Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 309
Chapter 15: Tools of Monetary Policy
The Market for Reserves and the Federal Funds Rate
Demand and Supply in the Market for Reserves
Inside the Fed A Day at the Trading Desk
Discount Policy and the Lender of Last Resort
Inside the Fed Using Discount Policy to Prevent a Financial Panic
Reserve Requirements
Interest on Reserves
Relative Advantages of the Different Tools
Nonconventional Monetary Policy Tools and Quantitative Easing
Liquidity Provision
Large-Scale Asset Purchases
Inside the Fed Fed Lending Facilities During the Global Financial Crisis
Quantitative Easing Versus Credit Easing
Forward Guidance
Negative Interest Rates on Bank’s Deposits
Monetary Policy Tools of the European Central Bank
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 310
Chapter 16: The Conduct of Monetary Policy: Strategy and Tactics
The Price Stability Goal and the Nominal Anchor
The Role of a Nominal Anchor
The Time-Inconsistency Problem
Other Goals of Monetary Policy
High Employment and Output Stability
Economic Growth
Inflation Targeting in New Zealand, Canada, and the United Kingdom
Advantages of Inflation Targeting
Disadvantages of Inflation Targeting
The Evolution of the Federal Reserve’s Monetary Policy Strategy
The Fed’s “Just Do It” Monetary Policy Strategy
The Long Road to Inflation Targeting
Inside the Fed Ben Bernanke’s Advocacy of Inflation Targeting
Global The European Central Bank’s Monetary Policy Strategy
Lessons for Monetary Policy Strategy from the Global Financial Crisis
Inside the Fed The Fed’s Use of the Taylor Rule
Inside the Fed Fed Watchers
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 311
Appendix 1 to Chapter 16: Monetary Targeting
Monetary Targeting in the United States, Japan, and Germany
United States
Japan
Germany
Advantages of Monetary Targeting
Disadvantages of Monetary Targeting
Appendix 2 to Chapter 16: A Brief History of Federal Reserve Policymaking
The Early Years: Discount Policy as the Primary Tool
Discovery of Open Market Operations
The Great Depression
Inside the Fed: Bank Panics of 1930–1933: Why Did the Fed Let Them Happen?
Reserve Requirements as a Policy Tool
War Finance and the Pegging of Interest Rates: 1942–1951
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 312
Part 5
International Finance and Monetary Policy
Chapter 17: The Foreign Exchange Market
Foreign Exchange Market
Following the Financial News Foreign Exchange Rates
What Are Foreign Exchange Rates?
Why Are Exchange Rates Important?
Supply Curve for Domestic Assets
Demand Curve for Domestic Assets
Equilibrium in the Foreign Exchange Market
Explaining Changes in Exchange Rates
Shifts in the Demand for Domestic Assets
Recap: Factors That Change the Exchange Rate
Application Effects of Changes in Interest Rates on the Equilibrium Exchange Rate
Application The Global Financial Crisis and the Dollar
Application Brexit and the British Pound
Summary
Key Terms
Questions
Applied Problems
Appendix to Chapter 17: The Interest Parity Condition
Comparing Expected Returns on Domestic and Foreign Asset
Interest Parity Condition
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 313
Chapter 18: The International Finance System
Intervention in the Foreign Exchange Market
Foreign Exchange Intervention and the Money Supply
Inside the Fed A Day at the Federal Reserve Bank of New York’s Foreign Exchange Desk
Unsterilized Intervention
Sterilized Intervention
Global Should We Worry About the Large U.S. Current Account Deficit?
Exchange Rate Regimes in the International Financial System
Gold Standard
The Bretton Woods System
How a Fixed Exchange Rate Regime Works
Speculative Attacks
Application The Foreign Exchange Crisis of September 1992
The Policy Trilemma
Application How Did China Accumulate $4 Trillion of International Reserves?
Monetary Unions
Managed Float
Global Will the Euro Survive?
Capital Controls
The Role of the IMF
Should the IMF Act as an International Lender of Last Resort?
