Hiện nay tài liệu và giáo trình giảng dạy các môn học về tài chính đã được xuất bản khá phong phú và được giảng dạy trong các trường đại học khối ngành kinh tế. Vấn đề trọng tâm và nan giải của việc giảng dạy và học các
Trang 2Online Readings to Accompany
The Economics of Money, Banking, and
Financial Markets
Ehrenberg/Smith
Modern Labor Economics
Ekelund/Tollison
Economics: Private Markets
and Public Choice
Krugman/Obstfeld
International Economics:
Theory and Policy
Laidler
The Demand for Money:
Theories, Evidence, and Problems
Economics: A Tool for Critically Understanding Society
Trang 3Columbia University
Trang 4Executive Development Manager: Sylvia Mallory
Development Editor: Jane Tufts
Production Supervisor: Meredith Gertz
Text Design: Studio Montage
Cover Design: Regina Hagen Kolenda and Studio Montage
Composition: Argosy Publishing
Senior Manufacturing Supervisor: Hugh Crawford
Senior Marketing Manager: Barbara LeBuhn
Cover images: © PhotoDisc
Media Producer: Melissa Honig
Supplements Editor: Diana Theriault
Credits to copyrighted material appear on p C-1, which constitutes a continuation of the copyright page
Library of Congress Cataloguing-in-Publication Data
Mishkin, Frederic S
The economics of money, banking, and financial markets / Frederic S Mishkin.—7th ed
p cm — (The Addison-Wesley series in economics)
Supplemented by a subscription to a companion web site
Includes bibliographical references and index
1 2 3 4 5 6 7 8 9 10—DOW—06050403
Trang 7Introduction 1
1 Why Study Money, Banking, and Financial Markets? 3
2 An Overview of the Financial System 23
3 What Is Money? 44
Financial Markets 59 4 Understanding Interest Rates 61
5 The Behavior of Interest Rates 85
6 The Risk and Term Structure of Interest Rates 120
7 The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis 141
Financial Institutions 167 8 An Economic Analysis of Financial Structure 169
9 Banking and the Management of Financial Institutions 201
10 Banking Industry: Structure and Competition 229
11 Economic Analysis of Banking Regulation 260
12 Nonbank Finance 287
13 Financial Derivatives 309
Central Banking and the Conduct of Monetary Policy 333 14 Structure of Central Banks and the Federal Reserve System 335
15 Multiple Deposit Creation and the Money Supply Process 357
16 Determinants of the Money Supply 374
17 Tools of Monetary Policy 393
18 Conduct of Monetary Policy: Goals and Targets 411
International Finance and Monetary Policy 433 19 The Foreign Exchange Market 435
20 The International Financial System 462
21 Monetary Policy Strategy: The International Experience 487
P A R T V
P A R T I V
P A R T I I I
P A R T I I
P A R T I
vii
Trang 8Monetary Theory 515
22 The Demand for Money 517
23 The Keynesian Framework and the ISLM Model 536
24 Monetary and Fiscal Policy in the ISLM Model 561
25 Aggregate Demand and Supply Analysis 582
26 Transmission Mechanisms of Monetary Policy: The Evidence 603
27 Money and Inflation 632
28 Rational Expectations: Implications for Policy 658
P A R T V I
Trang 9Introduction 1
CHAPTER 1
WHY STUDY MONEY, BANKING, AND FINANCIAL MARKETS? 3
Preview 3
Why Study Financial Markets? 3
The Bond Market and Interest Rates 3
The Stock Market 5
The Foreign Exchange Market 5
Why Study Banking and Financial Institutions? 7
Structure of the Financial System 7
Banks and Other Financial Institutions 8
Financial Innovation 8
Why Study Money and Monetary Policy? 8
Money and Business Cycles 9
Money and Inflation 10
Money and Interest Rates 12
Conduct of Monetary Policy 12
Fiscal Policy and Monetary Policy 12
How We Will Study Money, Banking, and Financial Markets 13
Exploring the Web 14
Concluding Remarks 17
Summary, Key Terms, Questions and Problems, and Web Exercises 17
Appendix to Chapter 1 Defining Aggregate Output, Income, the Price Level, and the Inflation Rate 20
