic_review/1989/pdf/
er750202.pdf
BIS, Re-thinking the lender of last resort, BIS Papers No 79, September 2014.
http://www.bis.org/publ/bppdf/bispap79.htm
Read pages 16-21 and 34-38 of Paul Tucker’s address and pages 43-48 and 59-61 of
the paper by Domanski, Moessner and Nelson.
Goodhart, Charles, The Evolution of Central Banks, Chapters 2, 4, 7 and 8. Skim. Do
NOT read word-by-word, but focus on the broad arguments and whether the
debates over history have implications for banks and central banks today.
Optional: White, Lawrence, Chapter 4, pp. 71-79
Optional: De Grauwe, Paul. “The European Central Bank as lender of last resort”
August 2011
http://www.voxeu.org/index.php?q=node/6884
We will discuss this concept later under “current policy debates.”
Central banks as regulators and supervisors
Ortiz, Issues in Governance, Chapter 2, Sections 3.2 and 4.2
Note the varied approaches.
The UK shifted responsibility for banking regulation and supervision from the Bank
of England to an integrated financial services regulator in 1998; but after the
financial crisis, most responsibilities were returned to the central bank. The Briault
paper summarizes the arguments for an integrated financial services regulator; the
Treasury piece discusses the post-crisis change.
Briault, Clive, Revisiting the rationale for a single national financial services regulator.
FSA Occasional paper series No. 16, February 2002. See pp. 6-9 and 27-31.
http://www.fsa.gov.uk/pubs/occpapers/op16.pdf.
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HM Treasury, A new approach to financial regulation: judgment, focus and stability,
February 2011. Look at pp. 3- 6 and 35-36; you may want to skim pp.15 - 30.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
81411/consult_newfinancial_regulation170211.pdf
Assignment: Write a short essay on why the banking industry needs a lender of last
resort and how central banks carry out these responsibilities. In addition to their
lender of last resort function, some central banks have regulatory and supervisory
oversight over commercial banks. Does your central bank supervise commercial
banks? Express your views on the desirability of central banks being supervisors of
commercial banks. Discuss the issue in general and as appropriate, for your
particular central bank. Due Oct. 26.
Oct 25 & 26 – Challenges facing Developing & Emerging Market Countries
The optional pieces are relevant for different countries. If you have the central bank
of a Latin American country, you should look at Mishkin and Savastano. If your
country has a fixed exchange rate you should look at Yagci. If capital flows are a
problem, look at Ostry.
Mishkin, Frederic S., “Can Inflation Targeting Work in Emerging Market Countries?”
Festschrift in Honor of Guillermo A. Calvo, April 15-16 2004, pp. 2-14.
http://www.imf.org/external/np/res/seminars/2004/calvo/pdf/mishki.pdf
Lee, Jang-Yung, “Sterilizing Capital Inflows”
http://www.imf.org/external/pubs/ft/issues7/index.htm
Explains why countries may need to sterilize capital movements and the challenges
of doing so.
Hammond, Gill, Ravi Kanbur, and Eswar Prasad “Monetary Policy Challenges for
Emerging Market Economies” Brookings Global Economy and Development
Working Paper 36 August 2009
http://prasad.dyson.cornell.edu/doc/Monetary_policy_prasad_Hammond_Kanbur.p
df
Knight, Malcom, “Central banks and the challenge of development: an overview of a
roundtable debate” in BIS Central Banks and the Challenge of Development, pp. 11-17,
http://www.bis.org/events/cbcd06.pdf?noframes=1
Optional: Yagci, Fahrettin, “Choice of Exchange Rate Regimes for Developing
Countries,” Africa Region Working Paper Series No. 16, April 2001.
http://www.worldbank.org/afr/wps/wp16.pdf
Advantages and disadvantages of different exchange rate approaches. Table 1
summarizes the issues.
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Optional: Mishkin, Frederic S. and Miguel A. Savastano “Monetary Policy Strategies
for Emerging Market Countries: Lessons from Latin America” Draft. January 2002
www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/01DUBROV.pdf
For those interested in Latin America. Provides historical information on Argentina,
Panama, Mexico, Peru, Chile, Colombia and Brazil.
