本书是美国众多知名商学院广受推崇的教科书，同时也是货币金融学领域的一本经典著作，自引入中国以来，一直畅销不衰。本版较上一版做了较大的改动，增加了很多新的内容、案例和专栏。本书共6篇、25章，通过建立一个统一的分析框架，用基本经济学理论帮助读者理解金融市场、金融机构管理、中央银行和货币政策以及国际金融等问题。本书适合金融专业以及相关经济专业的本科生和研究生作为教材使用，也适合作为专业人士的参考用书。
无
从事货币金融学的教学工作从来没有像现在这样令人兴奋。全球金融危机及其影响使人们注意到了银行、金融市场和货币政策对一国经济健康发展的重要性。我在2006～2008年担任美联储理事期间对这点深有体会。在本书中，为了给货币金融学的学习过程增添活力，我在其中加入了近几年一系列引人注目的经济事件。
第5版新增内容
虽然经历了一次重大修订，但本书仍旧保留了前4版作为美国最畅销货币金融学教科书的基本特点。与过去的版本一样，第5版利用基本的经济学原理，以严谨、清晰的方式阐释了金融市场、金融机构和货币政策。根据使用本书的经济学教授和学生的反馈，以及最新的全球金融事件，我会对每一版教材的相应内容进行更新。在过去的几个版本中，本书的数字资源（可以在MyLab Economics一上找到）得到了扩展。
新内容
鉴于货币金融学领域有了新的发展，我添加了以下新的章节、专栏和应用，以保持教材的时效性。
第1章的货币金融学与职业发展，向学生展示了对于货币、银行和金融市场的学习如何有助于他们的职业发展，即使他们最终没有在华尔街或银行工作。
第4章关于日本、美国和欧洲的负利率的环球视野专栏表明，尽管利率通常为正，但最近我们在一些国家发现了负利率。
第5章关于低通货膨胀率和长期经济停滞如何解释欧洲、日本和美国的低利率的新应用，显示了供需模型在解释当前利率变动中的作用。
第12章的《多德–弗兰克法案》描述了有关年度压力测试和美联储贷款限制的重要条款。
在《多德–弗兰克法案》（见第12章）呈现了当前美国国会关于金融监管的讨论之后，该章继续讨论金融监管未来的可能走向。
第18章描述了中央银行存款负利率这种新的非常规货币政策工具及其可能的效力。
第18章描述了欧洲中央银行准备金利息这一重要的政策工具。
第20章修订了购买力平价理论以及它不能在短期内解释汇率的原因，相比第4版提供了更清晰的说明。
第20章关于汉堡经济学、巨无霸和购买力平价的新应用，提供了一种有趣的方式，向学生展示了购买力平价在实践中的作用。
第20章关于英国脱欧的新应用讨论了英国退出欧盟这一备受争议的行为，以及这一行为对英镑价值产生巨大影响的原因。
第21章修订了国际收支部分，更清晰地介绍了学生在媒体中听到的有关国际收支的关键概念。
第21章修订的关于我们是否应该担心美国经常账户出现巨额赤字的环球视野专栏，可以帮助学生理解媒体和国会对该账户的说法。
此外，利用2017年的数据，本书更新了一些图表。MyLab Economics提供了大约80个迷你讲座视频（mini-lecture video）。本版对每一章的章后问题进行了更新，有的甚至是全面更新。学生可以在MyLab Economics上完成这些问题，在那里他们可以得到即时的反馈和指导。
解决教与学的挑战
对于学生来说，理解任何一本经济学教科书中的模型、关键术语和公式都是很重要的。然而，学生可能会陷于细节，而忽视了对整体的理解。本书的内容、结构和特点是根据市场反馈与多年的教学经验而设计的，目的是培养学生将这些要素（模型、术语和公式）应用于分析现实事件的能力。学生也要学会将他们所学的知识运用于生活决策，例如汽车贷款利率或抵押贷款利率会怎么变动，什么事件可能会影响失业率，这会对找工作的难易程度产生什么影响，等等。
教学特点
以下是我对本书教学特点的概述，它既能解决教学问题，也能促进学生学习。
本书通过利用基本的经济学原理，构建一个统一的分析框架，进而促进学生对金融市场结构、外汇市场、金融机构管理以及货币政策在经济中的作用进行深入思考。
本书对经济模型采用了一种细致的、循序渐进的建模方式来讲解（这也是经济学经典教科书中常用的方法），因此更便于学生学习。
配有详细说明的图表和迷你讲座视频有助于学生清楚地理解绘制的变量之间的相互关系与分析的主要原则。MyLab Economics提供了一种尤其适合于当今学生的新的学习方式。学生不仅能够阅读教科书上的内容，而且通过简单点击图标即可观看由作者展示的80多个迷你讲座视频（包括书中的每一个图）。对于分析型图表，这些迷你讲座一步步构建图解，并进行必要的解释以使学生充分理解图表背后的理论。迷你讲座对学生而言是一种非常宝贵的学习工具，因为当学生看到和听到经济学分析时，他们通常会学得更好。
“环球视野”专栏全面整合国际视角，展示了一些引发国际关注的有趣资料。
“走进美联储”专栏使学生对联邦储备体系的运作及结构有了一种直观感受。
“应用”总数超过50个，展现了书中的理论分析如何用于解释实际情况。
“参考资料”专栏强调了一些有关每章主题的戏剧性历史事件、有趣的思想以及引人入胜的事实情况。
超过600道思考题以及应用题有助于学生运用经济概念学习相关内容。
MyLab Economics
将本书与MyLab Economics结合能使教师接触到每个学生。MyLab是一个教学平台，使教师能接触到每个学生。通过将值得信赖的作者与数字化工具、灵活的平台相结合，MyLab可以创造个性化的学习体验，提高每个学生的成绩。
提供值得信赖的学习内容。为了让教师得到符合自己高标准的教材，我们与备受尊敬的作者合作，开发出可信赖的学习内容和课程特定资源，可以让每名学生参与其中。
为每个学生提供帮助。每个学生的学习进度不同，无论何时何地，个性化学习确定了每个学生需要练习的精确区域，可以成功地为所有学生提供所需的帮助。
按照自己的方式教授课程。你教授的课程独一无二，因此，无论你是想布置作业、教授多个部分，还是想设置前提条件，MyLab都能让你灵活地轻松创建适合你的需求的课程。
提高学生成绩。20多年来，教师之所以选择MyLab向5 000多万名学生讲授课程，原因在于当使用MyLab进行教学时，学生的成绩会有所提高。
轻松灵活的作业创建功能
MyLab Economics具备轻松灵活的作业创建功能，它允许教师分配各种定制的作业，以满足他们特定的教学需求。
登录http：//www.pearson.com/mylab/economics可以获取更多有关任意规模课程的数字互动、学习管理系统（LMS）一体化选择、课程管理选择的信息。
培养职业技能
本书统一的分析框架、循序渐进的建模方式能够培养学习者的批判性思考能力，这种能力可以使他们在未来的职业生涯中大获成功。如果未来你想在金融部门工作，那么学习货币金融学无疑是很有用的。即使你的工作兴趣在别处，理解利率的涨跌机制也能帮助你决定借钱的恰当时机。了解银行和其他金融机构的管理机制可以帮助你在融资过程中获得更大的收益。不论是对你自己还是对你的公司而言，明白金融市场如何运作能帮助你做出更佳的投资决策。
职业技能特点
如下面所述，本书也具有其他特点，有助于直接培养你的职业技能。
本书包含了“金融新闻解读”专栏，鼓励大家阅读财经报纸。金融新闻解读专栏向学生介绍了媒体发布的相关新闻及数据，培养学生解读这些数据的能力。能够批判性地思考财经媒体报道的内容是一项很重要的技能，可以使学生在未来的工作中更有效率。
本书大部分图表中的数据都是实时数据，关于这些图表，学生可以利用圣路易斯联邦储备银行（St. Louis Federal Reserve）FRED数据库，在MyLab Economics上查看最新数据。在之后的职业生涯中，学生能够知道在哪里可以访问这些数据。
MyLab Economics中涉及实时数据分析的问题，要求学生从圣路易斯联邦储备银行 FRED 网站上下载最新的数据，然后运用这些数据回答有关宏观经济当前的问题。在 MyLab Economics中，这些易于分配和自动分级的实时数据在分析问题时可以直接与 FRED网站关联，每次学生上线时都能看到FRED上传的最新数据。因此，对于希望在宏观经济学课程中运用最新数据分析问题的教师而言，实时数据系统成为他们必不可少的解决方案，这能帮助学生培养一项雇主非常重视的技能—数据操作。
灵活性与模块化
在之前几个版本的使用过程中，本书的灵活性与模块化—章节内容的挑选及叙述顺序的安排，一直为采用者、评论人以及相关受访人员所津津乐道。由于每位教师的教授方法都不尽相同，所以在货币金融学课程的学习中，灵活性与模块化显得尤为重要。为了满足教师的多元需求，本书的灵活性主要体现如下。
核心章节提供了一些贯穿整本教材的基本分析方法，根据教师的偏好，其他章节可以选择使用。例如，第2章介绍了金融体系以及诸如交易成本、逆向选择和道德风险的基本概念。所以在讲授完第2章之后，教师可以通过选择第8章对金融体系进行更深入的讲解，当然也可以选择其他讲授顺序而跳过第8章的内容。
如果教师希望学生对货币政策的基本原理有更深入的理解，可以选择在讲授第四篇之 前，先向学生讲解第六篇中较简单的货币内容。
对于第25章中有关货币政策传导机制的内容可以选择在课程中的许多不同时点进行讲授。例如，教师可以在货币政策的讨论结束之后结合第四篇的内容进行讲解，也可以在介绍完总需求的概念之后结合第23章的内容进行讲授。当然，货币政策的传导机制也可以作为一个专题在课程结束的时候进行讲授。
通过标记出每章中有关国际内容的小节，以及将汇率市场与国际货币体系内容单独成章，本书的国际方法既实现了全面综合又实现了灵活可变。尽管许多教师都会讲授所有的国际内容，但是也有教师选择跳过。不想过多强调国际专题的教师可以选择轻松跳过第20章的外汇市场以及第21章的国际因素和货币政策。由于每章中的国际小节都是独立的，所以跳过这些小节并不会影响教材整体的连续性。
为了说明本书如何能够用于不同侧重点的课程，我们提供了一些适用于一个课程安排的大纲。教学手册一中包含了更多有关如何在课程中灵活使用本书的信息。
一般货币银行学课程：第1～5章、第9～11章、第16 章、第18章、第23～24章，以及从剩余的13章中选择7章。
强调国际专题的一般货币银行学课程：第1～5章、第9～11章、第16章、第18～21章、第23～24章，以及从剩余的10章中选择4章。
金融市场与金融机构课程：第1～12章，以及从剩余的13章中选择7章。
美国商学院版：更基于金融导向的方法
本人很高兴能够继续提供两个版本的《货币金融学》。这两个版本都包括了所有学者想要覆盖的核心章节，但是《货币金融学》（美国商学院版）提供了一种更加基于金融学的方法，很多商学院更偏向于使用该方法进行教学，而且一些经济领域的教师在讲授货币金融学课程时也更偏向于该方法。特别是对于那些不太强调货币理论的教师，《货币金融学》（美国商学院版）将会更加满足他们的需求。美国商学院版包含关于非银行金融、金融衍生产品和金融业利益冲突的章节，但省略了关于 IS 曲线、货币政策、总需求曲线以及货币政策预期作用的章节。