Aggregate Output and Income 20
Real Versus Nominal Magnitudes 20
Aggregate Price Level 21
Growth Rates and the Inflation Rate 22
P A R T I
ix
Trang 10CHAPTER 2
AN OVERVIEW OF THE FINANCIAL SYSTEM 23
Preview 23
Function of Financial Markets 23
Structure of Financial Markets 25
Debt and Equity Markets 25
Primary and Secondary Markets 26
Exchanges and Over-the-Counter Markets 27
Money and Capital Markets 27
Internationalization of Financial Markets 28
International Bond Market, Eurobonds, and Eurocurrencies 28
World Stock Markets 29
Function of Financial Intermediaries 29
Transaction Costs 29
Following the Financial News Foreign Stock Market Indexes 30
Box 1 Global: The Importance of Financial Intermediaries to Securities Markets: An International Comparison 31
Risk Sharing 31
Asymmetric Information: Adverse Selection and Moral Hazard 32
Financial Intermediaries 34
Depository Institutions 34
Contractual Savings Institutions 35
Investment Intermediaries 37
Regulation of the Financial System 37
Increasing Information Available to Investors 39
Ensuring the Soundness of Financial Intermediaries 39
Financial Regulation Abroad 40
Summary, Key Terms, Questions and Problems, and Web Exercises 41
CHAPTER 3 WHAT IS MONEY? 44
Preview 44
Meaning of Money 44
Functions of Money 45
Medium of Exchange 45
Unit of Account 46
Store of Value 47
Evolution of the Payments System 48
Commodity Money 48
Fiat Money 48
Checks 48
Box 1 Global: Birth of the Euro: Will It Benefit Europe? 49
Electronic Payment 50
Trang 11Box 2 E-Finance: Why Are Scandinavians So Far Ahead of Americans in
Using Electronic Payments? 50
E-Money 51
Measuring Money 51
The Federal Reserve’s Monetary Aggregates 51
Box 3 E-Finance: Are We Headed for a Cashless Society? 52
Following the Financial News The Monetary Aggregates 54
How Reliable Are the Money Data? 55
Summary, Key Terms, Questions and Problems, and Web Exercises 56
Financial Markets 59 CHAPTER 4 UNDERSTANDING INTEREST RATES 61
Preview 61
Measuring Interest Rates 61
Present Value 61
Four Types of Credit Market Instruments 63
Yield to Maturity 64
Box 1 Global: Negative T-Bill Rates? Japan Shows the Way 69
Other Measures of Interest Rates 69
Current Yield 70
Yield on a Discount Basis 71
Application Reading the Wall Street Journal: The Bond Page 72
Following the Financial News Bond Prices and Interest Rates 73
The Distinction Between Interest Rates and Returns 75
Maturity and the Volatility of Bond Returns: Interest-Rate Risk 78
Box 2 Helping Investors to Select Desired Interest-Rate Risk 79
Summary 79
The Distinction Between Real and Nominal Interest Rates 79
Box 3 With TIPS, Real Interest Rates Have Become Observable in the United States 82
Summary, Key Terms, Questions and Problems, and Web Exercises 82
CHAPTER 5 THE BEHAVIOR OF INTEREST RATES 85
Preview 85
Determinants of Asset Demand 85
Wealth 86
P A R T I I
Trang 12Expected Returns 86
Risk 87
Liquidity 87
Theory of Asset Demand 87
Supply and Demand in the Bond Market 87
Demand Curve 88
Supply Curve 90
Market Equilibrium 90
Supply and Demand Analysis 91
Loanable Funds Framework 91
Changes in Equilibrium Interest Rates 93
Shifts in the Demand for Bonds 93
Shifts in the Supply of Bonds 97
Application Changes in the Equilibrium Interest Rate Due to Expected Inflation or Business Cycle Expansions 99
Changes in Expected Inflation: The Fisher Effect 99
Business Cycle Expansion 100
Application Explaining Low Japanese Interest Rates 103
Application Reading the Wall Street Journal “Credit Markets” Column 103
Following the Financial News The “Credit Markets” Column 104
Supply and Demand in the Market for Money: The Liquidity Preference Framework 105
Changes in Equilibrium Interest Rates in the Liquidity Reference Framework 107
Shifts in the Demand for Money 107
