Financial Globalization and Regional Monetary
Integration
Syllabus
Winter 2009/2010
Professor Shinichi Nakabayashi
Graduate School of Public Policy, University of Tokyo
COURSE OVERVIEWThis course will study the global financial crisis and regional monetary integration by using thetheory of open economy macroeconomics, banking regulation, and the optimum currency area.
Economic analysis of banking regulation (or lack thereof) offers answers as to what went wrong
during the sub-prime loan crisis, and ensuing global financial crisis post Leman Brothers collapse.
We will look at issues of moral hazard and adverse selection in the context of credit risk transfer
and government supported enterprises, touching upon ongoing regulatory reform discussions
regarding pro-cyclicality, compensation practices, and cross-border cooperation. The transmission
mechanism of monetary policy will be explored in order to judge the effectiveness of policy
responses aimed at avoiding economic stagnation. We will use the theory of macroeconomic policy
and coordination as a foundation from which current affairs, the global economic landscape, andgovernment policy responses are evaluated.
Regional monetary integration has progressed at the same time as financial market globalization,and international capital flows have dramatically increased their volume and speed. Will thisintegration mitigate or aggravate a national economy’s vulnerability to sudden reversal ofinternational capital flows? We will look into the case of Latvia, which maintains its peg to the Euro
under severe economic conditions, and examine the possibilities surrounding monetary integrationin East Asia.
This class is open to students who are interested in international finance and financial regulation
and want to deepen their understanding of the current economic situation through the study ofrelevant economic theory. Students who wish to work in internationally focused organizations,including the government, financial industry, and think tanks will find the course timely and useful.
SCHEDULINGThe course meets on Fridays in Room 8 at the 6th floor of the Second Administration Building from4:50 to 6:30pm.
There will be guest lectures on Friday, Oct 23 and Nov 27.
REQUIREMENTS
Basic knowledge of micro- and macro- economics is required. Basic knowledge of statistics andeconometrics will be helpful. Before each class, you are expected to read the relevant articles,
copies of which will be provided at least one week before the class. To facilitate discussion duringclass, a reporter will be assigned for each article. Duties of the reporter include: preparing a one
page summary (printed on both sides if necessary) of newly learned material, unresolved questions,and several discussion points. The discussion points should be based on the article and specificenough so that no one could answer them without reading the article beforehand. By the end ofOctober, you will be grouped according to your interests. On December 4, each group will report anoutline of their study topic for 15/20 minutes, distributing a summary sheet. On January 22, eachgroup will make a final PPT presentation of 15 minutes followed by 3 minutes of Q&A.
Presentations have to be prepared by all members of each group through a series of internal
discussions outside of class. Presentations can be made either by a representative within the group,
or by each member of the group, each contributing to different sections. Reflection of commentsexpressed at the meeting or written comments sent by e-mail right after the meeting is highlyencouraged. Each group will be required to submit a final report of at least 20 pages in length,
double spaced, by Tuesday, February 9 at 3:00pm. Each member should make clear his/hercontribution to group paper by specifying his/her allocated part of the submitted report.
Presentations and final reports should include quantitative data and economic analysis. The final
report should consist of the raising of economic questions, surveys of previous economic studies,and the group’s discussion / analysis of the pertinent issues. If possible, the extension of economic
models or regression analysis should be used. If you would like to use an English editor to brush up
your report, please contact Matt well in advance.
GRADINGClass Participation: 25%

Individual Assignment (Reporter of Reading Assignment): 25%
Group Presentation: 25%
Final Report: 25%
CONTACT INFORMATION
Professor Shinichi Nakabayashi
Office: 605, The Second Administration Building
Office Hours: Thurs. 2:30pm to 4:30pm
Email: nakabayashi@pp.u-tokyo.ac.jp
Phone: 03-5841-1343
Teaching Assistant:
KAZUYUKI NEMOTO: kaz.s.nemo@gmail.com
English Editor and Course Assistant:
Matthew Brummer: email: matthewbrummer@gmail.com
TOPICS and READING ASSIGNMENT
Fri. Oct 2 Course Introduction
Orientation of topics
Fri. Oct 9 Banking Regulation and International Financial System
Economic Analysis of Banking Regulation: Mishkin, 2007; pgs. 279-307
The International Financial System: Mishkin, 2007; pgs.459-490
Thurs. Oct 15 Introduction to Econometrics (optional) 6:40-8:20pm
Introductory Econometrics, Wooldridge, chps. 1 & 3, Appendix A & C
Problems: 1.2; 3.9; 3.12; C.6. (i)~(v)Fri. Oct 16 The Subprime and Credit Risk Transfer
Back from the Brink: Romer, Sept 24, 2009The Subprime Solution: Shiller; pgs. 1-27

