Economics 341

Monetary and Fiscal Policy
Fall 2016
Jeffrey Parker
Course Outline and Reading List

All readings are required unless otherwise noted. Links are provided to most of the journal articles. Books are generally on print reserve in the library.

I. An Overview of Monetary and Fiscal Policy

A. Macroeconomic Framework (8/31 through 9/7)

Thursday, September 8: John Williams, President of the Federal Reserve Bank of San Francisco, speaks at University of Portland at 9am. We will organize transportation to hear this talk.

B. Introduction to Issues in Monetary and Fiscal Policy (9/9)

  • Parker, Jeffrey. Economics 314 Coursebook, 2014 edition, Chapter 17 "Monetary Policy," Section B, and Chapter 18 "Fiscal Policy," Section B.
  • Blanchard, Olivier, Macroeconomics, 4th ed., Pearson Education, 2006, Chapter 26: "Fiscal Policy: A Summing Up."

II. The Nature and Institutions of the Monetary System

A. Evolution of Money

  • Basic Principles (9/12)
    • White, Lawrence H., The Theory of Monetary Institutions (Malden, Mass.: Blackwell, 1999), Chapter 1.
    • Goodhart, Charles A. E., Money, Information and Uncertainty, 2nd edition, (Cambridge, Mass.: MIT Press, 1989), Chapter II.
    • Radford, R. A., "The Economic Organization of a P.O.W. Camp," Economica 12(48), November 1945, 189-201.
  • U.S. Monetary History (9/12)
    • Davies, Glyn, A History of Money from Ancient Times to the Modern Day (Cardiff: University of Wales Press, 1994), Chapter 9.
    • Optional resource: Hammond, Bray, Banks and Politics in America from the Revolution to the Civil War, Princeton, N.J.: Princeton University Press, 1957.
    • Optional resource: Friedman, Milton, and Anna Schwartz, A Monetary History of the United States, 1867-1960, Princeton, N.J.: Princeton University Press, 1963. (These are both classics in U.S. monetary history. We shall read an important chapter from Friedman and Schwartz for our discussion of the Great Depression.)

B. Commodity Money and the Gold Standard (9/14)

  • White, Chapter 2.

C. Banking, Money, and Central Banks

D. Bank Regulation and Financial Crises

E. Financial Crises through History

  • Theories of Financial Crises (9/28)
    • Kindleberger, Charles, and Robert Z. Aliber, Manias, Panics, and Crashes: A History of Financial Crises, 5th edition, Hoboken, N.J.: John Wiley & Sons, 2005, Chapters 1 and 2.
    • Reinhart, Carmen M., and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton, N.J.: Princeton University Press, 2009, Chapters 1, 2, 4, 6, 10, and 12.
    • Reinhart, Carmen M., and Kenneth S. Rogoff, Recovery from Financial Crises: Evidence from 100 Episodes. American Economic Review 104(5), May 2014, 50-55.
  • The Great Depression and Other Early Crises (9/30)
    • Federal Reserve Bank of Boston, "Panic of 1907," undated.
    • Strouse, Jean, "The Brilliant Bailout," The New Yorker, November 23, 1998, 62-77.
    • Friedman, Milton, and Anna Schwartz, A Monetary History of the United States, 1867-1960, Princeton, N.J.: Princeton University Press, 1963, Chapter 7: The Great Contraction, 1929-33. (This chapter is 121 pages long and has been published separately as a book called The Great Contraction. Although there is a lot of detail that is relatively unimportant, there are no sections that can be omitted completely. Extract as much as you can of F&S's interpretation of the events and the Fed's policy response during each of the sub-periods they analyze. Skim past the gory minutia about month-to-month changes in monetary stocks.)
    • Bernanke, Ben, "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review 73(3), June 1983, 257-276.