对于渴望全面讨论货币理论和货币政策的教师来说，我的《货币金融学》（第12版），包含了所有关于货币理论的章节。但不得不说，教师通常很难把所有有关金融与机构知识的章节进行全面讲解。因此，《货币金融学》（第12版）省略了关于非银行金融、金融衍生产品和金融业利益冲突的章节。
附录和其他资源
《货币金融学》（美国商学院版·原书第5版）提供的其他资源包括：①《货币金融学》（第12版）省略的3个章节；②关于新兴市场经济体金融危机和IS-LM模型的章节；③超过20个附录涵盖了教师可能希望在课程中包含的附加主题和更多的技术资料。读者可以在www.pearson.com/mylab/economics上浏览这些内容。
教师可以在课堂上使用这些章节和附录作为补充材料，也可以将它们推荐给那些想要扩展自己的货币和银行领域知识的学生。请访问www.pearson.com/mylab/economics获取更多信息。
教学资源一
本教材包含以下教学资源。
教师资源手册：这份由我准备的在线资源可以满足传统的教学所需，比如课程大纲范例、章节大纲以及教材中思考题与其他问题的答案。
由得克萨斯大学阿灵顿分校的凯西·凯利（Kathy Kelly）和西密歇根大学的詹姆斯·黄（James Hueng）编撰的题库：包含超过2 500道大多有图表的选择题以及短文测试题；问题设置符合美国国际商学院促进协会（AACSB）要求的学习标准（书面以及口头交流、伦理理解、逻辑推理、分析性思考、信息技术、人际关系以及团队合作、多元文化工作环境、批判性思维以及知识的应用）。
Testgen：这项在线资源能够协助教师高效地编写考试题，包含在线题库中的选择题以及论述题，并且可以进行编辑。
由德保罗大学（DePaul University）的保罗·库比克（Paul Kubik）提供的PowerPiont演示文稿：提供了教材中涉及的所有图表以及所有课程材料的详尽教案；希望使用板书上课的教师可以将PowerPonit幻灯片作为自己的课堂笔记，希望使用视觉辅助的教师可以使用幻灯片来上课。
致谢
在这项浩大的工程中，总有一些需要感谢的人，我要特别感谢本书的策划编辑Christina Masturzo，还要感谢Carolyn Philips、Kathy Smith的贡献，同时我还得到了哥伦比亚大学学生的帮助。
另外，我也参考了审稿人特别是Jin Eaton以及Aaron Jackson具有思想性的意见，他们的意见让本书更加完善。特别地，我要感谢在这版教材的写作过程中进行审校的教授（具体人名省略）。
最后，我想感谢我的妻子Sally，我的儿子Matthew，我的女儿Laura，我的3个干女儿Glenda、Alba、Norma，我的7个孙子和孙女Roby、Sofia、Sammy、Sarita、Adrian、Olivia和Ellis，他们为我的工作提供了一个温暖、愉悦的环境；我还要感谢已过世的父亲Sidney，他在很久之前就将我带上了写作本书的道路。
货币金融学
本书是美国众多知名商学院广受推崇的教科书，同时也是货币金融学领域的一本经典著作，自引入中国以来，一直畅销不衰。本版较上一版做了较大的改动，增加了很多新的内容、案例和专栏。本书共6篇、25章，通过建立一个统一的分析框架，用基本经济学理论帮助读者理解金融市场、金融机构管理、中央银行和货币政策以及国际金融等问题。本书适合金融专业以及相关经济专业的本科生和研究生作为教材使用，也适合作为专业人士的参考用书。
作者简介
前言
术语表
第一篇 导论
第1章 为什么要研究货币、银行和金融市场 2
1.1 研究金融市场的原因 2
1.2 研究银行和其他金融机构的原因 5
1.3 研究货币和货币政策的原因 7
1.4 研究国际金融问题的原因 11
1.5 货币、银行和金融市场与你的职业发展 14
1.6 研究货币、银行和金融市场的方法 14
1.7 结语 15
本章小结 15
关键术语/思考题 16
应用题/数据分析题 17
网络练习/网络参考 18
附录1A 对于总产出、总收入、物价水平和通货膨胀率的定义 19
第2章 金融体系概览 22
2.1 金融市场的功能 22
2.2 金融市场的结构 25
2.3 金融市场工具 27
2.4 金融市场的国际化 31
2.5 金融中介机构的功能：间接融资 33
2.6 金融中介机构的类型 38
2.7 金融体系的监管 42
本章小结 45
关键术语/思考题 46
应用题 47
数据分析题/网络练习/网络参考 48
第3章 什么是货币 49
3.1 货币的含义 49
3.2 货币的职能 50
3.3 支付体系的演变 53
3.4 货币的计量 56
本章小结 59
关键术语/思考题 60
应用题 61
数据分析题/网络练习/网络参考 62
第二篇 金融市场
第4章 理解利率 64
4.1 利率的计量 64
4.2 利率和回报率的区别 75
4.3 实际利率和名义利率的区别 80
本章小结/关键术语/思考题 83
应用题 84
数据分析题/网络练习/网络参考 85
第5章 利率行为 86
5.1 资产需求的决定因素 86
5.2 债券市场的供给和需求 89
5.3 均衡利率的变动情况 92
5.4 货币市场的供给和需求：流动性偏好理论 102
5.5 流动性偏好理论中的均衡利率变动 105
5.6 货币和利率 108
本章小结/关键术语/思考题 113
应用题 114
数据分析题 115
网络练习/网络参考 116
第6章 利率的风险与期限结构 117
6.1 利率的风险结构 117
6.2 利率的期限结构 125
本章小结/关键术语/思考题 137
应用题/数据分析题 139
网络练习/网络参考 140
第7章 股票市场、理性预期理论和有效市场假说 141
7.1 普通股股票价格的计算 141
7.2 股票市场的定价机制 144
7.3 理性预期理论 146
7.4 有效市场假说：金融市场中的理性预期理论 150
7.5 为什么有效市场假说并不意味着金融市场是有效的 156
7.6 行为金融 157
本章小结 158
关键术语/思考题 159
应用题 160
数据分析题/网络练习/网络参考 161
第三篇 金融机构
第8章 金融结构的经济学分析 164
8.1 世界各国金融结构的基本特征 164
8.2 交易成本 167
8.3 信息不对称：逆向选择和道德风险 169
8.4 次品车问题：逆向选择如何影响金融结构 169
8.5 道德风险如何影响债权合约和股权合约的选择 175
8.6 道德风险如何影响债务市场的金融结构 178
本章小结 184
关键术语/思考题 185
应用题 186
数据分析题/网络练习/网络参考 187
第9章 银行业与金融机构管理 188
9.1 银行的资产负债表 188
9.2 银行的基本业务 192
9.3 银行管理的基本原则 195
9.4 信用风险管理 203
9.5 利率风险管理 207
9.6 表外业务活动 209
本章小结 212
关键术语/思考题 213
应用题 214
数据分析题/网络练习 215
网络参考 216
第10章 金融监管的经济学分析 217
10.1 信息不对称与银行监管 217
10.2 金融监管类别 222
本章小结 232
关键术语/思考题 233
应用题/数据分析题 234
网络练习/网络参考 235
第11章 银行业：结构与竞争 236
11.1 银行体系的发展历史 236
11.2 金融创新和“影子银行体系”的发展 239
11.3 美国商业银行业的结构 250
11.4 银行并购与全美范围的银行业 253
11.5 银行业与其他金融服务业的分离 257
11.6 储蓄行业：监管和结构 259
11.7 国际银行业务 261
本章小结 264
关键术语/思考题 265
数据分析题 266
网络练习/网络参考 267
第12章 金融危机 268
12.1 什么是金融危机 268
12.2 历史上美国金融危机的发生机制 269
12.3 2007～2009年的全球金融危机 275
12.4 金融监管的反应 284
12.5 “大而不倒”和未来的监管 286
本章小结 289
关键术语/思考题 290
数据分析题 291
网络练习/网络参考 292
第13章 非银行金融机构 293
13.1 保险业 293
13.2 养老基金 301
13.3 财务公司 304
13.4 证券市场运作 305
13.5 共同基金 307
13.6 对冲基金 309
13.7 私募股权投资基金和风险投资基金 310
13.8 政府金融中介机构 311
本章小结 313
关键术语/思考题 314
应用题/数据分析题 315
网络练习/网络参考 316
第14章 金融衍生工具 317
14.1 避险 317
14.2 远期利率合约 318
14.3 金融期货合约和金融期货市场 320
14.4 期权 327
14.5 互换 334
14.6 信用衍生产品 336
本章小结/关键术语 340
思考题/应用题 341
数据分析题 342
网络练习/网络参考 343
第15章 金融行业中的利益冲突 344
15.1 利益冲突及其重要性 345
15.2 职业道德和利益冲突 345
15.3 利益冲突的种类 346
15.4 市场可以限制利益冲突吗 350
15.5 为了解决利益冲突问题已采取了哪些措施 352
15.6 克服利益冲突的政策的评估框架 354
本章小结 359
关键术语/思考题 360
网络练习/网络参考 361
第四篇 中央银行与货币政策的制定
第16章 中央银行与联邦储备体系 364
16.1 美国联邦储备体系的起源 364
16.2 联邦储备体系的结构 365
16.3 联邦储备体系的独立性 375
16.4 联邦储备体系应该保持独立性吗 377
16.5 解释中央银行的行为 379
16.6 欧洲中央银行的结构与独立性 381
16.7 其他国家中央银行的结构与独立性 383
本章小结 385
关键术语/思考题 386
数据分析题/网络练习/网络参考 387
第17章 货币供给过程 388
17.1 货币供给过程的三个参与者 388
17.2 联邦储备体系的资产负债表 388
17.3 基础货币的控制 390
17.4 多倍存款创造：一个简化的模型 395
17.5 决定货币供给的因素 401
17.6 货币供给过程综述 402
17.7 货币乘数 403
本章小结/关键术语/思考题 409
应用题 410
数据分析题/网络练习 411
网络参考 412
第18章 货币政策工具 413
18.1 准备金市场和联邦基金利率 413