Optional: Ostry, Jonathan and others, “Capital Inflows: The Role of Controls” IMF
staff position note, February 2010
http://www.imf.org/external/pubs/ft/spn/2010/spn1004.pdf
Figure 1 is a useful illustration of options for dealing with capital inflows.
Optional: Humpage, Owen F. and Jean M. Mcintire “An Introduction to Currency
Boards” http://www.clevelandfed.org/research/review/1995/95-q2-humpage.pdf
How currency boards work.
Assignment: Write a short paper on the distinctive challenges facing central banks
in developing and EME countries. Due Nov. 2.
Oct 31 & Nov 2 - Financial Crisis of 2007-2009 and Great Recession: Causes
Be sure to read Blanchard.
Blanchard, Olivier, “The Crisis: Basic Mechanisms and Appropriate Policies” IMF
Working Paper, April 2009
http://economics.mit.edu/files/6312
Good and short.
BIS 79th Annual Report 2008/2009, Chapter I Rescue, Recovery and Reform pp. 4-15
http://www.bis.org/publ/arpdf/ar2009e1.pdf and Chapter II The Global Financial
Crisis www.bis.org/publ/arpdf/ar2009e2.pdf
Chapter 1 provides an overview of the crisis; chapter 2 provides a chronology.
Table 1.1 on p.15 of Chapter 1 highlights key stages and developments in industrial
and emerging market countries.
Gorton, Gary, “Questions and Answers about the Financial Crisis,” NBER Working
paper 15787, February 2010
http://www.nber.org/papers/w15787.pdf
Why the financial crisis was like a bank run.
Optional: Borio, Claudio and William White “Whither monetary and financial
stability? The implications of evolving policy regimes” BIS Working Papers No. 147,
February 2004.
http://www.bis.org/publ/work147.pdf
Prescient paper; writing before the crisis, the authors suggest that the combination
of financial liberalization and monetary policy’s strong focus on price stability may
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have increased vulnerability to financial instability. The essentials of the argument
can be found on pages 1, 12-15 and 32-33.
Optional: Barlas, Yasemin, Book Review of “Fault Lines” by Raghuram B. Rajan,
Central Bank Review 12(2):37-44
Search by reviewer’s name.
Summarizes Rajan’s analysis of the global forces behind the crisis. In 2005 Rajan
warned of financial risks at the Fed’s Jackson Hole conference. In 2013 Rajan
became Governor of the Reserve Bank of India.
Assignment: Briefly summarize economic conditions in your central bank’s country
in the period before the financial crisis (roughly 2000-2007.) What were the
primary monetary policy concerns of your central bank in this period? (Inflation,
unemployment, financial stability, all of the proceeding, something else.) How did
your central bank address these concerns? With hindsight, should they have done
anything different? Due Nov. 9.
Nov 7 & 9 - Response to Crisis and Aftermath
BIS 79th Annual Report 2008/2009, Chapter VI Policy Responses to the crisis
http://www.bis.org/publ/arpdf/ar2009e6.pdf
Esp. 91-102.
Look at the interactive depiction of the FRS balance sheet at
https://www.clevelandfed.org/Our%20Research/Indicators%20and%20Data/Cred
it%20Easing#
Play around with the years 2007 to 2009 and 2009 to 2012 to see how the
importance of different strategies changed.
Fawley, Brett W. and Christopher J. Neely, “Four Stories of Quantitative Easing,”
Federal Reserve Bank of St. Louis REVIEW, January/February 2013.
https://research.stlouisfed.org/publications/review/13/01/Fawley.pdf
Describes the monetary policies of the Fed, BOE, BoJ and ECB from September 2008
through 2012, focusing on quantitative easing programs. Look at Figures 3A,B, C
and D to see the balance sheets of the four central banks; Table 2 shows the
magnitude of the programs. If you have one of these central banks, read more
closely.
Papadia, Francesco, Central Bank Cooperation during the Great Recession,” Bruegel
Policy Contribution, June 2013,
http://www.bruegel.org/publications/publication-detail/publication/782-centralbank-cooperation-during-the-great-recession
About swaps. Read Truman’s comment as well as the paper.