Shifts in the Supply of Money 108
Application Changes in the Equilibrium Interest Rate Due to Changes in Income, the Price Level, or the Money Supply 108
Changes in Income 108
Changes in the Price Level 108
Changes in the Money Supply 109
Following the Financial News Forecasting Interest Rates 111
Application Money and Interest Rates 112
Does a Higher Rate of Growth of the Money Supply Lower Interest Rates? 114
Summary, Key Terms, Questions and Problems, and Web Exercises 117
CHAPTER 6 THE RISK AND TERM STRUCTURE OF INTEREST RATES 120
Preview 120
Risk Structure of Interest Rates 120
Default Risk 120
Application The Enron Bankruptcy and the Baa-Aaa Spread 124
Trang 13Liquidity 125
Income Tax Considerations 125
Summary 127
Application Effects of the Bush Tax Cut on Bond Interest Rates 127
Term Structure of Interest Rates 127
Following the Financial News Yield Curves 128
Expectations Theory 129
Segmented Markets Theory 132
Liquidity Premium and Preferred Habitat Theories 133
Evidence on the Term Structure 136
Summary 137
Application Interpreting Yield Curves, 1980–2003 137
Summary, Key Terms, Questions and Problems, and Web Exercises 138
CHAPTER 7 THE STOCK MARKET, THE THEORY OF RATIONAL EXPECTATIONS, AND THE EFFICIENT MARKET HYPOTHESIS 141
Preview 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 Security Prices 144
Application Monetary Policy and Stock Prices 146
Application The September 11 Terrorist Attacks, the Enron Scandal, and the Stock Market 146
The Theory of Rational Expectations 147
Formal Statement of the Theory 148
Rationale Behind the Theory 149
Implications of the Theory 149
The Efficient Markets Hypothesis: Rational Expectations in Financial Markets 150
Rationale Behind the Hypothesis 151
Stronger Version of the Efficient Market Hypothesis 152
Evidence on the Efficient Market Hypothesis 153
Evidence in Favor of Market Efficiency 153
Application Should Foreign Exchange Rates Follow a Random Walk? 155
Evidence Against Market Efficiency 156
Overview of the Evidence on the Efficient Market Hypothesis 158
Application Practical Guide to Investing in the Stock Market 158
How Valuable Are Published Reports by Investment Advisers? 158
Trang 14Following the Financial News Stock Prices 159
Box 1 Should You Hire an Ape as Your Investment Adviser? 160
Should You Be Skeptical of Hot Tips? 160
Do Stock Prices Always Rise When There Is Good News? 161
Efficient Market Prescription for the Investor 161
Evidence on Rational Expectations in Other Markets 162
Application What Do the Black Monday Crash of 1987 and the Tech Crash of 2000 Tell Us About Rational Expectations and Efficient Markets? 163
Summary, Key Terms, Questions and Problems, and Web Exercises 164
Financial Institutions 167 CHAPTER 8 AN ECONOMIC ANALYSIS OF FINANCIAL STRUCTURE 169
Preview 169
Basic Puzzles About Financial Structure Throughout the World 169
Transaction Costs 173
How Transaction Costs Influence Financial Structure 173
How Financial Intermediaries Reduce Transaction Costs 173
Asymmetric Information: Adverse Selection and Moral Hazard 174
The Lemons Problem: How Adverse Selection Influences Financial Structure 175
Lemons in the Stock and Bond Markets 175
Tools to Help Solve Adverse Selection Problems 176
Box 1 The Enron Implosion and the Arthur Andersen Conviction 178
How Moral Hazard Affects the Choice Between Debt and Equity Contracts 180
Moral Hazard in Equity Contracts: The Principal–Agent Problem 181
Tools to Help Solve the Principal–Agent Problem 182
Box 2 E-Finance: Venture Capitalists and the High-Tech Sector 183
How Moral Hazard Influences Financial Structure in Debt Markets 184
Tools to Help Solve Moral Hazard in Debt Contracts 184
Summary 186
Application Financial Development and Economic Growth 187
Financial Crises and Aggregate Economic Activity 189