18.2 常规货币政策工具 420
18.3 非常规货币政策工具和量化宽松 427
18.4 欧洲中央银行的货币政策工具 434
本章小结 435
关键术语/思考题 436
应用题 437
数据分析题/网络练习/网络参考 438
第19章 货币政策的实施：战略与策略 439
19.1 物价稳定目标和名义锚 439
19.2 货币政策的其他目标 441
19.3 物价稳定应该是货币政策的首要目标吗 443
19.4 通货膨胀目标制 444
19.5 美联储货币政策战略的变革 450
19.6 全球金融危机中的货币政策战略 454
19.7 中央银行应该试图阻止资产价格泡沫吗 456
19.8 策略：政策工具的选择 460
19.9 策略：泰勒规则 463
本章小结/关键术语 467
思考题 468
应用题/数据分析题 469
网络练习 470
网络参考 471
第五篇 国际金融与货币政策
第20章 外汇市场 474
20.1 外汇市场 474
20.2 长期汇率 477
20.3 短期汇率：供求分析 483
20.4 解释汇率的变动 485
本章小结 494
关键术语/思考题 495
应用题/数据分析题 496
网络练习/网络参考 497
附录20A 利率平价条件 498
第21章 国际金融体系 502
21.1 外汇市场干预 502
21.2 国际收支 506
21.3 国际金融体系下的汇率制度 508
21.4 资本管制 517
21.5 国际货币基金组织的职责 518
21.6 国际因素和货币政策 519
21.7 钉住还是不钉住：作为货币政策战略的汇率目标制 520
本章小结 526
关键术语/思考题 527
应用题 528
数据分析题 529
网络练习/网络参考 530
第六篇 货币理论
第22章 货币数量论、通货膨胀和货币需求 532
22.1 货币数量论 532
22.2 预算赤字和通货膨胀 538
22.3 凯恩斯的货币需求理论 541
22.4 货币需求资产组合理论 542
22.5 货币需求的实证分析 544
本章小结/关键术语/思考题 546
应用题/数据分析题 548
网络练习/网络参考 549
第23章 总需求和总供给分析 550
23.1 总需求 550
23.2 总供给 556
23.3 总供给曲线的移动 558
23.4 总供给和总需求分析中的均衡 562
23.5 总需求冲击导致的均衡变动 566
23.6 均衡变动：总供给（通货膨胀）冲击 569
23.7 国外经济周期AD/AS分析 577
本章小结 581
关键术语/思考题 582
应用题/数据分析题 583
网络练习/网络参考 584
附录23A 菲利普斯曲线和短期总供给曲线 585
第24章 货币政策理论 594
24.1 货币政策对经济冲击的反应 594
24.2 政策制定者怎样主动地稳定经济活动 602
24.3 通货膨胀：无论何时何地都是一种货币现象 603
24.4 通货膨胀型货币政策的根源 604
24.5 零利率下限的货币政策 610
本章小结/关键术语 619
思考题 620
应用题/数据分析题 621
网络练习/网络参考 622
第25章 货币政策传导机制 623
25.1 货币政策传导机制 623
25.2 货币政策的启示 632
本章小结/关键术语/思考题 635
应用题 636
数据分析题/网络练习/网络参考 637
Brief Contents
PART 1 Introduction 1
1 Why Study Money, Banking, and Financial Markets? ........................... 2
2 An Overview of the Financial System .. 22
3 What Is Money? ................... 49
PART 2 Financial Markets 63
4 The Meaning of Interest Rates ........... 64
5 The Behavior of Interest Rates ........ 86
6 The Risk and Term Structure of Interest Rates ............................... 117
7 The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis ............ 141
PART 3 Financial Institutions 163
8 An Economic Analysis of Financial Structure 164
9 Banking and the Management of Financial Institutions ................................... 188
10 Economic Analysis of Financial Regulation ............... 217
11 Banking Industry: Structure and Competition ................................... 236
12 Financial Crises ...................... 268
13 Nonbank Finance ................................. 293
14 Financial Derivatives ........................... 317
15 Conflicts of Interest in the Financial Industry .......... 344
PART 4 Central Banking and the Conduct of Monetary Policy 363
16 Central Banks and the Federal Reserve System .................................. 364
17 The Money Supply Process ................... 388
18 Tools of Monetary Policy ............... 413
19 The Conduct of Monetary Policy: Strategy and Tactics ................................. 439
PART 5 International Finance and Monetary Policy 473
20 The Foreign Exchange Market ......... 474
21 The International Financial System............... 502
PART 6 Monetary Theory 531
22 Quantity Theory, Inflation, and the Demand for Money................................... 532
23 Aggregate Demand and Supply Analysis ......... 550
24 Monetary Policy Theory................ 594
25 Transmission Mechanisms of Monetary Policy ... 623
Additional Chapters on MyLab Economics
1 Financial Crises in Emerging Market Economies
2 The IS Curve
3 The Monetary Policy and Aggregate Demand Curves
4 The Role of Expectations in Monetary Policy
5 The ISLM Model
Contents in Detail
PART 1 Introduction 1
CHAPTER 1
Why Study Money, Banking, and Financial Markets? 2
Why Study Financial Markets? ...........2
Debt Markets and Interest Rates ... 3
The Stock Market ......... 3
Why Study Financial Institutions and Banking?..................
5
Structure of the Financial System . 5
Banks and Other Financial Institutions.............................. 6
Financial Innovation..... 6
Financial Crises............6
Why Study Money and Monetary Policy?............................7
Money and Business Cycles .......... 7
Money and Inflation.....7
Money and Interest Rates.............. 9
Conduct of Monetary Policy ......... 9
Fiscal Policy and Monetary Policy....................................
Why Study International Finance? . 11
The Foreign Exchange Market .... 12
The International Financial System.................................. 13
Money, Banking, and Financial Markets and Your Career............ 14
How We Will Study Money, Banking, and Financial Markets...... 14
Exploring the Web ............................. 15
Concluding Remarks ..........