Michael Dooley “Central Bank responses to financial crisis” BIS papers no. 51
http://www.bis.org/publ/bppdf/bispap51g.pdf
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August 23, 2016
Short and provocative: The problem was ineffective supervision.
Assignment: Provide a summary of your central bank’s response to the financial
crisis of 2007-2009 and the global recession and slow recovery that followed (about
2009-12). In summarizing your bank’s response, you should describe the economic
and financial developments that were taking place at the time and that led them to
take these actions. Were unconventional policies adopted? How successful were the
bank’s actions? If your central bank’s country was not affected by the crisis, explain
why not and discuss whether it faced any other monetary policy or financial policy
challenges in the 2007-2012 period. Due Nov. 16.
Nov 14 & 16 – Current Policy Debates
Blanchard, Olivier, Giovanni Dell’Ariccia, Paolo Mauro, “Rethinking Macro Policy II:
Getting Granular,” IMF Staff Discussion Note, April 2013
http://www.imf.org/external/pubs/ft/sdn/2013/sdn1303.pdf
Optional: Jordan, Thomas J., “Monetary policy in the financial crisis – Measures,
effects, risks,” November 2012.
http://www.snb.ch/en/mmr/speeches/id/ref_20121116_tjn/source/ref_20121116
_tjn.en.pdf
Swiss perspective on forward guidance, QE, and foreign exchange intervention.
Inflation targeting and alternatives
Reichlin, Lucrezia and Richard Baldwin, editors, Is Inflation Targeting Dead? Central
Banking after the Crisis, Centre for Economic Policy Research (CEPR), 2013.
http://www.voxeu.org/sites/default/files/file/P248%20inflation%20targeting%20
7%20may.pdf
Read the introduction and the pieces by Posen, Frankel and Whalen (and any others
that intrigue you.)
Ambler, Steve, Price-Level Targeting: A Post Mortem? Commentary No .400, C.D.
Howe Institute
www.cdhowe.org/pdf/Commentary_400.pdf
Large Scale Asset Purchases (QE)
Bernanke, Ben, “Monetary Policy since the Onset of the Crisis,” speech, August 31,
2012
http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm
Focus on the discussion of Balance Sheet Tools and Cost-Benefit.
Hannoun, Herve, “Ultra-low or negative interest rates: what they mean for financial
stability and growth,” April 22, 2015
http://www.bis.org/speeches/sp150424.pdf
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August 23, 2016
Bernanke, Ben, “What tools does the Fed have left? Part 3: Helicopter money,” April
11, 2016, Ben Bernanke’s Blog
http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicoptermoney
Optional: Stein, Jeremy “ Evaluating Large-Scale Asset Purchases,” October 29, 2012,
http://blogs.law.harvard.edu/corpgov/2012/10/29/evaluating-large-scale-assetpurchases/
Optional: Turner, Adair, “Debt, Money and Mephistopheles: How do we get out of
this mess?” February 6, 2013. Pages 1-3 and Section 7 (pp.24-31.)
www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf
Focus on the discussion of overt money finance (OMF) or “helicopter money.”
Should the Fed be required to follow a policy rule?
“Examining Federal Reserve Reform Proposals,” Testimony, House Committee on
Financial Services, Subcommittee on Monetary Policy and Trade, July 22, 2015.
Testimony by Paul H. Kupiec (focus on section 2.1) and Donald Kohn. The
perspectives are very different.
http://financialservices.house.gov/uploadedfiles/hhrg-114-ba19-wstate-pkupiec20150722.pdf
http://financialservices.house.gov/uploadedfiles/hhrg-ba19-wstate-dkohn20150733.pdf
Lender of last resort to countries
DeGrauwe, Paul, “The European Central Bank as a lender of last resort” August 2011
http://www.voxeu.org/index.php?q=node/6884
Discussion of lender of last resort to sovereign governments.