Mid-term exam (10/10)

III. Money in the Macroeconomy

A. Theories of Money Demand (10/12)

  • McCallum, Bennett T., Monetary Economics: Theory and Policy, New York: Macmillan, 1989, Chapter 3.
  • Teles, Pedro, and Ruilin Zhou, "A Stable Money Demand: Looking for the Right Monetary Aggregate," Federal Reserve Bank of Chicago Economic Perspectives 29(1), First Quarter 2005, 50-63. 
  • For more details on money demand: 
    • Laidler, David E.W., The Demand for Money: Theories, Evidence, and Problems, 3rd edition, New York, Harper & Row, 1985.
    • Goodhart, Charles A.E., Money, Information, and Uncertainty, 2nd edition, Cambridge, Mass.: MIT Press, 1989, Chapters III and IV. 

B. Alternate Channels of Monetary Policy (10/14)

C. Empirical Evidence on Monetary Policy (10/24)

D. Unconventional Monetary Policy and the Recent Financial Crisis (10/26)

IV. Monetary Policy and Inflation

A. Seigniorage (10/28)

  • White, Chapter 7. 
  • Buiter, Willem H., "Seigniorage," Economics: The Open-Access, Open-Assessment E-journal, 1(2007-10), July 2007. (This is a bit laborious and mathematical, but covers essential ground.)
  • Click, Reid W., "Seigniorage in a Cross-Section of Countries," Journal of Money, Credit and Banking 30(2), May 1998, 154-71.

B. Inflation, Disinflation, and Deflation (10/31 extended session)

  • Optional: Cagan, Philip, "The Monetary Dynamics of Hyperinflation," in Studies in the Quantity Theory of Money, ed. by Milton Friedman, Chicago: University of Chicago Press, 1956, 25-117. (This is the classic paper on hyperinflation, but it is quite long and emphasizes a number of issues that don't concern us.)
  • Fischer, Stanley, Ratna Sahay, and Carlos A. Vegh, "Modern Hyper- and High Inflations," Journal of Economic Literature 40(3), September 2002, 837-880.
  • Sargent, Thomas J., "The Ends of Four Big Inflations," in Inflation: Causes and Effects, ed. by R. E. Hall, Chicago: University of Chicago Press and NBER, 1982, 41-97.
  • Ball, Laurence, "What Determines the Sacrifice Ratio?" in Monetary Policy, ed. by N. G. Mankiw, Chicago: University of Chicago Press and NBER, 1994, 155-182.
  • Bullard, James, "Seven Faces of 'The Peril,'" Federal Reserve Bank of St. Louis Review 92(5), September/October 2010, 339-352.

C. Dynamic Inconsistency in Monetary Policy (11/2)

D. Operating Targets and Rules for Monetary Policy (11/4, 11/7)

V. Fiscal Policy

A. Theories of Fiscal Policy  (11/11 extended session)

  • Blanchard, Olivier, Macroeconomics, 4th ed., Pearson Education, 2006, Chapter 26: "Fiscal Policy: A Summing Up."
  • Blinder, Alan S., "The Case Against the Case Against Discretionary Fiscal Policy," in The Macroeconomics of Fiscal Policy, edited by R. W. Kopcke, G. H. B. Tootell, and R. K. Triest, MIT Press, 2006.
  • Barro, Robert J., "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives 3(2), Spring 1989, 37-54.
  • Bernheim, B. Douglas, "A Neoclassical Perspective on Budget Deficits," Journal of Economic Perspectives 3(2), Spring 1989, 55-72.

B. Empirical Effects of Fiscal Policy  (11/18 & 11/21)

C. Government Debt and Deficits  (11/23)

VI. Political Systems and Economic Policy (to the extent we have time)

A. Electoral Cycles and Economic Policy (11/28 & 11/30)

B. Central Bank Independence (12/2)

C. Politics and Fiscal Policy Decisions (12/5, 12/7)

D. Economics and the Choice of Political System

  • Acemoglu, Daron, and James A. Robinson, Economic Origins of Dictatorship and Democracy, Cambridge University Press, 2006, selected chapters to be announced. (More or less, depending on how much time we have.)