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King’s College
University of Western Ontario
Economics 154a Section 570
Money (and Banking)
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Instructor:
Dr. Jae-Dong Han
Phone 433-3491, Ext. 4372
Email: [email protected]
Office: DL Room # 320
Class Hours and Location:
Monday
Wednesday
1:30- 3:30 pm at SA150
1:30 -2:30 pm at SA150
Course Website: http://instruct.uwo.ca/economics/154-570
Office Hours:
M 10:30 -11:30 am
W 10:30 am -11:30 am and 2:30-3:30 pm
I. Course Description
This half course in intermediate monetary theory covers such topics as: the
flow of funds, a detailed analysis of the demand for money, the behavior of
financial institutions and issues in monetary policy.
Antirequisite(s): Economics 371a/b.
Prerequisite(s): Economics 152a/b.
II. Course Objective:
Primarily the traditional issues related with money and banking will be covered: what
money does, or does not, with respect to nominal and real variables. However, due to a series of the
recent innovations of the financial system or evolution of the banking sector, we will also cover the
finance issues of an emerging importance, such as financial market (reform), international capital
flows (hot money and hedge funds), corporate finance, mergers and acquisitions, mutual funds,
derivatives, and so forth.
III. Reading Materials
A course pack will be available for the class.
IV. Grading Scheme:
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Economics 154a
In-class Midterm Test (2 hours)
Oct. 22: 40 %
Review/Make up Class Oct. 20
Final Examination (3 hours)
TBA
: 60%
V. Detailed Course Outline:
A updated list of reference materials will be posted on the course website for each cla
ss.
1.Fundamental Characteristics of the Financial Industry, and the Natural Evolution
Key issues: Apparent Features and Trends (what are the unique features of the financial
market?); Fundamental Causes (why are they being so?); Policy Implication (why should
the financial system be regulated by government?)
F. Mishkin, "An Economics Analysis of Financial Structure," The Economics of Money,
Banking, and Financial Markets, 4rd ed., Chapter 8, Harper Collin Co., 1992.
Instructor’s Note
2. Diverse Experiences with Banking System
Key ideas: the uniqueness of the Canadian Financial System, and its evolution
F. Mishkin., “ The (U.S.) Banking Industry”, The Economic of Money, Banking and
Financial Markets, 4th ed., Chapter 10, Harper Collin Co.
Charles Freedman, “The Canadian Banking System”, Conference on Development in the
Financial System: National and International Perspectives, The Jerome Levy Economics I
nstitute of Bard College, April 1997.
Sun Bae Kim, “Banking and Commerce: The Japanese Case”, Federal Reserve
Bank of San Francisco Weekly Newsletter, March 1991.
* Advanced Reading: Hugh Rockoff, “The Wizard of Oz as a Monetary Allegory”, Journal
of Political Economy, 1990, vol. 98, no. 4.
*Advanced Reading: “How (American) banks merge”, The Economists, January 5th, 1991.
*Advanced Reading: Kroszner, Randall S., “ The Legacy of the Separation of Banking and
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Economics 154a
Commerce Continues in Gramm-Leach-Bliley”, Federal Reserves of Mineapolis, June
2001
*Advanced Reading: Shearer, Chant, and Bond, “The Theory of Financial Markets: Part II”,
Economics of The Canadian Financial System, Chapter 5.
3. Financial Liberalization
Why should the financial system be left alone?
*Advanced Reading: A.J.R. Rolnick and W. Weber, "New Evidence on the Free Banking
Era," American Economic Review, 1983, Vol. 73, No. 5:1080-1091
*Advanced Reading: A.J.R. Rolnick and W. Weber, "Explaining the Demand for Free Bank
Notes," Journal of Monetary Economics, 1988, Vol. 21: 47-71.
*Advanced Reading: Benjamin Klein, “The Competitive Supply of Money”, Money,
Credit, and Banking.
* Advanced Reading: George A. Selgin, “The Implications of Freedom in Banking and
Note Issue”, Austrian Economic Letter, The Ludwig von Mises Institute, Winter 1989.
4. Financial Instruments in the Market
Key Ideas: Asset Pricing Models, Efficient Market Theory
Are these bonds and equities priced right?
