Course: Economics of Money and Banking
Modules:
The Big Picture, Prerequisites?, What is a Bank, a Shadow Bank, a Central Bank?, Central Themes, Reading: Allyn Young, FT: The Eurocrisis, Liquidity vs. Solvency, Hierarchy of Financial Instruments, Hierarchy of Financial Institutions, Dynamics of the Hierarchy, Discipline and Elasticity, Currency Principle and Banking Principle, Hierarchy of Market Makers, Managing the Hierarchy
FT: Quantitative Easing and the Fed, Allyn Young: Money and Economic Orthodoxy, National Banking System Before the Fed, Civil War Finance, Bonds, and Loans, Civil War Finance, Legal Tenders, National Banking System, Origins, National Banking System, Instability, Federal Reserve System, Plan, Federal Reserve System, Actual, FT: Dealer of Last Resort, Reading: Hyman Minsky, Sources and Uses Accounts, Payments: Money and Credit, Payments: Discipline and Elasticity, The Survival Constraint, Payment Example: Money and Credit, Flow of Funds Accounts, The Survival Constraint, Redux, Liquidity, Long and Short, Financial Fragility, Flows and Stocks
FT: Martin Wolf on QE3, One Big Bank, Multiple Banks, A Challenge, Reading: Charles F. Dunbar, Correspondent Banking, Bilateral Balances, Correspondent Banking, System Network, Clearinghouse, Normal Operations, Clearinghouse, Private Lender of Last Resort, Central Bank Clearing, Central Bank Cooperation, FT: European Bank Deleveraging, What are Fed Funds?, Payment Settlement versus Required Reserves, Payment Elasticity/Discipline, Public and Private, The Function of the Fed Funds Market, Payment versus Funding: An Example, Brokers versus Dealers, Payments Imbalances and the Fed Funds Rate, Secured versus Unsecured Interbank Credit, Required Reserves, Redux
FT: The Impact of QE3, Money Market Interest Rate Patterns, What is Repo?, Repo in Balance Sheets, Comparison with Fed Funds, Legal Construction of Repo, Security Dealers Balance Sheet, Repo, Modern Finance, and the Fed, Interest Rate Spreads: Before the Crisis, Interest Rate Spreads: After the Crisis, FT: Ring-fencing and the Volcker Rule, The Eurodollar Market in Crisis, What are Eurodollars?, Why is There a Eurodollar Market?, Eurodollar as Global Funding Market, Liquidity Challenge of Eurodollar Banks, FRA as Implicit Swap of IOUs, Forward Parity, Interest Rates, EH, Forward Parity, Exchange Rates, UIP, Forward Rates are NOT Expected Spot Rates
FT: Depreciation of Iran's Currency, Reading: John Hicks, Bagehot's World, Wholesale Money Market, Economizing on Notes: Deposits, Acceptances, Managing Cash Flow: Discount, Rediscount, Market Rate of Interest, Central Bank and Bank Rate, The Bagehot Rule, Origin of Monetary Policy, Limits on Central Banking: Internal vs. External Drain, FT: Asymmetric Credit Growth in Europe, Market Liquidity, Dealers, and Inventories, Two-Sided Dealer Basics, Economics of the Dealer Function: the Treynor Model, Leveraged Dealer Basics, Real World Dealers, Arbitrage and the Assumption of Perfect Liquidity
FT: Money Market Mutual Funds, Banks as Money Dealers, a Puzzle, Security Dealers as Money Dealers, Matched and Speculative Book, Adapting Treynor to Liquidity Risk, Digression: Evolution of American Banking, The Fed in the Fed Funds Market, Return to the Initial Puzzle, FT: Citibank and the SIVs, The Art of Central Banking, Evolution of Monetary Policy: 1951-1987, The Taylor Rule: 1987-2007, Monetary Transmission Mechanism, Anatomy of a Normal Crisis, Anatomy of a Serious Crisis, Should the Fed Intervene or Not?, The Fed as Dealer of Last Resort: 2007-2009
FT:  Trade Credit and the Eurocrisis, Inspiration:  The Origin of the Fed, Central Bank Operations, Normal Times, Central Bank Operations, Crisis Times, Settlement Risk, Payments, and Market-making, Q:  Standard and Subordinate Coin, Q:  War Finance as Financial Crisis, Q:  Forward Parity, Q:  Payments, CHIPS and Fedwire, Q:  Fed Balance Sheet Operations
