ChrisBALL

COURSE OUTLINE

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• Syllabus: download

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Course Objective: Our aim is to understand the modern money and banking system in order to understand monetary monetary policy.  This is interesting in itself but also allows us to predict what policy makers will likely do and therefore make some predictions about what the economy will do.

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Project Data and PDF (NEW!)

• Full site with all links and info: https://www.globalmacrodata.com/index.html

• Download the data here: https://www.globalmacrodata.com/data.html

• The Main Paper in PDF: https://www.globalmacrodata.com/research-paper.html

• Documentation: https://www.globalmacrodata.com/documentation.html

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Review of Principles of Economics and Intro to Money & Banking Topics

• Supply and Demand

  • Laws of supply and demand, factors and shifting curves, diagramatic analysis, "answers" and time paths.

    • Review - download​

  • Law of One Price

    • We use this review to also discuss bond markets, the term structure of interest rates​ and Yield Curves.

    • My notes - download

  • Price (Non)Adjustment: Ceilings, Floors and Fixes

    • We use this review to also cover how the Bank Reserves, or, Federal Funds, Market works.

    • My notes - download

  • Readings:

    • Reading on Australian Central Bank's "Corridor System" (website)

    • US Fed's Ample Reserve Framework (simple-version-website or simple-version-PDF or complete-version-PDF)

    • Reading from Australian Central Bank on "Yield Curves" (website)

• Aggregate Demand - Aggregate Supply

  • Review Notes AS-AD Basics - download

  • Review Notes AS-AD to Time Paths - download

  • The next notes use the broad AS-AD framework to tell the history of monetary and macroeconomic policy thinking. Topics include: Classical and Keynesian thinking, the Phillips Curve, Okun's "Law", The Natural Rate of Unemployment, Full Employment, Expectations-Augmented Phillips Curve, Rational Expectations, the Lucas Critique and Rules versus Discretion.

    • My Notes AS-AD Macro Econ History Part 1: class Zoom video download PDF

    • My Notes AS-AD Macro Econ History Part 2: download​​

    • My Notes Dangerous Expectations: download

    • Additional Notes on AS-AD to Phillips Curves: download

    • Additional Notes on Losing Control: download

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HOMEWORK 1 (DUE Thurs, March 20th): Law of One Price, Fixed Prices and AS-AD Analysis

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Monetary Theory Overview

• Traditional View: MV=Py: download​

• The Real Money Market: downloa

• The Velocity of Money: download

• The Bond Market Basics: download​​

• Taylor rules and determinacy​ - New Keynesianism: download​​​​​

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Policy Implementation and Monetary Institutions

• Brief History and the US Fed

  • Gold and bi-metallic standards​, banking panics and crises, etc. (link to my 2024 column)

  • 1913/14 FED to mitigate banking crises (Discount Window, Lender of Last Resort)

  • 1977 The FED's Dual Mandate (link)

  • Readings:

    • Milton Friedman "Monetary History of USA and FED up to 1960": download

    • Ben Bernanke "Monetary History of USA and FED up to 2020": download

    • Mishkin (2025) "Evolution of Inflation Targeting 1990-2020: download

• Monetary Mechanisms

  • What Banks Do: download

  • Federal Reserve Methods Over Time: download

  • "Push" Open Market Operations: download

  • "Pull" Open Market Operations: download

  • "Breathing Systems" and Push-Pull: download

  • Review Material on Banking Multipliers and OMOs

    • Review: The USA Central Bank, The FED - download

    • Review: Traditional Open Market Operations

      • Putting Money Into the Economy Pt 1: download​

      • Putting Money Into the Economy Pt 2: download

      • Putting Money Into the Economy Pt 3: download

    • Review: Traditional Money Multiplier, Banks and Balance Sheets

      • Money Multiplier Pt 1 - Banking Multiplier: download​

      • Money Multiplier Pt 2 - Counting Money: download​

      • Money Multiplier Pt 3 - Full Multiplier: download​

      • Mankiw's "Ch 4 Monetary System" notes: download

      • The Basic Business of Banking: download​

    • Review: Bank Panics and the Problem of Leverage

      • Bank Panics 1 - The Fragile System: download​

      • Bank Panics 2 - Solutions and Problems: download

      • Bank Panics 3 - The Problem of Leverage: download​​

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HOMEWORK 2 (DUE: Thurs, April 10th): Bonds, Money and OMOs

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Modern Monetary Policy in Theory and Practice