Risk Management and Portfolio Diversification
Basic Concepts and Formulas
Lusztig, et al., “Bond and Common Stock Valuation”, Finance in a Canadian Setting,
Chapter 6.
What does the term structure of interest rates tell you about the economy of the future?:
Yield Curves
Siklos, “Understanding Interest Rates: The Structure of Interest Rates,” Money, Banking,
and Financial Institutions: Canada in the Global Environment, Chapter 15.
____, “Economic forecasting made easy by professor”, Toronto Star, March 11, 1990.
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Economics 154a
What determines Stock Prices?
Siklos, Chapter 12.
Lusztig, et al, Chapter 9, “Market Efficiency”,
What is the best portfolio of investment and diversification?
CAPM Model- Siklos, "Asset Demand and Supply under Uncertainty," 1994.
“Portfolio Selection”, Shazam Online Manual
“Monthly Market Report: A Special Report for Individual Canadian Investors”, Special
Edition: Asset Allocation, Merryll Lunch, October 2001.
James Pesando, “Art as Investment: The Market for Modern Print”, American Economic
Review, Dec 1993.
5. Monetary- Macroeconomic Policies
Key ideas: Relations among Money, Output, and Inflation; Activist Monetary Policy versus
Policy Invariance Theorem; Optimal Rate of Inflation; Time Inconsistency
Peter D. McClelland, “A Layman’s Guide to the Keynesian-Monetarist Dispute”.
Instructor's Typed Manuscript, "Money Supply; Money Demand; Monetary
Policies"
Charles Freedman, " The Role of Monetary Conditions and the Monetary Conditions Index
in the Conduct of Policy", The Transmission of Monetary Policy, Bank of Canada
6. International Finance
What is the global trend?
Singh, Kavaljit, The Globalisation of Finance, Zeds Books Ltd., London, 1999 (HG
3881.S537 1998), Chapters 1-4, pp. 1-41.
Griffith-Jones, S., Global Capital Flows, MacMillan, 1998, pp. 25-51; pp.79-81 (HG 3891
G75 1998x).
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Economics 154a
BIS, Annual Report of Financial Market, recent edition
Lesson from the recent Asian Financial Crisis
*Advanced Reading: Aivazian, V., Hejazi, W., and Han, J.D., "How much does finance
matter in East Asia?", Fiscal Frameworks and Financial System in East Asia: How Much
Do They Matter?, University of Toronto Press, October 1998.
*Advanced Reading: Haq, M., Kaul, I., and Grunberg, I., ed., The Tobin Tax: Coping with
Financial Volatility, Oxford University Press, 1996 (HG 3853 T63 1996x)
VI. Important Reminder
PLAGIARISM AND CHEATING ARE SERIOUS SCHOLASTIC OFFENCES
King’s is committed to Academic Integrity.
Students must write their essays and assignments in their own words. Whenever students
take an idea, or a passage from another author, they must acknowledge their debt both by using
quotation marks where appropriate and by proper referencing, such as, footnotes or citations.
Plagiarism is a major academic offence. See Scholastic Offence Policy in the Western Academic
Calendar.
PLAGIARISM CHECKING SOFTWARE
All required papers may be subject to submission for textual similarity review to the
commercial plagiarism detection software under license to the University for the detection of
plagiarism. All papers submitted will be included as source documents in the reference database
for the purpose of detecting plagiarism of papers subsequently submitted to the system. Use of the
service is subject to the licensing agreement, currently between The University of Western Ontario
and Turnitin.com (Turnitin.com website: http://www.turnitin.com).
COMPUTER-MARKED MULTIPLE-CHOICE TESTS AND/OR EXAM
Computer-marked multiple-choice tests and/or exams may be subject to submission for
similarity review by software that will check for unusual coincidences in answer patterns that may
indicate cheating.
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Economics 154a
PREREQUISITES AND ANTIREQUISITES
Unless you have either the requisites for a course or written special permission from your
Dean to enroll in it, you may be removed from the course and it will be deleted from your record.
This decision may not be appealed. You will receive no adjustment to your fees in the event that
you are dropped from a course for failing to have the necessary prerequisites.