Factors Causing Financial Crises 189
Application Financial Crises in the United States 191
Box 3 Case Study of a Financial Crisis: The Great Depression 194
Application Financial Crises in Emerging-Market Countries: Mexico, 1994–1995; East Asia, 1997–1998; and Argentina, 2001–2002 194
Summary, Key Terms, Questions and Problems, and Web Exercises 199
P A R T I I I
Trang 15CHAPTER 9
BANKING AND THE MANAGEMENT OF FINANCIAL INSTITUTIONS 201
Preview 201
The Bank Balance Sheet 201
Liabilities 201
Assets 204
Basic Banking 205
General Principles of Bank Management 208
Liquidity Management and the Role of Reserves 208
Asset Management 211
Liability Management 212
Capital Adequacy Management 213
Application Strategies for Managing Bank Capital 215
Application Did the Capital Crunch Cause a Credit Crunch in the Early 1990s? 216
Managing Credit Risk 217
Screening and Monitoring 217
Long-Term Customer Relationships 218
Loan Commitments 219
Collateral and Compensating Balances 219
Credit Rationing 220
Managing Interest-Rate Risk 220
Gap and Duration Analysis 221
Application Strategies for Managing Interest-Rate Risk 222
Off-Balance-Sheet Activities 223
Loan Sales 223
Generation of Fee Income 223
Trading Activities and Risk Management Techniques 224
Box 1 Global: Barings, Daiwa, Sumitomo, and Allied Irish: Rogue Traders and the Principal–Agent Problem 225
Summary, Key Terms, Questions and Problems, and Web Exercises 226
CHAPTER 10 BANKING INDUSTRY: STRUCTURE AND COMPETITION 229
Preview 229
Historical Development of the Banking System 229
Multiple Regulatory Agencies 231
Financial Innovation and the Evolution of the Banking Industry 232
Responses to Changes in Demand Conditions: Interest Rate Volatility 233
Responses to Changes in Supply Conditions: Information Technology 234
Box 1 E-Finance: Will “Clicks” Dominate “Bricks” in the Banking Industry? 236
Avoidance of Existing Regulations 237
Financial Innovation and the Decline of Traditional Banking 239
Trang 16Structure of the U.S Commercial Banking Industry 243
Restrictions on Branching 244
Response to Branching Restrictions 245
Bank Consolidation and Nationwide Banking 245
Box 2 E-Finance: Information Technology and Bank Consolidation 247
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 248
What Will the Structure of the U.S Banking Industry Look Like in the Future? 248
Box 3 Global: Comparison of Banking Structure in the United States and Abroad 249
Are Bank Consolidation and Nationwide Banking Good Things? 249
Separation of the Banking and Other Financial Service Industries 250
Erosion of Glass-Steagall 250
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999: Repeal of Glass-Steagall 251
Implications for Financial Consolidation 251
Separation of Banking and Other Financial Services Industries Throughout the World 251
Thrift Industry: Regulation and Structure 252
Savings and Loan Associations 252
Mutual Savings Banks 253
Credit Unions 253
International Banking 253
Eurodollar Market 254
Box 4 Global: Ironic Birth of the Eurodollar Market 255
Structure of U.S Banking Overseas 255
Foreign Banks in the United States 256
Summary, Key Terms, Questions and Problems, and Web Exercises 257
CHAPTER 11 ECONOMIC ANALYSIS OF BANKING REGULATION 260
Preview 260
Asymmetric Information and Banking Regulation 260
Government Safety Net: Deposit Insurance and the FDIC 260
Box 1 Global: The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing? 262
Restrictions on Asset Holdings and Bank Capital Requirements 264
Bank Supervision: Chartering and Examination 265
Box 2 Global: Basel 2: Is It Spinning Out of Control? 265
Assessment of Risk Management 267
Disclosure Requirements 268
Consumer Protection 269
Restrictions on Competition 269
Box 3 E-Finance: Electronic Banking: New Challenges for Bank Regulation 270