........................15
Summary 15 . Key Terms 16 . Questions 16 . Applied Problems 17 .
Data Analysis Problems 17 . Web Exercises 18 . Web References 18
APPENDIX TO CHAPTER 1
Defining Aggregate Output, Income, the Price Level, and the Inflation Rate 19
Aggregate Output and Income ....... 19
Real Versus Nominal Magnitudes .. 19
Aggregate Price Level.........
............20
Growth Rates and the Inflation Rate .................................. 21
CHAPTER 2
An Overview of the Financial System 22
Function of Financial Markets......... 22
Structure of Financial Markets......... 25
Debt and Equity Markets............25
Primary and Secondary Markets . 25
Exchanges and Over-the-Counter Markets.......................26
Money and Capital Markets........27
Financial Market Instruments.......... 27
Money Market Instruments........27
Following the Financial News Money Market Rates 28
Capital Market Instruments........29
Following the Financial News Capital Market Interest Rates 30
Internationalization of Financial Markets ......................... 31
Global Are U.S. Capital Markets Losing Their Edge? 32
International Bond Market, Eurobonds, and Eurocurrencies ...........32
World Stock Markets ..............33
Function of Financial Intermediaries: Indirect Finance............. 33
Following the Financial News World Stock Market Indexes 34
Transaction Costs ...................34
Global The Importance of Financial Intermediaries Relative to Securities Markets: An International Comparison 35
Risk Sharing.36
Asymmetric Information: Adverse Selection and Moral Hazard.......36
Economies of Scope and Conflicts of Interest.........................38
Types of Financial Intermediaries. 38
Depository Institutions.............38
Contractual Savings Institutions........40
Investment Intermediaries........41
Regulation of the Financial System....... 42
Increasing Information Available to Investors..........................42
Ensuring the Soundness of Financial Intermediaries...............43
Financial Regulation Abroad.....45
Summary 45 . Key Terms 46 . Questions 46 . Applied Problems 47 .
Data Analysis Problems 48 . Web Exercises 48 . Web References 48
CHAPTER 3
What Is Money? 49
Meaning of Money........................... 49
Functions of Money ......................... 50
Medium of Exchange................50
Unit of Account........................51
Store of Value ...........................52
Evolution of the Payments System........ 53
Commodity Money ..................53
Fiat Money...............................53
Checks 53
Electronic Payment...................54
E-Money .................................. 54
FYI Are We Headed for a Cashless Society? 55
APPLICATION Will Bitcoin Become the Money of the Future?.................................55
Measuring Money............................. 56
The Federal Reserve’s Monetary Aggregates ............................ 56
Following the Financial News The Monetary Aggregates 57
FYI Where Are All the U.S. Dollars? 58
Summary 59 . Key Terms 60 . Questions 60 . Applied Problems 61 .
Data Analysis Problems 62 . Web Exercises 62 . Web References 62
PART 2 Financial Markets 63
CHAPTER 4
The Meaning of Interest Rates 64
Measuring Interest Rates ................ 64
Present Value............................64
APPLICATION Simple Present Value............................66
APPLICATION How Much Is That Jackpot Worth?..................66
Four Types of Credit Market Instruments ............................... 67
Yield to Maturity................................... 68
APPLICATION Yield to Maturity on a Simple Loan..................68
APPLICATION Yield to Maturity and the Yearly Payment on a Fixed-Payment Loan ......70
APPLICATION Yield to Maturity and the Bond Price for a Coupon Bond .................71
APPLICATION Yield to Maturity on a Perpetuity.....................73
APPLICATION Yield to Maturity on a Discount Bond..............74
The Distinction Between Interest Rates and Returns............ 75
Global Negative Interest Rates? Japan First, Then the United States, Then Europe 76
Maturity and the Volatility of Bond Returns: Interest-Rate Risk........78
Summary.................................. 79
The Distinction Between Real and Nominal Interest Rates ........................ 80
APPLICATION Calculating Real Interest Rates.........................81
Summary 83 . Key Terms 83 . Questions 83 . Applied Problems 84 .
Data Analysis Problems 85 . Web Exercises 85 . Web References 85
CHAPTER 4 APPENDIX
Measuring Interest-Rate Risk: Duration
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CHAPTER 5
The Behavior of Interest Rates 86
Determinants of Asset Demand................ 86
Wealth.87
Expected Returns .....................87
Risk.....87
Liquidity ..................................88
Theory of Portfolio Choice ...................88
Supply and Demand in the Bond Market ................................ 89
Demand Curve.........................89
Supply Curve ...........................90
Market Equilibrium..................91
Supply and Demand Analysis...............92
Changes in Equilibrium Interest Rates . 92
Shifts in the Demand for Bonds93
Shifts in the Supply of Bonds................96
APPLICATION Changes in the Interest Rate Due to a Change in Expected Inflation: The Fisher Effect................ 98
APPLICATION Changes in the Interest Rate Due to a Business Cycle Expansion....100
APPLICATION Explaining Current Low Interest Rates in Europe, Japan, and the United States: Low Inflation and Secular Stagnation ....................... 101
Supply and Demand in the Market for Money: The Liquidity Preference Framework..............................102
Changes in Equilibrium Interest Rates in the Liquidity Preference Framework........105
Shifts in the Demand for Money......105
Shifts in the Supply of Money.105
APPLICATION Changes in the Equilibrium Interest Rate Due to Changes
in Income, the Price Level, or the Money Supply .................. 106
Changes in Income.................107
Changes in the Price Level......107
Changes in the Money Supply............107
Money and Interest Rates.....................108
APPLICATION Does a Higher Rate of Growth of the Money Supply Lower Interest Rates?..........................110
Summary 113 . Key Terms 113 . Questions 113 . Applied Problems 114 . Data Analysis Problems 115 . Web Exercises 116 . Web References 116
CHAPTER 5 APPENDIX 1
Models of Asset Pricing
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CHAPTER 5 APPENDIX 2
Applying the Asset Market Approach to a Commodity Market: The Case of Gold
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CHAPTER 5 APPENDIX 3
Loanable Funds Framework
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CHAPTER 6
The Risk and Term Structure of Interest Rates 117
Risk Structure of Interest Rates..............117
Default Risk.................................. 117
FYI Conflicts of Interest at Credit-Rating Agencies and the Global Financial Crisis 121
APPLICATION The Global Financial Crisis and the Baa-Treasury Spread...............122
Liquidity ................................... 122
Income Tax Considerations ..................... 123
Summary... 124
APPLICATION Effects of the Obama Tax Increase on Bond Interest Rates..............124
Term Structure of Interest Rates.................125
Following the Financial News Yield Curves 125
Expectations Theory......... 127
Segmented Markets Theory ................... 130
Liquidity Premium and Preferred Habitat Theories.. 131
Evidence on the Term Structure ................. 134
FYI The Yield Curve as a Forecasting Tool for Inflation and the Business Cycle 135
Summary.................. 135
APPLICATION Interpreting Yield Curves, 1980–2017135
Summary 137 . Key Terms 137 . Questions 137 . Applied Problems 139 . Data Analysis Problems 139 . Web Exercises 140 . Web References 140
CHAPTER 7
The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis 141
Computing the Price of Common Stock.........141
The One-Period Valuation Model ............. 142
The Generalized Dividend Valuation Model... 143
The Gordon Growth Model ....................... 143
How the Market Sets Stock Prices.............144
APPLICATION Monetary Policy and Stock Prices..................................146
APPLICATION The Global Financial Crisis and the Stock Market...........................146
The Theory of Rational Expectations..................146
Formal Statement of the Theory ...................... 148
Rationale Behind the Theory ............... 148
Implications of the Theory ...................... 149
The Efficient Market Hypothesis: Rational Expectations in Financial Markets..........150
Rationale Behind the Hypothesis....................151
Random-Walk Behavior of Stock Prices...............152
Global Should Foreign Exchange Rates Follow a Random Walk? 153
APPLICATION Practical Guide to Investing in the Stock Market.........................153
How Valuable Are Published Reports by Investment Advisers?...............................153
Should You Be Skeptical of Hot Tips?.......................154
FYI Should You Hire an Ape as Your Investment Adviser? 155
Do Stock Prices Always Rise When There Is Good News?155
Efficient Market Prescription for the Investor..155
Why the Efficient Market Hypothesis Does Not Imply That Financial Markets Are Efficient ........................ 156
APPLICATION What Do Stock Market Crashes Tell Us About the Efficient Market Hypothesis and the Efficiency of Financial Markets?.........................157
Behavioral Finance .........................157
Summary 158 . Key Terms 159 . Questions 159 . Applied Problems 160 . Data Analysis Problems 161 . Web Exercises 161 . Web References 161
CHAPTER 7 APPENDIX
Evidence on the Efficient Market Hypothesis
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PART 3 Financial Institutions 163
CHAPTER 8
An Economic Analysis of Financial Structure 164
Basic Facts About Financial Structure Throughout the World............................164
Transaction Costs......................167
How Transaction Costs Influence Financial Structure......167
How Financial Intermediaries Reduce Transaction Costs..168
Asymmetric Information: Adverse Selection and Moral Hazard...................................169
The Lemons Problem: How Adverse Selection Influences Financial Structure.........169
Lemons in the Stock and Bond Markets..................170
Tools to Help Solve Adverse Selection Problems.....170
FYI The Enron Implosion 172
How Moral Hazard Affects the Choice Between Debt and Equity Contracts............175
Moral Hazard in Equity Contracts: The Principal–Agent Problem............................175
Tools to Help Solve the Principal–Agent Problem.....176
How Moral Hazard Influences Financial Structure in Debt Markets............................178
Tools to Help Solve Moral Hazard in Debt Contracts.......178
Summary..........180
APPLICATION Financial Development and Economic Growth...............................181
FYI The Tyranny of Collateral 182
APPLICATION Is China an example to the Importance of Financial Development?................................. 183
Summary 184 . Key Terms 185 . Questions 185 . Applied Problems 186 .