Credit Risk Transfer: The Joint Forum of Basel Committee, IOSCO, and IAIS, pgs.1-30
Fri. Oct 23 3:00-4:00pm Ambassador of Ukraine, Room 3, 7th Floor
The Global Financial Crisis and the Ukrainian Economy: Policy Responses
Fri. Oct 23 U.S. Housing Bubbles and Governance of Fannie Mae and Freddie Mac
Guest Lecture by Mr. Masahiro Kobayashi, Senior Economist, Research and Survey Department,Japan Housing Finance Agency
Thurs. Oct 29 Application of Econometrics (optional) 6:40-8:20pm
Aid, Policies, and Growth: Burnside & Dollar, 2000
The Mystery of the Vanishing Benefits: An Introduction to Impact Evaluation: Ravallion, 2001
Fri. Oct 30 Financial Crises and IMF’s Responses
Developing Countries: Growth, Crisis, and Reform: Krugman & Obstfeld; pgs.621-663
The Asian Currency Crisis and the International Monetary Fund, 10 Years Later: Overview,
Takatoshi Ito, 2007
Fri. Nov 6 Macroeconomic Policy and International Coordination
Transmission Mechanism of Monetary Policy: Mishkin, 2007; pgs.583-611
Macroeconomic Policy and Coordination under Floating Exchange Rates: Krugman &Obstfeld; pgs.532-564
Lessons from Asset Price Fluctuations for Monetary Policy: WEO Oct 2009, chp. 3
Fri. Nov 13 No Class
Fri. Nov 20 Banking Crises and the Resolution of Failed Banks
Guest Lecture by Mr. Kawakami, Deposit Insurance Corporation of Japan (pending)Financial Crisis, Capital Outflows and Monetary Policy Responses: Simple Analytics with
Reference to East Asia: Rajan
Fri. Nov. 27 3:00-4:40pm Dr. Mieko Nishimizu, Former Vice President, World Bank Group,Room 3, 7th Floor

http://www.sophiabank.co.jp/english/about/partners/nishimizu.html
Fri. Nov 27 4:50-6:30pm Regional Monetary Integration
Monetary Integration in Asia?: In Regional Monetary Integration: Kenen & Meade, 2008;
pgs. 147-178
Overview of Financial and Monetary Cooperation in East Asia: Kuroda; In Financial
Development and Integration in East Asia, ed. Ahn, Ito, Kawai, Park, 2003
The Euro at Ten: Pisani-Ferry & Posen, 2009, pgs.1-22
Fri. Dec 4 Presentation of the Outline of the Group Study
Dec 11 & 18, January 8 & 15 Each group chooses reading materials.
Individual member reports a selected reading material related to group study and facilitates
discussion.
Fri. Jan 22 Final Presentation
Students cross-examine other groups’ performance, judging clarity, relevance, policy implications,hypothesis testing, and creativity.
SUGGESTED READINGS:
Theory of Money and International Finance, Macroeconomics
The Economics of Money, Banking, and Financial Markets: Mishkin, 2007
International Economics: Krugman & Obstfeld, 2009, Part 3 & 4
Financial Crises, Liquidity, and the International Monetary System: Tirole, 2002
The Road Ahead for the Fed, ed. Cioricari & Taylor, 2009Financial Policy and Central Banking in Japan: Cargill, Hutchison, Ito, 2000
Depressions and Slumps: In Macroeconomics: Blanchard, 2007, chp. 20; pgs. 491-510
Globalization
Globalizing Capital: Eichengreen, 2008
The Next Great Globalization: Mishkin, 2006
In Defense of Globalization, Bhagwati, 2007
Why Globalization Works: Martin Wolf, 2006