Trang 17International Banking Regulation 272
Problems in Regulating International Banking 272
Summary 272
The 1980s U.S Banking Crisis: Why? 273
Early Stages of the Crisis 274
Later Stages of the Crisis: Regulatory Forbearance 275
Competitive Equality in Banking Act of 1987 276
Political Economy of the Savings and Loan Crisis 276
The Principal–Agent Problem for Regulators and Politicians 277
Savings and Loan Bailout: The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 278
Federal Deposit Insurance Corporation Improvement Act of 1991 279
Banking Crises Throughout the World 280
Scandinavia 280
Latin America 281
Russia and Eastern Europe 282
Japan 282
East Asia 284
“Déjà Vu All Over Again” 284
Summary, Key Terms, Questions and Problems, and Web Exercises 284
CHAPTER 12 NONBANK FINANCE 287
Preview 287
Insurance 287
Life Insurance 287
Property and Casualty Insurance 288
The Competitive Threat from the Banking Industry 290
Application Insurance Management 290
Screening 291
Risk-Based Premiums 291
Restrictive Provisions 292
Prevention of Fraud 292
Cancellation of Insurance 292
Deductibles 292
Coinsurance 293
Limits on the Amount of Insurance 293
Summary 293
Pension Funds 294
Private Pension Plans 295
Public Pension Plans 295
Box 1 Should Social Security Be Privatized? 296
Finance Companies 296
Mutual Funds 297
Trang 18Box 2 E-Finance: Mutual Funds and the Internet 298
Money Market Mutual Funds 299
Hedge Funds 299
Box 3 The Long-Term Capital Management Debacle 300
Government Financial Intermediation 301
Federal Credit Agencies 301
Box 4 Are Fannie Mae and Freddie Mac Getting Too Big for Their Britches? 302
Securities Market Operations 302
Investment Banking 303
Following the Financial News New Securities Issues 304
Securities Brokers and Dealers 304
Organized Exchanges 305
Box 5 The Return of the Financial Supermarket? 305
Box 6 E-Finance: The Internet Comes to Wall Street 306
Summary, Key Terms, Questions and Problems, and Web Exercises 306
CHAPTER 13 FINANCIAL DERIVATIVES 309
Preview 309
Hedging 309
Interest-Rate Forward Contracts 310
Application Hedging with Interest-Rate Forward Contracts 310
Pros and Cons of Forward Contracts 311
Financial Futures Contracts and Markets 311
Following the Financial News Financial Futures 312
Application Hedging with Financial Futures 314
Organization of Trading in Financial Futures Markets 315
The Globalization of Financial Futures Markets 317
Explaining the Success of Futures Markets 317
Application Hedging Foreign Exchange Risk 319
Hedging Foreign Exchange Risk with Forward Contracts 319
Hedging Foreign Exchange Risk with Futures Contracts 320
Options 320
Following the Financial News Futures Options 321
Option Contracts 322
Profits and Losses on Option and Futures Contracts 322
Application Hedging with Futures Options 325
Trang 19Factors Affecting the Prices of Option Premiums 326
Summary 327
Interest-Rate Swaps 328
Interest-Rate Swap Contracts 328
Application Hedging with Interest-Rate Swaps 329
Advantages of Interest-Rate Swaps 329
Disadvantages of Interest-Rate Swaps 330
Financial Intermediaries in Interest-Rate Swaps 330
Summary, Key Terms, Questions and Problems, and Web Exercises 330
Central Banking and the Conduct of Monetary Policy 333 CHAPTER 14 STRUCTURE OF CENTRAL BANKS AND THE FEDERAL RESERVE SYSTEM 335
Preview 335
Origins of the Federal Reserve System 335
Box 1 Inside the Fed: The Political Genius of the Founders of the Federal Reserve System 336
Formal Structure of the Federal Reserve System 336
Federal Reserve Banks 337
Box 2 Inside the Fed: The Special Role of the Federal Reserve Bank of New York 339
Member Banks 340
Board of Governors of the Federal Reserve System 340
Federal Open Market Committee (FOMC) 341
Box 3 Inside the Fed: The Role of the Research Staff 342