FT: Autonomy of Bank of Japan, Key Currencies as a Hierarchical System, What is Money?  Chartalism versus Metallism, Chartalism as a Theory of Money, Quantity Theory of Money, Purchasing Power Parity, Metallism as a theory of money, A Money View of International Payments, FX Dealers, Chartallism, Metallism, and the Money View Compared, Private and Public Money:  A Hybrid System, Hybridity in FX Market-making, FT: Costs of Japan's Monetary Policy, Reading:  Robert Mundell, Act 1 (1900-1933): Confrontation of the Fed with the Gold Standard, Act 2 (1934-1971):  Contradiction Between Keynesian National Management and the Bretton Woods Fixed Rate System, The Dollar System, Act 3 (1972-1999):  Flexible exchange, Learning from Experience, Act 4:  Global Financial Crisis, Limits of Central Bank Cooperation
FT: European Money Market Funds Shifting to Asia and European Core Countries, International Transactions under the Gold Standard, Dealer Model for Foreign Exchange, Central Banking, Defense of Domestic Exchange, Bank of England, Defense Against External Drain, Toward a Theory of Exchange, Without the Gold Standard, FT: High Frequency Trading, Uncovered Interest Parity (UIP) and the Expectations Hypothesis of the Term Structure (EH), FX Dealers Under the Gold Standard, Redux, Private FX Dealing System, Economics of the Dealer Function, Speculative Dealer, Economics of the Dealer Function, Matched-book Dealer, Digression:  Why do UIP and EH Fail?, Central Bank as FX Dealer of Last Resort, Reading: McCauley on Internationalization of Renminbi
FT: Shadow Banking, Bagehot's World: Separation of Money Markets and Capital Markets, The New World: Integration of Money Markets and Capital Markets, Funding Liquidity Versus Market Liquidity, Digression: Schumpeter on Banking and Economic Development, Payment Versus Funding, Reading:  Gurley and Shaw, Financial Evolution: Indirect Finance to Direct Finance, Banking Evolution: Loan-based Credit to Market-based Credit, Preview: Central Banking and Shadow Banking, FT: Argentina in Court to Fight Debt Ruling, Banking as Advance Clearing, Forwards versus Futures, Forward Contracts, Fluctuations in Value and Final Cash Flow, Futures Contracts, Fluctuations in Value and Daily Cash Flows, Cash and Carry Arbitrage, Defined, Cash and Carry Arbitrage, Explained as Liquidity Risk, Cash and Carry Arbitrage, Explained as Counterparty Risk, Cash and Carry Arbitrage, as a Natural Banking Business
FT: Sovereign Debt Crises, Reading: FOMC Report (1952), Treasury-swap Spread, a Puzzle, What is a Swap?, Why swap? An Example from Stigum, Market Making in Swaps, Money Market Swaps, Example, Life in Arbitrage Land, Treasury-swap Spread, Liquidity Risk or Counterparty Risk?, FT: Internationalization of the Euro, Credit Indices, Fischer Black (1970), Risk-free Security, What is a Credit Default Swap (CDS)?, Corporate Bonds, CDS Pricing, Market Making in CDS, Example:  Negative Basis Trade and Liquidity Risk, Example: Private backstop of Marketmaking in CDS, Example: Synthetic CDO as Collateral Prepayment
FT: Regulation of Shadow Banking, Shadow Banking vs Traditional Banking, Liquidity and Solvency Backstops, Global Dimension, Evolution of Modern Finance, What is Shadow Banking?, Backstopping the Market Makers, Regulation of Systemic Risk, Regulation of Collateral and Payment Flows, Private Backstop and Public, FT: Future of Banking, Three World Views, Economics View: Commodity Exchange, Finance View: Risk, The Education of Fischer Black, Steps From the Finance View to the Money View, A Money View of Economics and Finance
Final Exam