• My Notes on Mehrling's Four Prices of Money and Heirarchy: download

• Mehrling Lectures (#1 - #3 as well as videos for all lectures at bottom of page)

  • Mehrling Lec-04-The-Money-View-Micro-and-Macro: download  My Notes

  • Mehrling Lec-05-The-Central-Bank-as-a-Clearinghouse: download  My Notes

  • Mehrling Lec-06-Federal-Funds-Final-Settlement: download  My Notes

  • Mehrling Lec-07-Repos-Postponing-Settlement: download  My Notes

• Bank of England

  • BOE's (2014) "Money Creation in the Modern Economy" (download)

• ​US Fed's Ample Reserve Framework​

  • (2020) simpler-version-website

  • (2019) complete-version-PDF

• Theoretical Implications New Frameworks

  • The Four Theories of the Price Level: download​

  • Fiscal Theory of the Price Level: download​

  • Readings:​

    • Cochrane (2014) "Interest on Reserves" (Read 1 Intro and 2.3 Mapping to our world ): download​​

• Further Implications of New Frameworks

  • Cleveland Fed Chair Loretta Mester, 2024, "Fed Ample Reserve Isn't as Simple As It Looks": web/download

  • 2022 Swanson "Fed Funds Market Pre_Post 2008" NBER: download

• The Next Phase...

  • 2025 Interview on Macro Musings with Bill Nelson, Chief economist and exec VP at the Bank Policy Institute, on the Fed's post "Ample Reserve" framework: link to podcast

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HOMEWORK 3: Money Mechanics and the Fed's New Framework (DUE: Thurs, May 8th)

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FINAL PROJECT: Details (DUE: Thurs, May 8th)

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Some recommended books/sites for further reading:

• Taylor Rules

  • My notes: download

  • John Taylor (1993) "Discretion versus Policy Rules in Practice" (download)​

  • John Taylor (1999) "A Historical Analysis of Monetary Policy Rules" (download)

• The Great Financial Crisis

  • 2008 Financial Crisis: wiki​

  • Subprime Crisis: wiki

  • Shadow Banking: wiki

  • Government policies and the subprime mortgage crisis: wiki

• US FED's Ample Reserve Framework

  • (2019) complete-version-PDF

  • (2020) simpler-version-website

• FED St. Louis Main Page on Teaching Modern Money and Banking

  • Main site page: website

  • Reading: (2020) "Closing the Monetary Policy Curriculum Gap: A Primer for Educators Making the Transition to Teaching the Fed's Ample-Reserves Framework" (website)

• US FED Papers

  • 2018 "Regulatory and Mon Policy Nexus in Repo Mkt" FED Board WP​ (download)

• Bank of England

  • BOE's (2014) "Money Creation in the Modern Economy" (download)

• Reserve Bank of Australia (2025 articles)

  • "Unconventional Monetary Policy" (website)

  • "Causes of Inflation" (website)

  • "Bonds and the Yield Curve" (website)

  • "How the Reserve Bank Implements Policy" (website)

• Other Readings

  • 2015 Fed Chair Janet Yellen's "Normalizing Monetary Policy: Prospects and Perspectives" speech where she also links output and unemployment gaps via Okun's law (website)

  • ​2011 IMF "Central Bank Balances and Reserve Requirements" (download)​​

  • 2012 IMF "The Chicago Plan Revised" (download)

  • 2016 "Controversial Treatment of Money and Banks in Macro" (download)

  • 2017 Deutsche Bundesbank "Money Creation Process" (download)

  • 2013 Standard & Poor's "Banks Cannot and Do Not Lend Out Reserves" (download)

• Mehrling Lectures on Modern Money Creation​

  • Mehrling Lec-01-The-Four-Prices-of-Money: download  videos​

  • Mehrling Lec-02-The-Natural-Hierarchy-of-Money: download  videos

  • Mehrling Lec-03-Money-and-the-State-Domestic: download  videos

  • Mehrling Lec-04-The-Money-View-Micro-and-Macro: download  videos

  • Mehrling Lec-05-The-Central-Bank-as-a-Clearinghouse: download  videos

  • Mehrling Lec-06-Federal-Funds-Final-Settlement: download  videos

  • Mehrling Lec-07-Repos-Postponing-Settlement: download  videos

• Book: Central Banking 101 by Joseph Wang (Amazon)

  • This is short and simple but provides lots of details about the mechanics  (or "plumbing") of the system.  Very understandable.  Great reference book​

• Book: 21st Century Monetary Policy by Ben S. Bernanke (Amazon)

  • Prof. Bernanke is a top economics scholar. He wrote "the" book on the great depression and "the" book on inflation targeting. He was chair of the Fed during the Great Financial Crisis. This is an accessible book and great to understand what was actually happening during the crisis and what people were thinking at the time.​

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Student Presentation Materials (Info and Schedules)

• Monetary Policy Presentations: download

• Countries and Central Banks​

  • The minimum data we need: inflation and inflation target, unemployment, the nominal money supply (M2), government expenditures and the policy interest rate.