The FOMC Meeting 343
Box 4 Inside the Fed:Green, Blue, and Beige: What Do These Colors Mean at the Fed? 344
Informal Structure of the Federal Reserve System 344
Box 5 Inside the Fed: The Role of Member Banks in the Federal Reserve System 346
How Independent Is the Fed? 346
Structure and Independence of Foreign Central Banks 349
Bank of Canada 349
Bank of England 349
Bank of Japan 350
European Central Bank 350
The Trend Toward Greater Independence 351
Explaining Central Bank Behavior 351
P A R T I V
Trang 20Box 6 Inside the Fed: Federal Reserve Transparency 352
Should the Fed Be Independent? 352
The Case for Independence 352
The Case Against Independence 354
Central Bank Independence and Macroeconomic Performance Throughout the World 354
Summary, Key Terms, Questions and Problems, and Web Exercises 355
CHAPTER 15 MULTIPLE DEPOSIT CREATION AND THE MONEY SUPPLY PROCESS 357
Preview 357
Four Players in the Money Supply Process 357
The Fed’s Balance Sheet 358
Liabilities 358
Assets 359
Control of the Monetary Base 359
Federal Reserve Open Market Operations 359
Shifts from Deposits into Currency 363
Box 1 Global: Foreign Exchange Rate Intervention and the Monetary Base 363
Discount Loans 364
Other Factors That Affect the Monetary Base 365
Overview of the Fed’s Ability to Control the Monetary Base 365
Multiple Deposit Creation: A Simple Model 365
Deposit Creation: The Single Bank 366
Deposit Creation: The Banking System 367
Deriving the Formula for Multiple Deposit Creation 370
Critique of the Simple Model 371
Summary, Key Terms, Questions and Problems, and Web Exercises 372
CHAPTER 16 DETERMINANTS OF THE MONEY SUPPLY 374
Preview 374
The Money Supply Model and the Money Multiplier 375
Deriving the Money Multiplier 375
Intuition Behind the Money Multiplier 377
Factors that Determine the Money Multiplier 378
Changes in the Required Reserve Ratio r 378
Changes in the Currency Ratio c 379
Changes in the Excess Reserves Ratio e 379
Additional Factors That Determine the Money Supply 381
Changes in the Nonborrowed Monetary Base MB n 382
Changes in the Discount Loans DL from the Fed 382
Overview of the Money Supply Process 383
Application Explaining Movements in the Money Supply, 1980–2002 384
Trang 21Application The Great Depression Bank Panics, 1930–1933 387
Summary, Key Terms, Questions and Problems, and Web Exercises 390
CHAPTER 17 TOOLS OF MONETARY POLICY 393
Preview 393
The Market for Reserves and the Federal Funds Rate 393
Supply and Demand in the Market for Reserves 394
How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate 395
Open Market Operations 398
A Day at the Trading Desk 398
Advantages of Open Market Operations 400
Discount Policy 400
Operation of the Discount Window 401
Lender of Last Resort 402
Advantages and Disadvantages of Discount Policy 403
Reserve Requirements 403
Box 1 Inside the Fed: Discounting to Prevent a Financial Panic: The Black Monday Stock Market Crash of 1987 and the Terrorist Destruction of the World Trade Center in September 2001 404
Advantages and Disadvantages of Reserve Requirement Changes 405
Application Why Have Reserve Requirements Been Declining Worldwide? 406
Application The Channel/Corridor System for Setting Interest Rates in Other Countries 406
Summary, Key Terms, Questions and Problems, and Web Exercises 408
CHAPTER 18 CONDUCT OF MONETARY POLICY: GOALS AND TARGETS 411
Preview 411
Goals of Monetary Policy 411
High Employment 411
Economic Growth 412
Price Stability 412
Box 1 Global: The Growing European Commitment to Price Stability 413
Interest-Rate Stability 413
Stability of Financial Markets 413
Stability in Foreign Exchange Markets 414
Conflict Among Goals 414
Central Bank Strategy: Use of Targets 414
Choosing the Targets 416
Criteria for Choosing Intermediate Targets 418
