homework 1,2 and 3
Read
John Taylor’s article about monetary transmission mechanisms.
.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/1995/The_Monetary_Transmission_Mechanism_An_Empirical_Framework.pdf”>http://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/1995/The_Monetary_Transmission_Mechanism_An_Empirical_Framework.pdf
Answer the questions
1.
How
does monetary policy (or changes in monetary policy) affect output and
inflation? In other words, what is the
monetary policy transmission mechanism?
2.
What
is the importance of financial market prices in Taylor’s view?
3.
What
is the importance of rational expectations and rigidities in the prices of
labor and goods?
4.
What
is a reaction function? Why is a
reaction function important?
5.
What
is an “optimal monetary policy rule?”
6.
Has
the monetary transmission mechanism changed?
How?
7.
What
are the criticisms of Taylor’s views?
How does he respond? What do you
think?
Read
Mishkin’s article about global financial instability.
.aeaweb.org/doi/pdfplus/10.1257/jep.13.4.3″>http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.13.4.3
Answer the questions
1.
What
is a financial crisis?
2.
How
did adverse selection and moral hazard contribute to the financial crisis in
Mexico and East Asia in the 1990s? What
are adverse selection and moral hazard?
3.
Did
irresponsible monetary and fiscal policy contribute to the crisis in the
90s? Why or why not?
4.
How
is it possible for the IMF to help in a crisis when a domestic central bank
might not be able to help.
5.
What
should the US learn (or have learned??) from the crisis in the 90s?
Read
Rogoff’s article about global financial instability.
.aeaweb.org/doi/pdfplus/10.1257/jep.13.4.21″>http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.13.4.21
Answer the questions
1.
According
to Rogoff, is the status quo in international lending viable or not? Explain.
2.
Can
the IMF handle international financial crises?
Why or why not?
3.
Rogoff
gives six solutions to save the global financial system (deep pockets lender of
last resort, an international financial crisis manager, an international
bankruptcy court, an international regulator, international deposit insurance
corporation, and a world monetary authority.)
What is wrong with all of these?
4.
Can
developing economies cope with speculative capital flows without help? Explain.
5.
What
will be (should be) the role that equity financing play in developing country
projects?
Read
Obstfeld on Global Capital Markets:
.nber.org/papers/w6559.pdf”>http://www.nber.org/papers/w6559.pdf
1.
Look at table 1 and figure 1. How does Obstfeld use the data in that table
to suggest that 1) markets became less open then more open in the 20th
century.
2.
What
is the “openness trilemma?” What are the
economic and/or policy trade-offs with having a global, open and integrated
financial system?
3.
How
does economic integration impact a nation’s ability to tax capital? Can you think of some high profile cases in
the news lately that illustrate this fact?
(Hint: you should be able to.)
4.
What
is the international diversification puzzle?
What market failures have arisen (if any) have arisen due to more
integration and openness?
Comparing
Obstfeld, Miskin, and Rogoff
1.
Would
the authors’ advice about policies to reduce the costs of financial integration
be the same? Why or why not?
2.
Would
the authors’ agree that we need an international regulatory body to stave off
international financial crises? Why or
why not?
3.
What
is your opinion? Is it good to have a
global financial market? Why or why not?
Homework 2
policies that created the great recession and answer these questions:
.org/publication/not-what-they-had-mind-history-policies-produced-financial-crisis-2008″>http://mercatus.org/publication/not-what-they-had-mind-history-policies-produced-financial-crisis-2008
- Using
only the executive summary, what does Kling think caused the Financial
Crisis of 2008? (Use only one
sentence.)
- One
page 5, what is “the fact?” and what does this “fact” mean to you?
- Briefly
summarize the four components of the Financial Crisis?
- On
page 10, Kling states, “These property bubbles (in the U.K. and Spain)
cannot be blamed on U.S. policy.”
How confident are you on that point? Is Kling wrong?
- Kling’s
matrix of causes, gives almost all weight to what two factors? What three factors are almost completely
not responsible?
- Many
have blamed designer financial (my term) like CDS and CDO and the shadow
banking system for the collapse.
How do these fit into Kling’s narrative?
- Outline
the progression of policy that caused/responded to economic conditions in
the 30s, 70s and 80s and 00s.