  • Ideally also get: real GDP, potential GDP, the natural rate of unemployment, and the natural real interest rate.

  • Bank of Canada (link)

  • Bank of England (link) and UK Office for National Statistics (link)

  • Bank of Japan (link)

  • Bank of South Korea (link)

  • European Central Bank (link)​

  • IMF - IFS (link)

• Monetary Policy Presentations #1: March 28th

  • Grade Sheet: First Country Presentation

  • Grade Sheet: Internal Group Grades

• Monetary Policy Presentations #2: End Semester

  • Grade Sheets

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Homework + Readings and Exam

• Take Home Exam 1: download

• Take Home Exam 2: percentages below​

  • 20% HW on NBER Paper: download

    • ​READING: NBER 2022 Paper "The Fed Funds Mkt Pre and Post 2008"​

  • 20% HW on FED Paper: download

    • READING: FED 2020 Paper on "The Fed's Ample-Reserves Approach to Implementing
      Monetary Policy"​

  • 20% Central Banking 101 Bk Reading Ch 1 & 2 HW: download

  • 20% Central Banking 101 Bk Reading Ch 3, 4, & 5 HW: download

  • 20% Bernanke Book Reading HW: download

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Outline, Readings, and Notes

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TRADITONAL MONETARY THEORY

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Section 1: Crash Course in Basic Macroeconomic Tools and Analysis

• Review Supply and Demand Model

  • Practice Problem Set: Supply and Demand

• Review AS-AD Model (with time paths)

  • AS-AD Basics/Review and Adding time paths​

    • Notes: Handout

    • Example of AS-AD to Time Paths and Gaps: Handout

    • Practice Problem Set: AS-AD and Time Paths Forward and Backward

  • The Phillips Curve

    • Phillips Curve wikipedia (Note we use something like the "New classical version")

    • Phillips Curve Basics 1: Mon Policy AS AD - Pt 1_ Phillips

    • Phillips Curve Basics 2: Mon Policy AS AD - Pt 2_ Loosing Control

    • Global Economics: It's baaack! The Phillips Curve Conversation

    • Global Economics: Who's Afraid of the 1970s.

• Taylor Rules​

  • Basics​

    • Taylor Rule Wikipedia​

      • Taylor's (1993) original paper

      • Taylor's (1999) overview of policy rules

    • Calculations:

      • Fed Chair Yellen on balanced approach and using Okun's Law​:

        • 2012 Speech (see footnotes 4 and 5)

        • 2017 Speech (see footnotes 12 and 13)

      • Okun's Law wikipedia

  • Taylor Determinacy

    • Notes: Handout​

  • Other Readings

    • Atlanta FED Taylor Rule Utility: link​

    • Practice Problem Set: Phillips Curves and Interest Rate Rules

• Open Economies​

  • Nominal Exchange Rates and interest rates

  • "Dynamic" PPP (in rates of change) ​

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Section 2: Traditional Policy and Theory

• MV = Py in levels and rates

  • "The Equation of Exchange" Wikipedia

  • "The Quantity Theory of Money" Wikipedia

  • Notes: Handout​

• Money Markets and Interest Rates (with time paths)​

  • Money Market Basics

  • Money Demand Wikipedia

  • Money Supply Wikipedia

  • Changes in M

  • Announcement Effects

  • Credibility

  • Casting Policy in Terms of Interest Rates

    • Practice Problem Set: TBD​

• Monetary Policy Evolution​

  • Monetary Aggregates and Friedman-type Money Growth Rules

  • From "M" to "i": 1970s, 1980s, 1990s, early 2000s

• What Determines "M"?