Data Analysis Problems 187 . Web Exercises 187 . Web References 187
CHAPTER 9
Banking and the Management of Financial Institutions 188
The Bank Balance Sheet....................188
Liabilities..... 188
Assets ................................... 191
Basic Banking....192
General Principles of Bank Management......................195
Liquidity Management and the Role of Reserves ..... 195
Asset Management.............................. 198
Liability Management .................. 199
Capital Adequacy Management ............................... 200
APPLICATION Strategies for Managing Bank Capital ..202
APPLICATION How a Capital Crunch Caused a Credit Crunch During the Global Financial Crisis.................... 203
Managing Credit Risk...203
Screening and Monitoring .............................. 204
Long-Term Customer Relationships.................... 205
Loan Commitments................................... 206
Collateral and Compensating Balances ........... 206
Credit Rationing...................................206
Managing Interest-Rate Risk........................207
Gap and Duration Analysis................... 208
APPLICATION Strategies for Managing Interest-Rate Risk..................................209
Off-Balance-Sheet Activities.........................209
Loan Sales .................... 210
Generation of Fee Income ................ 210
Trading Activities and Risk Management Techniques.............210
Global Barings, Daiwa, Sumitomo, Société Générale, and JP Morgan Chase: Rogue Traders and the Principal–Agent Problem 211
Summary 212 . Key Terms 213 . Questions 213 . Applied Problems 214 . Data Analysis Problems 215 . Web Exercises 215 . Web References 216
CHAPTER 9 APPENDIX 1
Duration Gap Analysis
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CHAPTER 9 APPENDIX 2
Measuring Bank Performance
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CHAPTER 10
Economic Analysis of Financial Regulation 217
Asymmetric Information as a Rationale for Financial Regulation.................................217
Government Safety Net ..................217
Global The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing? 219
Drawbacks of the Government Safety Net...............220
Types of Financial Regulation .............222
Restrictions on Asset Holdings .......................222
Capital Requirements......................223
Global Where Is the Basel Accord Heading After the Global Financial Crisis? 224
Prompt Corrective Action......................225
Financial Supervision: Chartering and Examination...........................225
Assessment of Risk Management ........226
Disclosure Requirements........................227
Consumer Protection.....................228
Restrictions on Competition..........228
Summary.................................229
Global International Financial Regulation 230 Summary 232 . Key Terms 233 . Questions 233 . Applied Problems 234 . Data Analysis Problems 234 . Web Exercises 235 . Web References 235
CHAPTER 10 APPENDIX 1
The 1980s Banking and Savings and Loan Crisis
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CHAPTER 10 APPENDIX 2
Banking Crises Throughout the World
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CHAPTER 11
Banking Industry: Structure and Competition 236
Historical Development of the Banking System............236
Multiple Regulatory Agencies ........238
Financial Innovation and the Growth of the “Shadow Banking System”...............................239
Responses to Changes in Demand Conditions: Interest-Rate Volatility................................240
Responses to Changes in Supply Conditions: Information Technology...............................241
Securitization and the Shadow Banking System...............................243
Avoidance of Existing Regulations ..................... 245
FYI Bruce Bent and the Money Market Mutual Fund Panic of 2008 246
Financial Innovation and the Decline of Traditional Banking......................247
Structure of the U.S. Commercial Banking Industry......250
Restrictions on Branching................................. 252
Response to Branching Restrictions ..................... 252
Bank Consolidation and Nationwide Banking..................253
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 .......................... 255
What Will the Structure of the U.S. Banking Industry Look Like in the Future? ................. 255
Global Comparison of Banking Structure in the United States and Abroad 256
Are Bank Consolidation and Nationwide Banking Good Things?... 256
Separation of the Banking and Other Financial Service Industries...............................257
Erosion of Glass-Steagall........... 257
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999:
Repeal of Glass-Steagall................................258
Implications for Financial Consolidation .... 258
Separation of Banking and Other Financial Services Industries Throughout the World....... 258
FYI The Global Financial Crisis and the Demise of Large, Free-Standing Investment Banks 259
Thrift Industry: Regulation and Structure259
Savings and Loan Associations............. 260
Mutual Savings Banks............................... 260
Credit Unions............................... 260
International Banking .............261
Eurodollar Market .......................... 261
Global Ironic Birth of the Eurodollar Market 262
Structure of U.S. Banking Overseas....................262
Foreign Banks in the United States ............. 263
Summary 264 . Key Terms 265 . Questions 265 . Data Analysis Problems 266 . Web Exercises 267 . Web References 267
CHAPTER 12
Financial Crises 268
What Is a Financial Crisis?.....................268
Dynamics of Financial Crises ..............269
Stage One: Initial Phase.......................269
Stage Two: Banking Crisis..................271
Stage Three: Debt Deflation....................272
APPLICATION The Mother of All Financial Crises: The Great Depression.............273
Stock Market Crash ................................... 273
Bank Panics........................273
Continuing Decline in Stock Prices........274
Debt Deflation............................274
International Dimensions................275
The Global Financial Crisis of 2007–2009.............275
Causes of the 2007–2009 Financial Crisis.............275
FYI Collateralized Debt Obligations (CDOs) 276
Effects of the 2007–2009 Financial Crisis.........277
Inside the Fed Was the Fed to Blame for the Housing Price Bubble? 278
Global The European Sovereign Debt Crisis 281
Height of the 2007–2009 Financial Crisis ....................................282
Government Intervention and the Recovery.......283
Global Worldwide Government Bailouts During the 2007–2009 Financial Crisis 283
Response of Financial Regulation..........................284
Macroprudential Versus Microprudential Supervision 284
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 .............................285
Too-Big-to-Fail and Future Regulation ...........................286
What Can Be Done About the Too-Big-to-Fail Problem?................287
Beyond Dodd-Frank: Where Might Regulation Head in the Future?...................................287
Summary 289 . Key Terms 290 . Questions 290 . Data Analysis Problems 291 . Web Exercises 292 . Web Reference 292
CHAPTER 13
Nonbank Finance 293
Insurance........................293
Life Insurance.....................293
Property and Casualty Insurance.............294
The Competitive Threat from the Banking Industry..................................296
Credit Insurance...........................296
FYI The AIG Blowup 297
FYI The Global Financial Crisis and the Monoline Insurers 298
APPLICATION Insurance Management....................................298
Screening ..........................299
Risk-Based Premiums..................299
Restrictive Provisions.................299
Prevention of Fraud.........................300
Cancellation of Insurance...................300
Deductibles ............................300
Coinsurance ...........................300
Limits on the Amount of Insurance.............300
Summary.....................301
Pension Funds..................................301
Private Pension Plans..............302
Public Pension Plans............... 302
FYI Should Social Security Be Privatized? 303
Finance Companies........................304
Securities Market Operations..................305
Investment Banking............................ 305
Securities Brokers and Dealers306
Organized Exchanges ............. 306
Mutual Funds ...................................307
FYI Sovereign Wealth Funds: Are They a Danger? 308
Money Market Mutual Funds . 309
Hedge Funds ....................................309
Private Equity and Venture Capital Funds..............................310
Government Financial Intermediation ...................................311
Federal Credit Agencies..........311
FYI The Global Financial Crisis and the Bailout of Fannie Mae and Freddie Mac 312
Summary 313 . Key Terms 314 . Questions 314 . Applied Problems 315 .