Optional (if you are interested in Greece): Kashyap, Anil, “A Primer on the Greek
Crisis: the things you need to know from the start until now,” June 29, 2015
http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-theGreek-Crisis_june29.pdf
Assignment: Write a medium-length paper (about 5 single-space pages) on what
you think are the key monetary policy and/or financial stability issues or challenges
facing central bankers today. Focus on a few major issues and explain the sources of
contention. Think broadly; do not limit yourself to issues facing “your” central bank.
Do you think central banks are likely to be different in the future? Should they be?
Discuss this question in general and with respect to your central bank. Consult the
references under Future Challenges (last class) as well as under Current Policy
Debates. Due Friday Dec 2. Be prepared to discuss your conclusions on December
5 and 7.
Nov 21, 28 & 30
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August 23, 2016
Classes are devoted to students’ presentations on their central banks.
Dec 5
This class may be used for students’ presentations on their central banks.
Dec 5 & 7 – Future of Central Banking
Come to these classes prepared to discuss the challenges facing central banks and
how central banks will be different – or not – in the future, based on your essay on
these questions (assigned Nov 16 and due Friday Dec. 2.)
On general lessons
IMF, “Central Banking Lessons from the Crisis,” May 27, 2010
http://www.imf.org/external/np/pp/eng/2010/052710.pdf
Fischer, Stanley, “Monetary Policy, Financial Stability, and the Zero Lower Bound,”
January 3, 2016
http://www.federalreserve.gov/newsevents/speech/fischer20160103a.htm
Mishkin, Frederic, “Central Banking after the Crisis,” November 2012
https://www0.gsb.columbia.edu/faculty/fmishkin/papers/12chile.pdf
Focus on the main points and skip the details.
On financial stability
Claessens, Stijn, “An Overview of Macroprudential Policy Tools,” IMF Working Paper,
WP/14/214
www.imf.org/external/pubs/ft/wp/2014/wp14214.pdf
Look at Tables 1 and 2 (at the end of the paper but described in Section IV.) Read
Sections II and VI.
Squam Lake Working Group on Financial Regulation, “A Systemic Regulator for
Financial Markets,” May 2009.
http://www.squamlakegroup.org
Scroll down to find this. It is one of the earlier papers.
On independence
Paper by Don Kohn on independence in Brookings Institution, “Central banking
after the Great Recessions: Lessons Learned and Challenges Ahead,” January16,
2014
http://www.brookings.edu/events/2014/01/16-central-banking-after-the-greatrecession-bernanke
You can download Kohn’s paper from the conference site. The proceedings are also
available as an e-book.
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August 23, 2016
On secular stagnation
Summers, Larry, “The Age of Secular Stagnation,” February 15, 2016, Larry
Summers blog
http://larrysummers.com/2016/02/17/the-age-of-secular-stagnation/
On international coordination
Frankel, Jeffrey, “International macroeconomic policy coordination,” December 9,
2015
http://www.voxeu.org/article/international-macroeconomic-policy-coordination
This blog is short and somewhat cryptic. If this topic interests you, consult the listed
references. Frankel (2015c) explains his arguments more fully. Obstfeld and Rajan
may also be of interest.
On rising debt burdens in long term:
Cecchetti, Stephen, MS Mohanty and Fabrizio Zampoli, “The future of public debt:
prospects and implications, BIS Working Papers, No 300, March 2010
http://www.bis.org/publ/work300.pdf
Especially section after p. 6 on future and implications for central banks.
On the challenges facing the ECB:
All these readings are optional.
European Commission, “The financial and economic crisis” website
http://ec.europa.eu/economy_finance/explained/the_financial_and_economic_crisis
/responding_to_the_financial_crisis/index_en.htm
Whelan, Karl, “Sovereign Default and the Euro,” July 2013
www.ucd.ie/t4cms/WP13_09.pdf
Readable overview of reasons for sovereign debt crisis.
Klein, Ezra, “Greece’s debt crisis explained in charts and maps,” July 6, 2015
www.vox.com/2015/7/1/8871509/greece-charts
Interesting explanation of Greece’s difficulties. Some of the links are also interesting
(especially Yglesias, “11 things about the Greek crisis you need to know”.)
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