ECO-4237 

MONEY, INTEREST, AND CAPITAL

Dr. Cem Karayalcin

Office: DM 319A

Office hrs: T-Th 1:00-2:00

e-mail: karayalc@fiu.edu

web page: www.fiu.edu/~karayalc

The course provides an economic analysis of asset markets and monetary policy. Concepts introduced and studied include interest rates, intertemporal choice, asset pricing, and the efficient market hypothesis. Prerequisites for the course are ECO 3101 and ECO 3203 (or permission of the instructor).

COURSE REQUIREMENTS:

There will be two midterms:

1. Midterm 1 February 7, 2006 (Tuesday) (Weight 25%).

2. Midterm 2 March 7, 2006 (Tuesday) (Weight 25%).

And one final exam (Weight 40%).

Finals week is April 24-29, 2006. (The exact time and date of the final exam is determined by the University and can be found by clicking on the relevant link at http://www.fiu.edu/orgs/register/deadlines.htm.)

Class participation carries a weight of 10%.

There will be no make-up exams. Missed exams mean a grade of zero.

Students are expected to come to class having read the relevant material.

TEXTBOOK:

The Economics of Money, Banking, and Financial Markets, 7/E  by Frederic S. Mishkin.

The textbook is available at the University Bookstore.

Material discussed in class will not be limited to those covered in the textbook.

COURSE OUTLINE

INTRODUCTION

1.       Why Study Money, Banking and Financial Markets?

2.       An Overview of the Financial System

Appendix: Financial Market Instruments <--HOMEWORKLINK  

SOLUTION

HOMEWORK FOR TUESDAY FEBRUARY 28

MONEY AND INTEREST RATES

3.       What Is Money?

4.       Understanding Interest Rates

Appendix: Measuring Interest-Rate Risk: Duration

5.       The Behavior of Interest Rates

Appendix: Models of Asset Pricing

Appendix: Applying the Asset Market Approach to a Commodity Market:The Case of Gold

6.       The Risk and Term Structure of Interest Rates

ASSET MARKETS

7.       The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

8.       An Economic Analysis of Financial Structure

12.     Nonbank Finance

13.     Financial Derivatives

THE CENTRAL BANK AND MONETARY POLICY

14.     Structure of Central Banks and the Federal Reserve System

15.     Multiple Deposit Creation and the Money Supply Process

Appendix: The Fed's Balance Sheet and the Monetary Base

16.     Determinants of the Money Supply

Appendix: The M2 Money Multiplier

Appendix: Expanding Behavior of the Currency Ratio

17.     Tools of Monetary Policy

18.     Conduct of Monetary Policy: Goals and Targets

22.     The Demand for Money

Appendix: A Mathematical Treatment of the Baumol-Tobin and Tobin Mean-Variance Models

24.     Monetary and Fiscal Policy in the ISLM Model

Appendix: Algebra of the ISLM Model

INTERNATIONAL MONETARY TRANSACTIONS

19.     The Foreign Exchange Market

20.     The International Financial System

21.     Monetary Policy Strategy: The International Experience