International Considerations and Monetary Policy
Direct Effects of the Foreign Exchange Market on Monetary Policy
Exchange Rate Considerations
To Peg or Not to Peg: Exchange-Rate Targeting as an Alternative Monetary Policy Strategy
Advantages of Exchange-Rate Targeting
Global Argentina’s Currency Board
Dollarization
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 314
Part 6
Monetary Theory
Chapter 19: Quantity Theory, Inflation, and the Demand for Money
Quantity Theory of Money
Velocity of Money and Equation of Exchange
From the Equation of Exchange to the Quantity Theory of Money
Application Testing the Quantity Theory of Money
Budget Deficits and Inflation
Government Budget Constraint
Hyperinflation
Application The Zimbabwean Hyperinflation
Keynesian Theories of Money Demand
Transactions Motive
Precautionary Motive
Speculative Motive
Empirical Evidence for the Demand for Money
Interest Rates and Money Demand
Stability of Money Demand
Summary
Key Terms
Questions
Applied Problems
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 315
Appendix 1 to Chapter 19: The Baumol-Tobin and the Tobin Mean-Variance Models of the
Demand for Money
The Baumol-Tobin Model of Transactions Demand for Money
Mathematical Treatment of the Baumol-Tobin Model
Tobin Mean-Variance Model
Appendix 2 to Chapter 19: Empirical Evidence on the Demand for Money
Interest Rates and Money Demand
Stability of Money Demand
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 316
Chapter 20: The IS Curve
Planned Expenditure and Aggregate Demand
The Components of Aggregate Demand
Consumption Expenditure
FYI: Meaning of the Word Investment
Planned Investment Spending
Government Purchases and Taxes
Net Exports
Application The Vietnam War Buildup, 1964–1969
Changes in Taxes
Application The Fiscal Stimulus Package of 2009
Changes in Autonomous Spending
Changes in Financial Frictions
Summary of Factors That Shift the IS Curve
Summary
Key Terms
Questions
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 317
Chapter 21: The Monetary Policy and Aggregate Demand Curves
The Federal Reserve and Monetary Policy
The Monetary Policy Curve
The Taylor Principle: Why the Monetary Policy Curve Has an Upward Slope
Shifts in the MP Curve
Movements Along Versus Shifts In the MP Curve
Application Movement Along the MP Curve: The Rise in the Federal Funds Rate Target, 2004–
2006
Application Shift in the MP Curve: Autonomous Monetary Easing at the Onset of the Global
FYI Deriving the Aggregate Demand Curve Algebraically
Summary
Key Terms
Questions
Applied Problems
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 318
Chapter 22: Aggregate Demand and Supply Analysis
Aggregate Demand
Following the Financial News: Aggregate Output, Unemployment, and Inflation
Deriving the Aggregate Demand Curve
Factors That Shift the Aggregate Demand Curve
FYI What Does Autonomous Mean?
Aggregate Supply
Long-Run Aggregate Supply Curve
Equilibrium in Aggregate Demand and Supply Analysis
Short-Run Equilibrium
How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time
Self-Correcting Mechanism
Changes in Equilibrium: Aggregate Demand Shocks
Application The Volcker Disinflation, 1980–1986
Application Negative Demand Shocks, 2001–2004
Changes in Equilibrium: Aggregate Supply (Inflation) Shocks
Temporary Supply Shocks
Application Negative Supply Shocks, 1973–1975 and 1978–1980
Permanent Supply Shocks and Real Business Cycle Theory
Application Positive Supply Shocks, 1995–1999
Conclusions
Application Negative Supply and Demand Shocks and the 2007–2009 Financial Crisis
AD/AS Analysis of Foreign Business Cycle Episodes
Application The United Kingdom and the 2007–2009 Financial Crisis
Application China and the 2007–2009 Financial Crisis
Summary
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 319
Appendix to Chapter 22: The Phillips Curve and the Short-Run Aggregate Supply Curve
The Phillips Curve
Phillips Curve Analysis in the 1960s
FYI The Phillips Curve Tradeoff and Macroeconomic Policy in the 1960s
The Friedman-Phelps Phillips Curve Analysis
The Phillips Curve After the 1960s
Appendix 1 to Chapter 22: The Effects of Macroeconomic Shocks on Asset Prices
Impact of Demand Shocks on Real Interest Rates, Inflation, and Output
Monetary Policy Shocks
Spending Shocks
Impact of Supply Shocks on Real Interest Rates, Inflation, and Output
Temporary Supply Shocks
Permanent Supply Shocks
Appendix 2 to Chapter 22: Aggregate Demand and Supply: A Numerical Example
Determination of Equilibrium Output and the Inflation Rate
Response to a Shift in the Aggregate Demand Curve
Appendix 3 to Chapter 22: The Algebra of the Aggregate Demand and Supply Model
Aggregate Demand Curve
Implications
Aggregate Supply Curves
Short-Run Aggregate Supply Curve
Appendix 4 to Chapter 22: The Taylor Principle and Inflation Stability
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 320
Chapter 23: Monetary Policy Theory
Response of Monetary Policy to Shocks
Response to an Aggregate Demand Shock
Response to a Permanent Supply Shock
Inflation: Always and Everywhere a Monetary Phenomenon
FYI The Activist/Nonactivist Debate Over the Obama Fiscal Stimulus Package
Causes of Inflationary Monetary Policy
High Employment Targets and Inflation
Application The Great Inflation
Monetary Policy at the Zero Lower Bound
Deriving the Aggregate Demand Curve at the Zero Lower Bound
The Disappearance of the Self-Correcting Mechanism at the Zero Lower Bound
Application Nonconventional Monetary Policy and Quantitative Easing
Liquidity Provision
Asset Purchases and Quantitative Easing
Management of Expectations
Application Abenomics and the Shift in Japanese Monetary Policy in 2013
Summary
Key Terms
Questions
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 321
Chapter 24: The Role of Expectations in Monetary Policy
Lucas Critique of Policy Evaluation
Econometric Policy Evaluation
Application The Term Structure of Interest Rates
Policy Conduct: Rules or Discretion?
