Reed College
Reed College

Economics 341

Monetary and Fiscal Policy

Fall 2010

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. The Nature and Institutions of the Monetary System

A. Evolution of Money

  • Basic Principles
    • 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
    • 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

  • White, Chapter 2.

C. Banking, Money, and Central Banks

E. Bank Regulation and Financial Crises

F. Financial Crises in U.S. History

  • The Great Depression and Other Early Crises
    • 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.
    • Federal Reserve Bank of Boston, "Panic of 1907," undated.
    • Noyes, Alexander D., "A Year After the Panic of 1907," Quarterly Journal of Economics, 23(1), February 1909, 185-212.
    • 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.
    • Calomiris, Charles W., and Joseph R. Mason, "Contagion and Bank Failures During the Great Depression," American Economic Review 87(5), December 1997, 863-883.
    • Temin, Peter, Lessons from the Great Depression, Cambridge, Mass.: MIT Press, 1989 (Lionel Robbins Lectures), Lectures 1 and 2.
    • Jalil, Andrew, "A New History of Banking Panics in the United States, 1825-1929: Construction and Implications," Unpublished manuscript. (Andy will visit our class to present and discuss his paper.)

II. Money in the Macroeconomy

A. Traditional Theories

  • Modeling money demand
    • 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. 
  • IS/LM and AS/AD models
    • McCallum, Bennett T., Monetary Economics: Theory and Policy, New York: Macmillan, 1989, Chapters 4 and 5. (This is an algebraic treatment of the IS/LM model.):
    • Less mathematical treatments of IS/LM and AS/AD
      • Mankiw, N. Gregory, Macroeconomics, 5th or 6th edition, New York: Worth, 2003 or 2006, Chapters 9-13.
      • Blanchard, Olivier, Macroeconomics, 4th or 5th edition, New York, Pearson/Prentice-Hall, 2006 or 2009, Chapters 3-9.

B. Credit and Bank-Lending Channels

C. Empirical Evidence on Monetary Policy

III. Monetary Policy and Inflation

A. Seigniorage

  • 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

  • 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.
  • Okun, Arthur M., "Efficient Disinflationary Policies," American Economic Review 68(2), May 1978, 348-352.
  • 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 

D. Operating Targets and Rules for Monetary Policy

IV. Fiscal Policy

A. Basics of Deficits and Debt

B. Theories of Fiscal Policy

  • 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.
  • Alesina, Alberto, Olivier Blanchard, Jordi Galí, Francesco Giavazzi, and Harald Uhlig, Defining a Macroeconomic Framework for the Euro Area, Monitoring the Central Bank 3, (London: Centre for Economic Policy Research, 2001).
  • Meltzer, Allan H., and Scott F. Richard, "A Rational Theory of the Size of Government," Journal of Political Economy 89(5), October 1981, 914-927.
  • 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.

C. Empirical Effects of Fiscal Policy

V. Political Systems and Economic Policy

A. Electoral Cycles and Economic Policy

  • White, Chapters 8 and 9.
  • Alesina, Alberto, and Nouriel Roubini, Political Cycles and the Macroeconomy, (Cambridge, Mass.: MIT Press, 1997), Chapter 1 through 4.

B. Central Bank Independence

C. Politics and Fiscal Policy Decisions

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.)