- What
role did the mortgage interest deduction have on housing market?
- What
institution invented and allowed the expansion of mortgage-backed
securities?
- What
is regulatory arbitrage?
- Why
did the Basel agreement create an advantage for mortgage securitization?
- Did
the Federal Reserve (and presumably other regulatory agencies know and even
encourage regulatory capital arbitrage?
What author does Kling cite to establish this?
- What
did the 2002 modification of the Basel Rules do to capital
requirements? (See figure 4)
- Summarize
the Shadow Regulatory Committee’s statement 160.
- Did
non market institutions, such as the IMF and Bernanke, think, in 2006,
that financial innovation had make the banking sector more or less
fragile?
- What
is time inconsistency? (You can
look this up elsewhere.)
- How
might “barriers to entry” by related to “safety and soundness?”
- A
Curmudgeon is an old man who is easily annoyed and angered. He also complains a lot. (I had to look it up.) I think I’ll change my xboxgamertag to
this word, but I’ll bet it is taken.
- How
did credit scoring and credit default swaps enlarge the mortgage
securities market?
- Why,
up until 2007, did we think that monetary expansion was all that was
needed to mitigate the impact of financial crises?
- Suppose
that financial markets are inherently unstable. What does this mean are two goals of
regulation and regulators?
- Why
are type two errors so problematic?
(Two reasons.)
- How
could we make the banking sector easy to fix?
Read
the linked lectures and answer the questions.
Lecture 1
.econlib.org/archives/2008/11/lectures_in_mac.html”>http://econlog.econlib.org/archives/2008/11/lectures_in_mac.html
1.1 Why do you think macroeconomic realities must be
reconciled with microeconomic analysis?
(This is not a rhetorical question, but it will be hard for you to
answer. There is no “wrong” answer you
could give. Just think about it for a
few minutes.)
Lecture 2
.econlib.org/archives/2008/11/lectures_in_mac_1.html”>http://econlog.econlib.org/archives/2008/11/lectures_in_mac_1.html
2.1 Consider this
article after you have read Hayek. How
do prices and wages perform the function of “central planning?”
2.2 Kling makes that
claim that, because most workers do not do manual labor anymore, the economy is
different that it was in 1930. Assuming
he is correct, do you think central planning would be harder today or easier? Why?
Lecture 3
.econlib.org/archives/2008/11/lectures_on_mac.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac.html
3.1 Give a one sentence definition of structural
unemployment, of frictional unemployment and of cyclical unemployment.
Lecture 4
.econlib.org/archives/2008/11/lectures_on_mac_1.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac_1.html
4.1 So, why does the economy adjust employment rather than
wages?
Lecture 5
.econlib.org/archives/2008/11/lectures_on_mac_2.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac_2.html
5.1 Kling gives 5
reasons the DotCom recession was worse than the previous two recessions (at
least in duration). Which reason do you
think is the most compelling?
Lecture 6
.econlib.org/archives/2008/11/lectures_on_mac_3.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac_3.html
6.1 Why are Keynesian
remedies (blunt fiscal and monetary policy measures) less appropriate in a post
industrial economy, according to Kling?
Lecture 7
.econlib.org/archives/2008/11/lectures_on_mac_4.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac_4.html
7.1 Why is it so hard
to separate finance and government, according to Kling?
Lecture 8
.econlib.org/archives/2008/11/lectures_on_mac_5.html”>http://econlog.econlib.org/archives/2008/11/lectures_on_mac_5.html
8.1 Why is American
Express Travelers Checks so interesting?
Do credit cards work in a similar way?
(I really don’t know the answer to this one. I just know that credit cards have made
travelers checks obsolete.)
Lecture 9.
.econlib.org/archives/2008/12/lectures_on_mac_6.html”>http://econlog.econlib.org/archives/2008/12/lectures_on_mac_6.html
9.1 According to this
article, why do we have banks (financial sector or financial intermediation?)
Lecture 10
.econlib.org/archives/2008/12/lectures_on_mac_7.html”>http://econlog.econlib.org/archives/2008/12/lectures_on_mac_7.html
10.1 Why are banks
better than barter, according to this lecture?
10.2 Politics tends
to favor bailouts of failed firms. Why
is this exactly wrong?
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