Data Analysis Problems 315 . Web Exercises 316 . Web References 316
CHAPTER 14
Financial Derivatives 317
Hedging .............................................317
Interest-Rate Forward Contracts.........................318
APPLICATION Hedging with Interest-Rate Forward Contracts ...............................318
Pros and Cons of Forward Contracts .................................... 319
Financial Futures Contracts and Markets...............................320
APPLICATION Hedging with Financial Futures.....................321
Organization of Trading in Financial Futures Markets .......... 323
The Globalization of Financial Futures Markets.................... 324
Explaining the Success of Futures Markets ........................... 324
APPLICATION Hedging Foreign Exchange Risk....................326
Hedging Foreign Exchange Risk with Forward Contracts ................. 326
Hedging Foreign Exchange Risk with Futures Contracts................... 326
Options ..............................................327
Options Contracts .............................. 328
Profits and Losses on Option and Futures Contracts ........................ 328
APPLICATION Hedging with Future Options........................331
Factors Affecting Option Premiums . 332
Summary................................ 333
Swaps..................................................334
Interest-Rate Swap Contracts..............334
APPLICATION Hedging with Interest-Rate Swaps..................335
Advantages of Interest-Rate Swaps...335
Disadvantages of Interest-Rate Swaps...........................336
Financial Intermediaries in Interest-Rate Swaps....................336
Credit Derivatives.........................................336
Credit Options ..............................337
Credit Swaps..................................337
Credit-Linked Notes.......................338
APPLICATION Lessons from the Global Financial Crisis: When Are Financial Derivatives Likely to Be a Worldwide Ticking Time Bomb? .............................. 338 Summary 340 . Key Terms 340 . Questions 341 . Applied Problems 341 . Data Analysis Problems 342 . Web Exercises 343 . Web References 343
CHAPTER 15
Conflicts of Interest in the Financial Industry 344
What Are Conflicts of Interest, and Why Are They Important? 345
Why Do We Care About Conflicts of Interest?..........................345
Ethics and Conflicts of Interest............345
Types of Conflicts of Interest................346
Underwriting and Research in Investment Banking ..................346
Auditing and Consulting in Accounting Firms .........................347
Credit Assessment and Consulting in Credit-Rating Agencies...347
FYI The Collapse of Arthur Andersen 348
Universal Banking ..........................348
FYI Why Do Issuers of Securities Pay to Have Their Securities Rated? 349
FYI Banksters 350
Can the Market Limit Exploitation of Conflicts of Interest?..350
What Has Been Done to Remedy Conflicts of Interest?....................352
Sarbanes-Oxley Act of 2002...........353
Global Legal Settlement of 2002.....353
Dodd-Frank Bill of 2010................354
A Framework for Evaluating Policies to Remedy Conflicts of Interest........................354 Approaches to Remedying Conflicts of Interest.........................355
APPLICATION Evaluating Sarbanes-Oxley, the Global Legal Settlement, and the Dodd-Frank Bill ............... 357
Summary 359 . Key Terms 360 . Questions 360 . Web Exercises 361 .
Web References 361
CHAPTER 16
Central Banks and the Federal Reserve System 364
Origins of the Federal Reserve System...364
Inside the Fed The Political Genius of the Founders of the Federal Reserve System 365
Structure of the Federal Reserve System....................................365
Federal Reserve Banks .................... 366
Inside the Fed The Special Role of the Federal Reserve Bank of New York 368
Member Banks ............................... 369
Board of Governors of the Federal Reserve System.................... 370
Federal Open Market Committee (FOMC) ............................... 370
Inside the Fed The Role of the Research Staff 371
Inside the Fed The FOMC Meeting 372
Inside the Fed Green, Blue, Teal, and Beige: What Do These Colors Mean at the Fed? 373
Why the Chair of the Board of Governors Really Runs the Show ............... 373
Inside the Fed Styles of Federal Reserve Chairs: Bernanke and Yellen Versus Greenspan 374
How Independent Is the Fed? .............375
Should the Fed Be Independent?.......377
The Case for Independence ............ 377377 The Case Against Independence ..... 378378 Central Bank Independence and Macroeconomic Performance Throughout the World .............. 379
Explaining Central Bank Behavior ..................379
Inside the Fed The Evolution of the Fed’s Communication Strategy 380
Structure and Independence of the European Central Bank ................381
Differences Between the European System of Central Banks and the
Federal Reserve System.......................... 381
Governing Council.....................................382
How Independent Is the ECB?.................... 382
Structure and Independence of Other Foreign Central Banks..383
Bank of Canada .............................. 383
Bank of England.............................383
Bank of Japan ................................. 384
The Trend Toward Greater Independence 385
Summary 385 . Key Terms 386 . Questions 386 . Data Analysis Problems 387 . Web Exercises 387 . Web References 387
CHAPTER 17
The Money Supply Process 388
Three Players in the Money Supply Process..............................388
The Fed’s Balance Sheet ........................388
Liabilities........................................389
Assets.............................................390
Control of the Monetary Base..................390
Federal Reserve Open Market Operations.........................391
Shifts from Deposits into Currency...........392
Loans to Financial Institutions..................393
Other Factors That Affect the Monetary Base.................................393
Overview of the Fed’s Ability to Control the Monetary Base...........394
Multiple Deposit Creation: A Simple Model..................................395
Deposit Creation: The Single Bank.......................395
Deposit Creation: The Banking System.................396
Deriving the Formula for Multiple Deposit Creation......................399
Critique of the Simple Model ...................400
Factors That Determine the Money Supply....................................401
Changes in the Nonborrowed Monetary Base, MBn........................401
Changes in Borrowed Reserves, BR, from the Fed..........................401
Changes in the Required Reserve Ratio, rr 402
Changes in Excess Reserves......................402
Changes in Currency Holdings.............................402
Overview of the Money Supply Process................402
The Money Multiplier.........................403
Deriving the Money Multiplier.................403
Intuition Behind the Money Multiplier.....405
Money Supply Response to Changes in the Factors........................406
APPLICATION Quantitative Easing and the Money Supply, 2007–2017..................407
Summary 409 . Key Terms 409 . Questions 409 . Applied Problems 410 .
Data Analysis Problems 411 . Web Exercises 411 . Web References 412
CHAPTER 17 APPENDIX 1
The Fed’s Balance Sheet and the Monetary Base
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CHAPTER 17 APPENDIX 2
The M2 Money Multiplier
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CHAPTER 17 APPENDIX 3
Explaining the Behavior of the Currency Ratio
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CHAPTER 17 APPENDIX 4
The Great Depression Bank Panics, 1930–1933, and the Money Supply
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CHAPTER 18
Tools of Monetary Policy 413
The Market for Reserves and the Federal Funds Rate .................413
Demand and Supply in the Market for Reserves ............................ 414
How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate.............................. 415
APPLICATION How the Federal Reserve’s Operating Procedures Limit Fluctuations in the Federal Funds Rate ...... 419
Conventional Monetary Policy Tools...........420
Open Market Operations..........................421
Inside the Fed A Day at the Trading Desk 422
Discount Policy and the Lender of Last Resort...............................423
Inside the Fed Using Discount Policy to Prevent a Financial Panic 425
Reserve Requirements............................... 426
Interest on Reserves..................................426
Relative Advantages of the Different Tools ........................ 427
Nonconventional Monetary Policy Tools and Quantitative Easing ..............................427
Liquidity Provision...................................428
Large-Scale Asset Purchases......................428
Inside the Fed Fed Lending Facilities During the Global Financial Crisis 429
Quantitative Easing Versus Credit Easing.............. 430
Forward Guidance.................................... 432
Negative Interest Rates on Banks’ Deposits .................................... 433
Monetary Policy Tools of the European Central Bank.................434
Open Market Operations..........................434
Lending to Banks......................... 434
Interest on Reserves..................................435
Reserve Requirements............................... 435
Summary 435 . Key Terms 436 . Questions 436 . Applied Problems 437 .