Discretion and the Time-Inconsistency Problem
Global The Demise of Monetary Targeting in Switzerland
The Role of Credibility and a Nominal Anchor
Benefits of a Credible Nominal Anchor
Credibility and Aggregate Demand Shocks
Credibility and Aggregate Supply Shocks
Application A Tale of Three Oil Price Shocks
Credibility and Anti-Inflation Policy
Global Ending the Bolivian Hyperinflation: A Successful Anti-Inflation Program
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 322
Chapter 25: Transmission Mechanisms of Monetary Policy
Transmission Mechanisms of Monetary Policy
Traditional Interest-Rate Channels
Other Asset Price Channels
Credit View
Application Applying the Monetary Policy Lessons to Japan’s Two Lost Decades
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Appendix to Chapter 25: Evaluating Empirical Evidence: The Debate Over the Importance
of Money in Economic Fluctuations
Framework for Evaluating Empirical Evidence
Structural Model Evidence
Reduced-Form Evidence
Advantages and Disadvantages of Structural Model Evidence
Advantages and Disadvantages of Reduced-Form Evidence
FYI The Perils of Reverse Causation: A Russian Folk Tale
Conclusions
FYI The Perils of Ignoring an Outside Driving Factor: How to Lose a Presidential Election
Application The Debate Over the Importance of Monetary Policy to Economic Fluctuations
Early Keynesian Evidence on the Importance of Money
Objections to Early Keynesian Evidence
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 323
MyLab Chapter 1: Financial Crises in Emerging Market Economies
Dynamics of Financial Crises in Emerging Market Economies
Application Crisis in South Korea, 1997–1998
Financial Liberalization/Globalization Mismanaged
Perversion of the Financial Liberalization/Globalization Process: Chaebols and the South
Korean Crisis
Stock Market Decline and Failure of Firms Increase Uncertainty
Adverse Selection and Moral Hazard Problems Worsen and the Economy Contracts
Application The Argentine Financial Crisis, 2001–2002
Severe Fiscal Imbalances
Adverse Selection and Moral Hazard Problems Worsen
Bank Panic Begins
Currency Crisis Ensues
Currency Crisis Triggers Full-Fledged Financial Crisis
Recovery Begins
Global When an Advanced Economy Is Like an Emerging Market Economy: The Icelandic
Financial Crisis of 2008
Preventing Emerging Market Financial Crises
Beef Up Prudential Regulation and Supervision of Banks
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 324
MyLab Chapter 2: The ISLM Model
Keynes’s Fixed Price Level Assumption and the IS Curve
The LM Curve
Equilibrium in the Market for Money: The LM Curve
Application The Economic Stimulus Act of 2008
Effectiveness of Monetary Versus Fiscal Policy
Monetary Policy Versus Fiscal Policy: The Case of Complete Crowding Out
Application Targeting Money Supply Versus Interest Rates
ISLM Model in the Long Run
Summary
Key Terms
Appendix to MyLab Chapter 2: Algebra of the ISLM Model
Basic Closed-Economy ISLM Model
IS and LM Curves
Solution of the Model
Implications
Open-Economy ISLM Model
Implications
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 325
MyLab Chapter 3: Nonbank Finance
Insurance
Life Insurance
Property and Casualty Insurance
The Competitive Threat from the Banking Industry
Credit Insurance
FYI The AIG Blowup
FYI The Global Financial Crisis and the Monoline Insurers
Application Insurance Management
Screening
Risk-Based Premiums
Restrictive Provisions
Pension Funds
Private Pension Plans
Public Pension Plans
FYI Should Social Security Be Privatized?
Finance Companies
Securities Market Operations
Investment Banking
Securities Brokers and Dealers
Organized Exchanges
Mutual Funds
FYI Sovereign Wealth Funds: Are They a Danger?
Money Market Mutual Funds
Hedge Funds
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 326
MyLab Chapter 4: Financial Derivatives
Hedging
Interest-Rate Forward Contracts
Application Hedging with Interest-Rate Forward Contracts
Pros and Cons of Forward Contracts
Financial Futures Contracts and Markets
Explaining the Success of Futures Markets
Application Hedging Foreign Exchange Risk
Hedging Foreign Exchange Risk with Forward Contracts
Hedging Foreign Exchange Risk with Futures Contracts
Options
Options Contracts
Profits and Losses on Option and Futures Contracts
Application Hedging with Future Options
Factors Affecting Option Premiums
Summary
Swaps
Interest-Rate Swap Contracts
Application Hedging with Interest-Rate Swaps
Application Lessons from the Global Financial Crisis: When are Financial Derivatives Likely to
Be a Worldwide Time Bomb?
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 327
MyLab Chapter 5: Conflicts of Interest in the Financial Services Industry
What Are Conflicts of Interest, and Why Are They Important?
Why Do We Care About Conflicts of Interest?
FYI The Collapse of Arthur Andersen
Universal Banking
FYI Why Do Issuers of Securities Pay to Have Their Securities Rated?
FYI Banksters
Can the Market Limit Exploitations of Conflicts of Interest?
What Has Been Done to Remedy Conflicts of Interest?