ECONOMICS 645

FINANCIAL MACROECONOMICS

 Prof. J.A. KREGEL

WINTER 2006

Best way to reach Professor Kregel: kregel-ny@un.org

TA for this course is Natalia Sourbeck (SourbeckN@umkc.edu)

Final Exam

Grading on the basis of a take home final exam.

The outline below is preliminary, depending on the speed at which we can cover the material. Most of the primary readings will be available online or by photo copy. We will be covering a lot of material and you will not be expected to cover all of the readings, they simply represent the sources for the material that we will be covering in class.

COURSE OUTLINE (Partial list of readings)

Session 1: Introduction:

1) Fisher: 

-Capital and interest - stocks and flows,

-The role of time preference in determining interest rates,

-The linkage to the Quantity Theory,

-The theory of income determination

-Spot rates, forward rates, forward-forward rates

Kregel J.A.  “Irving Fisher, Great-grandparent of the General Theory,” Cahiers d'Economie Politique, 14-15, 1988, pp. 59-68.

_______ . “Capital and Income in the Theory of Investment and Output: Irving Fisher and John Maynard Keynes,” in The Economics of Irving Fisher: Reviewing the Scientific Work of a Great Economist, Hans-E. Loef and Hans G. Monissen, eds, E. Elgar: Cheltenham, 1999, pp. 271-83.

_______. “Aspects of a Post Keynesian Theory of Finance,” Journal of Post Keynesian Economics, Vol. 21:1, Fall 1998, pp. 113-37.

Major Writings of Irving Fisher:

The Nature of Capital and Income (New York: Macmillan, 1906).

The Theory of Interest (New York: Macmillan,1930).

The Rate of Interest (New York: Macmillan, 1907).

The Purchasing Power of Money (New York: Macmillan, 1911).

Reading notes from Irving Fisher The Theory of Interest, 1930

Session 2: Fisher and the Theory of Finance

Kregel, J.A. Interest rate study notes, mimeo

_______. Queries about Coincidences and Correlations Between Fisher and Keynes, the Gibson Paradox and the Idea of Duration, mimeo

_______. Keynes and Duration, mimeo

_______. Fisher’s Relation, Purchasing Power Parity and the Interest Rate Parity Theorem, mimeo

More technical books:

Homer and Liebowitz, Inside the Yield Book.

Frank J. Fabozzi, Fixed Income Mathematics 3^rd Edition, New York McGraw Hill, 1997.

Marcia Stigum and Franklin Robinson, Money Market & Bond Calculations, Irwin, 1996.

Session 3: Keynes

1) Keynes: Tract on Monetary Reform, Treatise on Money

-Interest rate parity,

-Spot and futures contracts,

-User costs

Keynes J.M.  A Tract on Monetary Reform (1923)

_______. A Treatise on Money, Vol. 2 (1930)

2) Keynes, the General Theory and After

-Liquidity preference and the marginal efficiency of capital,

-Spot and forward interest rates, duration

Keynes J.M. The General Theory of Employment Interest and Money (1936).

_______. The General Theory and After: Part II: Defence and Development (1973).

_______. The General Theory and After: A Supplement (1979).

Kregel J.A., “The Theory of Value, Expectations and Chapter 17 of the General Theory,” in A Second Edition of the General Theory, G.C. Harcourt and P. Riach, London: Routledge, 1996, pp. 251-272.

_______. “Keynesian Stabilisation Policy and Post-War Economic Performance,” in Explaining Economic Growth, E. Szirmai, B. van Ark and D. Pilat, eds, Amsterdam: Elsevier, 1993, pp. 429-45.

_______. “Instability, Volatility and the Process of Capital Accumulation,” in Economic Theory and Social Justice, G. Gandolfo and F. Marzano, eds, London: Macmillan, 1999, pp. 149-67.

Notes from Class:

Interest Rate Parity Theory

Short Period Price Theory

National Accounts

Wood, John, "Do Yield Curves Normally Slope Up? The Term Structure of the U.S. Interest Rates, 1862 - 1982"

Session 4: What do Interest Rates Tell Us?

1) Interest Rates, Risk and Uncertainty

Kahn R.F. “Some Notes on Liquidity Preference” in Essays on Employment and Growth, Cambridge University Press, 1972.

Kregel J.A. “Alternative Analyses of Uncertainty and Rationality: Keynes and Modern Economics,” (with Éric Nasica) La Probabilità in Keynes: Premesse e Influenze, S. Marzetti Dall=Aste Brandolini and R. Scazzieri, eds., Bologna: Clueb, 1999, pp. 115-38.

_______."Rational Spirits and the Post Keynesian Macrotheory of Microeconomics,” de Economist, 135:4, 1987, pp. 519-31.

_______. “Keynes and the New Keynesians on the Role of Uncertainty and Information,” Nouvelles Perspectives de la Macroéconomie, Mélange en l'honneur du Doyen Alain Barrère, ed., G. Grellet, Paris: Publications de la Sorbonne, 1995, pp. 209-20.

Tymoigne, Eric. Demand for money and expectations, mimeo.

Bernanke, Ben, Remarks by Chairman Ben S. Bernanke Before the Economic Club of New York, New York, New York
March 20, 2006

2) Economic Forecasting and Interest Rates

Marvin Goodfriend, “Using the Term Structure of Interest Rates for Monetary Policy,” Economic Quarterly, Richmond Federal Reserve Bank, Summer, 1998

Joseph G. Haubrich, “Term Structure Economics from A to B,” Federal Reserve Bank of Cleveland Economic Review, third quarter, 1999.

European Central Bank,. “The information content of interest rates and their derivatives for monetary policy,” European Central Bank Monthly Bulletin, May 2000.

Session 5: Minsky-Fisher, Financial Instability and Globalisation

Kregel J.A. “Minsky's 'Two Price' Theory of Financial Instability and Monetary Policy: Discounting vs. Open Market Intervention,” in S. Fazzari and D. Papadimitriou, eds, Financial Conditions and Macroeconomic Performance: Essays in Honor of Hyman P. Minsky, Armonk, N.Y.: M.E. Sharpe, 1992, pp. 85-103.

_______. “Margins of Safety and Weight of the Argument in Generating Financial Fragility,” Journal of Economic Issues, June, 1997, pp. 543-8.

Minsky H.P.  Stabilizing an Unstable Economy (1986);

_______. “The financial instability hypothesis: a restatement,” in Arestis and Skouras, Post Keynesian Economic Theory, 1985

Irving Fisher “The Debt Deflation Theory of Great Depressions,” Econometrica, 1933

Michael Pettis, The Volatility Machine, Oxford University Press, 2001