Financial Globalization: A Reappraisal: Prasad, Rogoff, et al. IMF Working Paper, WP/06/189,
2006
Financial Crises: Causes, Lessons, and Solutions
Latvia: Letter of Intent for IMF-supported Program, July 27, 2009
Latvia: Request for Stand-By Arrangement—Staff Report, Jan 2009
Latvia’s currency crisis is a return of Argentina’s: Roubini’s Global EconoMonitor, Jun 10, 2009
The Great Crash 1929: Galbraith, 1954
Manias, Panics, and Crashes: Kindleberger, 1978
Global Imbalances and the Lessons of Bretton Woods: Eichengreen, 2007
Fixing Global Finance: Martin Wolf, 2008
The Subprime Panic: Gorton; NBER Working Paper 14398, 2008
Six Errors on the Path to the Financial Crisis: Blinder; NY Times, Jan. 25, 2009
A global perspective on the great financial insurance run: Causes, consequences, and solutions:Caballero, Jan 23, 2009, VOXInformation, Liquidity, and the Ongoing Panic of 2007: Gorton, NBER Working Paper 14649, 2009
The Credit Crisis: Conjectures about Causes and Remedies: Diamond & Rajan, NBER Working
Paper 14739, 2009
World Economic Outlook, Oct 2009, IMF
Restarting Securitizaion Markets, chp. 2
Market Interventions during the Financial Crisis: How Effective and How to Disengage?Global
Financial Stability Report, chp. 3
In GFSR Oct 2009, IMF
A Strategy for Renormalizing Fiscal and Monetary Policies in Advanced Economies: Cottarelli &Vinals, IMF Staff Position Note, SPN/09/22, 2009
Global Financial Crisis and Policy Issues That Need to be Addressed: Yoshino, Policy Update 034,
RIETI
Rescuing and Rebuilding the US Economy: A Progress Report: Summers, July 17, 2009
Decoupling from the East Toward the West? :Analyses of Spillovers to the Baltic Countries: Obiora,
IMF Working Paper, WP/09/125, 2009
Regulatory Reform
Global Financial Regulation, Davies & Green, 2008

Banking on Basel: The Future of International Financial Regulation: Tarullo, 2008
Report on the Financial Stability Forum on Addressing Procyclicality in the Financial System: FSF,April 2009
FSF Principles for Sound Compensation Practices: FSF, April 2009
FSF Principles for Cross-border Cooperation on Crisis Management, FSF, April 2009
Financial Regulatory Reform: U.S. Treasury, June 2009
Regional Monetary Integration
Regional Monetary Integration: Kenen & Meade, 2008
The Euro at Ten: The Next Global Currency? : Pisani-Ferry & Posen, 2009
The Eastern Enlargement of the Eurozone, eds. Dabrowski & Rostowski, 2006
Regional Integration in East Asia and Europe: Convergence or divergence? eds. Fort & Webber,
2006
Financial Development and Integration in East Asia, eds. Ahn, Ito, Kawai, Park, 2003
Currency and Contest in East Asia: The Great power Politics of Financial Regionalism: WilliamGrimes, 2009
SOME SUGGESTIONS FOR ADDITIONAL READING ON CURRENT EVENTSThe International Monetary Fund: http://www.imf.org
Ministry of Finance Japan on G20, G7, and ASEAN+3: www.mof.go.jp/english/
Financial Services Agency: www.fsa.go.jp/en/
The Economist Magazine: http://www.economist.com
Financial Times: www.ft.com
The New York Times: www.nytimes.com
Roubini’s Global Economics Monitor: http://www.rgemonitor.com/
NBER: www.nber.org
VOX: Research-based policy analysis: www.voxeu.com
Peterson Institute: Real Time Economic Issues Watch: http://www.petersoninstitute.org/realtime/
Council on Foreign Relations: Geoeconomic Studies: http://www.cfr.org/thinktank/greenberg/
Greg Mankiw’s Blog: http://gregmankiw.blogspot.com/
Willem Buiter’s Blog: http://blogs.ft.com/maverecon/