Data Analysis Problems 438 . Web Exercises 438 . Web References 438
CHAPTER 19
The Conduct of Monetary Policy: Strategy and Tactics 439
The Price Stability Goal and the Nominal Anchor........................439
The Role of a Nominal Anchor ................. 440
The Time-Inconsistency Problem.......................... 440
Other Goals of Monetary Policy ...................441
High Employment and Output Stability ............... 441
Economic Growth .................................... 442
Stability of Financial Markets ...................442
Interest-Rate Stability................................442
Stability in Foreign Exchange Markets..................443
Should Price Stability Be the Primary Goal of Monetary Policy?...................................443
Hierarchical Versus Dual Mandates.......................443
Price Stability as the Primary, Long-Run Goal of Monetary Policy..............444
Inflation Targeting....................444
Inflation Targeting in New Zealand, Canada, and the United Kingdom..............................445
Advantages of Inflation Targeting.........................447
Disadvantages of Inflation Targeting.....................449
The Evolution of the Federal Reserve’s Monetary Policy Strategy.................................450
The Fed’s “Just Do It” Monetary Policy Strategy.............................450
The Long Road to Inflation Targeting ...................452
Inside the Fed Ben Bernanke’s Advocacy of Inflation Targeting 453
Global The European Central Bank’s Monetary Policy Strategy 453
Lessons for Monetary Policy Strategy from the Global Financial Crisis.......................454
Implications for Inflation Targeting......................455
Should Central Banks Try to Stop Asset-Price Bubbles?..............456
Two Types of Asset-Price Bubbles..........................456
The Debate over Whether Central Banks Should Try to Pop Bubbles..................................457
Tactics: Choosing the Policy Instrument.................460
Criteria for Choosing the Policy Instrument ..................................462
Tactics: The Taylor Rule....................................463
Inside the Fed The Fed’s Use of the Taylor Rule 466
Inside the Fed Fed Watchers 466 Summary 467 . Key Terms 467 . Questions 468 . Applied Problems 469 . Data Analysis Problems 469 . Web Exercises 470 . Web References 471
CHAPTER 19 APPENDIX 1
Monetary Targeting
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CHAPTER 19 APPENDIX 2
A Brief History of Federal Reserve Policymaking
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PART 5 International Finance and Monetary Policy 473
CHAPTER 20 The Foreign Exchange Market 474
Foreign Exchange Market...............................474
Following the Financial News Foreign Exchange Rates 475
What Are Foreign Exchange Rates?........... 475
Why Are Exchange Rates Important?........475
How Is Foreign Exchange Traded?............ 476
Exchange Rates in the Long Run...................477
Theory of Purchasing Power Parity ........... 477
APPLICATION Burgernomics: Big Macs and PPP................479
Factors That Affect Exchange Rates in the Long Run...................... 481
Exchange Rates in the Short Run: A Supply and
Demand Analysis.483
Supply Curve for Domestic Assets............483
Demand Curve for Domestic Assets...................... 483
Equilibrium in the Foreign Exchange Market ................................ 485
Explaining Changes in Exchange Rates...................485
Shifts in the Demand for Domestic Assets......................... 485
Recap: Factors That Change the Exchange Rate ............................. 488
APPLICATION Effects of Changes in Interest Rates on the Equilibrium Exchange Rate ........ 490
APPLICATION The Global Financial Crisis and the Dollar 492
APPLICATION Brexit and the British Pound.......................493 Summary 494 . Key Terms 495 . Questions 495 . Applied Problems 496 . Data Analysis Problems 496 . Web Exercises 497 . Web References 497
APPENDIX TO CHAPTER 20
The Interest Parity Condition 498
Comparing Expected Returns on Domestic and Foreign Assets................498
Interest Parity Condition .............500
CHAPTER 21
The International Financial System 502
Intervention in the Foreign Exchange Market...............................502
Foreign Exchange Intervention and the Money Supply.................. 502
Inside the Fed A Day at the Federal Reserve Bank of New York’s Foreign Exchange Desk 503
Unsterilized Intervention..........................505
Sterilized Intervention .............................. 506
Balance of Payments...............506
Current Account ............. 507
Financial Account .................................... 507
Global Should We Worry About the Large U.S. Current Account Deficit? 508
Exchange Rate Regimes in the International Financial System.508
Gold Standard ..... 509
The Bretton Woods System...................................509
How a Fixed Exchange Rate Regime Works...................................510
Speculative Attacks...................................512
APPLICATION The Foreign Exchange Crisis of September 1992............................512
The Policy Trilemma.................................514
APPLICATION How Did China Accumulate $4 Trillion of International Reserves? ................................515
Monetary Unions.........................515
Managed Float.................516
Global Will the Euro Survive? 516
Capital Controls............517
Controls on Capital Outflows...................517
Controls on Capital Inflows......................517
The Role of the IMF.................518
Should the IMF Act as an International Lender of Last Resort? ..................518
International Considerations and Monetary Policy.....................519
Direct Effects of the Foreign Exchange Market on Monetary Policy........................519
Exchange Rate Considerations..................520
To Peg or Not to Peg: Exchange-Rate Targeting as an Alternative Monetary
Policy Strategy ........................ 520
Advantages of Exchange-Rate Targeting................520
Disadvantages of Exchange-Rate Targeting....................................521
When Is Exchange-Rate Targeting Desirable for Industrialized Countries?..........................523
When Is Exchange-Rate Targeting Desirable for Emerging Market Countries? ....................524
Currency Boards..............524
Global Argentina’s Currency Board 525
Dollarization ...................525
Summary 526 . Key Terms 527 . Questions 527 . Applied Problems 528 .
Data Analysis Problems 529 . Web Exercises 530 . Web References 530
PART 6 Monetary Theory 531
CHAPTER 22
Quantity Theory, Inflation, and the Demand for Money 532
Quantity Theory of Money.............................532
Velocity of Money and Equation of Exchange................................532
From the Equation of Exchange to the Quantity Theory of Money............534
Quantity Theory and the Price Level ....................535
Quantity Theory and Inflation..............................535
APPLICATION Testing the Quantity Theory of Money.......536
Budget Deficits and Inflation.........................538
Government Budget Constraint................538
Hyperinflation.................540
APPLICATION The Zimbabwean Hyperinflation................540
Keynesian Theories of Money Demand .....541
Transactions Motive.................................. 541
Precautionary Motive................................ 541
Speculative Motive ................................... 541
Putting the Three Motives Together .......... 541
Portfolio Theories of Money Demand........542
Theory of Portfolio Choice and Keynesian Liquidity Preference.....543
Other Factors That Affect the Demand for Money.......................... 543
Summary............. 544
Empirical Evidence for the Demand for Money ...........................544
Interest Rates and Money Demand ........... 544
Stability of Money Demand ...................... 545
Summary 546 . Key Terms 546 . Questions 546 . Applied Problems 548 .
Data Analysis Problems 548 . Web Exercises 549 . Web References 549
CHAPTER 22 APPENDIX 1
The Baumol-Tobin and Tobin Mean Variance Models of the Demand for Money
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CHAPTER 22 APPENDIX 2
Empirical Evidence on the Demand for Money
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CHAPTER 23
Aggregate Demand and Supply Analysis 550
Aggregate Demand......550
Following the Financial News Aggregate Output, Unemployment, and Inflation 551
Deriving the Aggregate Demand Curve................. 551
Factors That Shift the Aggregate Demand Curve............................552
FYI What Does Autonomous Mean? 553
Aggregate Supply.........556
Long-Run Aggregate Supply Curve...........556
Short-Run Aggregate Supply Curve .......... 556
Price Stickiness and the Short-Run Aggregate Supply Curve..........558
Shifts in the Aggregate Supply Curves.........558
Shifts in the Long-Run Aggregate Supply Curve ............................ 558
Shifts in the Short-Run Aggregate Supply Curve............................559
Equilibrium in Aggregate Demand and Supply Analysis.............562
Short-Run Equilibrium.............................563
How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time.......563 Self-Correcting Mechanism................................... 566
Changes in Equilibrium: Aggregate Demand Shocks...................566
APPLICATION The Volcker Disinflation, 1980–1986.....................567
APPLICATION Negative Demand Shocks, 2001–2004....................569
Changes in Equilibrium: Aggregate Supply (Inflation) Shocks...............569
Temporary Supply Shocks........................569
APPLICATION Negative Supply Shocks, 1973–1975 and 1978–1980 .....................572
Permanent Supply Shocks and Real Business Cycle Theory...........572
APPLICATION Positive Supply Shocks, 1995–1999............575
Conclusions ....................576
APPLICATION Negative Supply and Demand Shocks and the 2007–2009 Financial Crisis.......................577
AD/AS Analysis of Foreign Business Cycle Episodes.....................577
APPLICATION The United Kingdom and the 2007–2009 Financial Crisis .............579
APPLICATION China and the 2007–2009 Financial Crisis.............580
Summary 581 . Key Terms 582 . Questions 582 . Applied Problems 583 .
Data Analysis Problems 583 . Web Exercises 584 . Web References 584
APPENDIX TO CHAPTER 23
The Phillips Curve and the Short-Run Aggregate Supply Curve 585
The Phillips Curve ....................585
Phillips Curve Analysis in the 1960s ....................585
FYI The Phillips Curve Trade-off and Macroeconomic Policy in the 1960s 587
The Friedman-Phelps Phillips Curve Analysis ...............................587
The Phillips Curve After the 1960s.......................589
The Modern Phillips Curve ..................................589
The Modern Phillips Curve with Adaptive (Backward-Looking) Expectations ....................590
The Short-Run Aggregate Supply Curve.................591
CHAPTER 23 APPENDIX 1
The Effects of Macroeconomic Shocks on Asset Prices
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CHAPTER 23 APPENDIX 2
Aggregate Demand and Supply: A Numerical Example
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CHAPTER 23 APPENDIX 3
The Algebra of the Aggregate Demand and Supply Model
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CHAPTER 23 APPENDIX 4
The Taylor Principle and Inflation Stability
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CHAPTER 24
Monetary Policy Theory 594
Response of Monetary Policy to Shocks.................594
Response to an Aggregate Demand Shock......................... 595
Response to a Permanent Supply Shock................ 597
Response to a Temporary Supply Shock ............... 599
The Bottom Line: The Relationship Between Stabilizing Inflation and Stabilizing
Economic Activity ............... 602
How Actively Should Policymakers Try to Stabilize Economic Activity?.....................602
Lags and Policy Implementation...............602
Inflation: Always and Everywhere a Monetary Phenomenon...603
FYI The Activist/Nonactivist Debate Over the Obama Fiscal Stimulus Package 604
Causes of Inflationary Monetary Policy..................604
High Employment Targets and Inflation...............604
APPLICATION The Great Inflation ........................608
Monetary Policy at the Zero Lower Bound........................610
Deriving the Aggregate Demand Curve with the Zero Lower Bound ................................... 610
The Disappearance of the Self-Correcting Mechanism at the Zero Lower Bound.................612
APPLICATION Nonconventional Monetary Policy and Quantitative Easing................613
Liquidity Provision...................................614
Asset Purchases and Quantitative Easing .. 615
Management of Expectations....................616
APPLICATION Abenomics and the Shift in Japanese Monetary Policy in 2013.........................617
Summary 619 . Key Terms 619 . Questions 620 . Applied Problems 621 .