  • Banks as Businesses

  • Max Profit = TR - TC --> MR = MC

    • MR = $ earned per unit of output. Bank "investment". Traditional "lending"

    • MC = $ paid per unity of input. Banks' sources of funding . Traditionally "deposits"

    • Other inputs​

• Money, the Banking System and Money Multipliers​

  • Read Joseph Wang's Central Banking 101

    • Practice Problem Set: Chapters 1 (Types of Money) and 2​ (The Money Creators)

    • Practice Problem Set: Chapters 3, 4, and 5.

  • ​Open Market Operations

    • Putting Money Into the Economy_ Part 1​

    • Putting Money Into the Economy_ Part 2 Gifts via Helicopter

    • Putting Money Into the Economy_ Part 3 Domestic OMO

    • Putting Money Into the Economy_ Part 4 International OMO

  • Traditional Banking System and Money Multipliers​

    • The Money Multiplier Part 1 The Banking Multiplier

    • The Money Multiplier Part 2 Counting Money

    • The Money Multiplier Part 3 The Full Multiplier

    • The USA's Central Bank: the Fed

    • The Discount Window. Listen to Odd Lots Podcast on the topic (link) "Why Banks Are Suddenly Borrowing From the Fed's Discount Window".​

  • Bank Panics

    • Bank Panics Part 1 The Fragile System​

    • Bank Panics Part 2 Solutions and Problems

    • Bank Panics Part 3 The Prob of Leverage

  • Balance Sheets: Private Banks and the Central Bank

  • Basel IIII: Capital ratios (risk weighted) and Leverage Ratios (non-risk weighted)

• Market for Bank Reserves (or the Interbank Market)

  • Traditional Analysis

• Bond Markets

  • Basics

  • Yields

  • Bond and Money Markets

  • Term Structure of Interest Rates

  • Practice Problem Set: Prob Set 4 Bonds and Interest Rates

  • Answer Key: Excel Sheet Key

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EXAM 1 - TBD

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MODERN MONETARY PRACTICE and THEORY

• Interest on Reserves

  • Breaking MV = Py, Money Markets and Traditional Models​

• Modern Banking and Modern Central Banking

  • Money Creation in a Modern Economy, Bank of England

  • New Facilities

  • Quantitative Easing

  • Quantitative Tightening

  • The Modern Market for Reserves and the Fed's "Ample Reserve Framework"

  • (Optional) FED Guy's Bank Balance Sheet FREE Course: https://www.centralbanking101.com/courses/bank-balance-sheet-constraint 

  • Do Loans Generate Deposits?

  • FED Explaining RRP’s: https://www.newyorkfed.org/markets/rrp_faq.html

    • ​Current RRP: https://fred.stlouisfed.org/series/RRPONTSYD 

• The Fiscal Theory of the Price Level

• Euler Economics: What Interest Rates Can and Can't Do

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EXAM 2 - TBD

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Other Notes and General Topics​

• Geometric Series

• Time Paths

• Review of Law of One Price

• Review of Supply and Demand

• Review of the Mathematics of Supply and Demand

• Three Ways to Calculate Percentage Changes

• Dangerous Expectations (shows breakdown in game between Central Bank and economic agents in the economy)

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• Building (Bond) Markets and Interest Rates (Mishkin, Chap 5)​​

  • NOTES: My lecture notes for the basics of Chap 5.​

  • NOTES: My lecture notes on solving Bond and Money Markets simultaneously.

• The Term Structure of Interest Rates (Mishkin, Chap 6)

  • NOTES: My lecture notes.

  • READING: List of Countries By Credit Rating Agencies (wikipedia)​

  • READING: My 3 Articles from 2019 on Interpreting US Yield Curve Inversion - Part 1, Part 2, and Part 3

• Basics of Banking (Mishkin, Chap 9)

  • NOTES: Handwritten Notes on Chapter 8

  • NOTES: Handwritten Notes on Chapter 9

  • Reading: Bitcoin original paper

• Changes since 2008

  • In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework. CRAZY! FED Board of Governors 2020 Announcement that Required Reserves are ZERO.​  "

  • In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26 (2020), the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses."

• HAND WRITTEN NOTES Chap 15 The Tools of Monetary Policy inlcuding Ample Reserves

  • READING! FED Board of Gov Policy Paper (February 2020): The Fed's "Ample-Reserves" Approach to Implementing Monetary Policy​

  • These notes are based on Chapter 15 of Mishkin's book and the FED Paper below.  You should really read both the textbook and the Fed Paper.

• HAND WRITTEN NOTES ​Taylor Rules (Chap 16 and more)​