Data Analysis Problems 621 . Web Exercises 622 . Web Reference 622
CHAPTER 25
Transmission Mechanisms of Monetary Policy 623
Transmission Mechanisms of Monetary Policy..............................623
Traditional Interest-Rate Channels ............ 624
Other Asset Price Channels ...................... 625
Credit View ..................... 628
FYI Consumers’ Balance Sheets and the Great Depression 630
Why Are Credit Channels Likely to Be Important?......................... 631
APPLICATION The Great Recession....................................632
Lessons for Monetary Policy..........................632
APPLICATION Applying the Monetary Policy Lessons to Japan’s Two Lost Decades...................634
Summary 635 . Key Terms 635 . Questions 635 . Applied Problems 636 . Data Analysis Problems 637 . Web Exercises 637 . Web References 637
CHAPTER 25 APPENDIX
Evaluating Empirical Evidence: The Debate Over the Importance of Money in Economic Fluctuations
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Additional Chapters on Mylab Economics
The following chapters and appendices are available on MyLab Economics www.pearson.com/mylab/economics
CHAPTER 1
Financial Crises in Emerging Market Economies 1
Dynamics of Financial Crises in Emerging Market Economies ....................................1
Stage One: Initial Phase................................1
Stage Two: Currency Crises ..........................5
Stage Three: Full-Fledged Financial Crisis................6
Mismanaged APPLICATION Crisis in Republic of Korea, 1997–1998 ........7
Financial Liberalization/Globalization Mismanaged...........................8
Perversion of the Financial Liberalization/Globalization Process: Chaebols and the Republic of Korean Crisis .......9
Stock Market Decline and Failure of Firms Increase Uncertainty .....10
Adverse Selection and Moral Hazard Problems Worsen and the Economy Contracts...............................11
Currency Crisis Ensues ..............................11
Final Stage: Currency Crisis Triggers Full-Fledged Financial Crisis..............11
Recovery Commences.................................13
APPLICATION The Argentine Financial Crisis, 2001–2002..............13
Severe Fiscal Imbalances ............................13
Adverse Selection and Moral Hazard Problems Worsen...................14
Bank Panic Begins .........................14
Currency Crisis Ensues ..............................14
Currency Crisis Triggers Full-Fledged Financial Crisis ....................15
Recovery Begins.............................17
Global When an Advanced Economy Is Like an Emerging Market Economy: The Icelandic Financial Crisis of 2008 18
Preventing Emerging Market Financial Crises.................................. 18
Beef Up Prudential Regulation and Supervision of Banks................. 18
Encourage Disclosure and Market-Based Discipline.........................19
Limit Currency Mismatch........................... 19
Sequence Financial Liberalization............... 20
Summary 20 . Key Terms 20 . Questions 21
CHAPTER 2
The IS Curve 1
Planned Expenditure and Aggregate Demand ...................................1
The Components of Aggregate Demand ....................2
Consumption Expenditure ........................... 2
FYI Meaning of the Word Investment 3
Planned Investment Spending ...................... 3
Government Purchases and Taxes................. 5
Net Exports.............6
Goods Market Equilibrium ..................................7
Solving for Goods Market Equilibrium.....................7
Deriving the IS Curve ................................... 8
Understanding the IS Curve................................8
What the IS Curve Tells Us: Intuition ....................... 8
What the IS Curve Tells Us: Numerical Example ............................... 8
Why the Economy Heads Toward the Equilibrium..........................10
Factors that Shift the IS Curve.......................... 10
Changes in Government Purchases......................... 10
APPLICATION The Vietnam War Buildup, 1964–1969.........11
Changes in Taxes...............12
APPLICATION The Fiscal Stimulus Package of 2009............13
Changes in Autonomous Spending............. 14 Changes in Financial Frictions ................... 16
Summary of Factors That Shift the IS Curve .................................... 16 Summary 16 . Key Terms 16 . Questions 17 . Applied Problems 18 . Data Analysis Problems 19 . Web Exercises 20 . Web References 20
CHAPTER 3
The Monetary Policy and Aggregate Demand Curves 1
The Federal Reserve and Monetary Policy......1
The Monetary Policy Curve.................................2
The Taylor Principle: Why the Monetary Policy Curve Has an Upward Slope.........................2
Shifts in the MP Curve.................................. 4
Movements Along Versus Shifts in the MP Curve............................... 5
APPLICATION Movement Along the MP Curve: The Rise in the Federal Funds Rate Target, 2004–2006 ...................................5
APPLICATION Shift in the MP Curve: Autonomous Monetary Easing at the Onset of the Global Financial Crisis.............5
The Aggregate Demand Curve...........................6
Deriving the Aggregate Demand Curve Graphically...........................7
Factors That Shift the Aggregate Demand Curve................................7
FYI Deriving the Aggregate Demand Curve Algebraically 7
Summary 12 . Key Terms 12 . Questions 12 . Applied Problems 13 .
Data Analysis Problems 14 . Web Exercises 15 . Web References 15
CHAPTER 4
The Role of Expectations in Monetary Policy 1
Lucas Critique of Policy Evaluation ...................1
Econometric Policy Evaluation.....................2
APPLICATION The Term Structure of Interest Rates...............2
Policy Conduct: Rules or Discretion? ...............3
Discretion and the Time-Inconsistency Problem................................3
Types of Rules..........4
The Case for Rules...............4
FYI The Political Business Cycle and Richard Nixon 5
The Case for Discretion ................................5
Constrained Discretion.................................6
Global The Demise of Monetary Targeting in Switzerland 6
The Role of Credibility and a Nominal Anchor ..................................7
Benefits of a Credible Nominal Anchor.....................7
Credibility and Aggregate Demand Shocks...............8
Credibility and Aggregate Supply Shocks ...............10
A Tale of Three Oil Price Shocks.................11
Credibility and Anti-Inflation Policy.......................13
Global Ending the Bolivian Hyperinflation: A Successful Anti-Inflation Program 14
APPLICATION Credibility and the Reagan Budget Deficits...............15
Approaches to Establishing Central Bank Credibility..................... 16
Nominal GDP Targeting .............................16
Inside the Fed The Appointment of Paul Volcker, Anti-Inflation Hawk 17
Appoint “Conservative” Central Bankers.....17
Summary 18 . Key Terms 18 . Questions 18 . Applied Problems 19 .
Data Analysis Problems 19 . Web Exercises 20
CHAPTER 5
The ISLM Model 1
Keynes’ Fixed Price Level Assumption and the IS Curve..................1
The LM Curve ..................... 1
Equilibrium in the Market for Money: The LM Curve........................ 2
ISLM Approach to Aggregate Output and Interest Rates.................4
Factors That Cause the LM Curve to Shift ...................5
Changes in Equilibrium Level of the Interest Rate and Aggregate Output......................7
Response to a Change in Monetary Policy................. 7
Response to a Change in Fiscal Policy....................... 8
APPLICATION The Economic Stimulus Act of 2008 ..........................9
Effectiveness of Monetary Versus Fiscal Policy................................ 11
Monetary Policy Versus Fiscal Policy: The Case of Complete Crowding Out ......................... 11
APPLICATION Targeting Money Supply Versus Interest Rates...................................13
ISLM Model in the Long Run ........................... 16
Summary 18 . Key Terms 19 . Questions and Applied Problems 17 .
Web Exercises 19 . Web References 20
APPENDIX TO WEB CHAPTER 5
Algebra of The ISLM Model .........21
Basic Closed-Economy ISLM Model ...............................21
IS and LM Curves ................. 22
Solution of the Model ........... 22
Implications ......................... 22
Open-Economy ISLM Model .......23
Implications ......................................24
CHAPTER APPENDICES
Chapter 4: Measuring Interest-Rate Risk: Duration
Chapter 5: Models of Asset Pricing
Chapter 5: Applying the Asset Market Approach to a Commodity Market: The Case of Gold
Chapter 5: Loanable Funds Framework
Chapter 7: Evidence on the Efficient Market Hypothesis
Chapter 9: Duration Gap Analysis
Chapter 9: Measuring Bank Performance
Chapter 10: The 1980s Banking and Savings and Loan Crisis
Chapter 10: Banking Crises Throughout the World
Chapter 17: The Fed’s Balance Sheet and the Monetary Base
Chapter 17: The M2 Money Multiplier
Chapter 17: Explaining the Behavior of the Currency Ratio
Chapter 17: The Great Depression Bank Panics, 1930–1933, and the Money Supply
Chapter 19: Monetary Targeting
Chapter 19: A Brief History of Federal Reserve Policymaking
Chapter 22: The Baumol-Tobin and Tobin Mean-Variance Models of the Demand for Money
Chapter 22: Empirical Evidence on the Demand for Money
Chapter 23: The Effects of Macroeconomic Shocks on Asset Prices
Chapter 23: Aggregate Demand and Supply: A Numerical Example
Chapter 23: The Algebra of the Aggregate Demand and Supply Model
Chapter 23: The Taylor Principle and Inflation Stability
Chapter 25: Evaluating Empirical Evidence: The Debate Over the Importance of Money in Economic Fluctuations