Criteria for Choosing Operating Targets 419
Trang 22Fed Policy Procedures: Historical Perspective 419The Early Years: Discount Policy as the Primary Tool 420 Discovery of Open Market Operations 420 The Great Depression 421
Box 2 Inside the Fed: Bank Panics of 1930–1933: Why Did the Fed Let Them Happen? 421Reserve Requirements as a Policy Tool 422 War Finance and the Pegging of Interest Rates: 1942–1951 422 Targeting Money Market Conditions: The 1950s and 1960s 423 Targeting Monetary Aggregates: The 1970s 424 New Fed Operating Procedures: October 1979–October 1982 425 De-emphasis of Monetary Aggregates: October 1982–Early 1990s 426 Federal Funds Targeting Again: Early 1990s and Beyond 427 International Considerations 427
Box 3 Global: International Policy Coordination: The Plaza Agreement and the Louvre Accord 428The Taylor Rule, NAIRU, and the Philips Curve 428
Box 4 Fed Watching 430Summary, Key Terms, Questions and Problems, and Web Exercises 431
CHAPTER 19
THE FOREIGN EXCHANGE MARKET 435
Preview 435Foreign Exchange Market 435What Are Foreign Exchange Rates? 436
Following the Financial News Foreign Exchange Rates 437Why Are Exchange Rates Important? 438 How Is Foreign Exchange Traded? 438Exchange Rates in the Long Run 439Law of One Price 439 Theory of Purchasing Power Parity 439 Why the Theory of Purchasing Power Parity Cannot Fully Explain Exchange Rates 440 Factors That Affect Rates in the Long Run 441Exchange Rates in the Short Run 443Comparing Expected Returns on Domestic and Foreign Deposits 443 Interest Parity Condition 445 Equilibrium in the Foreign Exchange Market 446Explaining Changes in Exchange Rates 448Shifts in the Expected-Return Schedule for Foreign Deposits 448 Shifts in the Expected-Return Schedule for Domestic Deposits 450
P A R T V
Trang 23Application Changes in the Equilibrium Exchange Rate: Two Examples 452
Changes in Interest Rates 452
Changes in the Money Supply 453
Exchange Rate Overshooting 453
Application Why Are Exchange Rates So Volatile? 455
Application The Dollar and Interest Rates, 1973–2002 455
Application The Euro’s First Four Years 457
Application Reading the Wall Street Journal: The “Currency Trading” Column 457
Following the Financial News The “Currency Trading” Column 458
Summary, Key Terms, Questions and Problems, and Web Exercises 459
CHAPTER 20
THE INTERNATIONAL FINANCIAL SYSTEM 462
Preview 462
Intervention in the Foreign Exchange Market 462
Foreign Exchange Intervention and the Money Supply 462
Box 1 Inside the Fed: A Day at the Federal Reserve Bank of New York’s
Foreign Exchange Desk 463
Bretton Woods System 469
Box 2 Global: The Euro’s Challenge to the Dollar 471
Managed Float 473
European Monetary System (EMS) 474
Application The Foreign Exchange Crisis of September 1992 475
Application Recent Foreign Exchange Crises in Emerging Market Countries:
Mexico 1994, East Asia 1997, Brazil 1999, and Argentina 2002 477
Capital Controls 478
Controls on Capital Outflows 478
Controls on Capital Inflows 479
The Role of the IMF 479
Should the IMF Be an International Lender of Last Resort? 480
International Considerations and Monetary Policy 482
Direct Effects of the Foreign Exchange Market on the Money Supply 482
Balance-of-Payments Considerations 483
Exchange Rate Considerations 483
Summary, Key Terms, Questions and Problems, and Web Exercises 484
Trang 24CHAPTER 21
MONETARY POLICY STRATEGY: THE INTERNATIONAL EXPERIENCE 487
Preview 487The Role of a Nominal Anchor 487The Time-Consistency Problem 488Exchange-Rate Targeting 489Advantages of Exchange-Rate Targeting 489 Disadvantages of Exchange-Rate Targeting 490 When Is Exchange-Rate Targeting Desirable for Industrialized Countries? 492 When Is Exchange-Rate Targeting Desirable for Emerging Market Countries? 492 Currency Boards 492 Dollarization 493
Box 1 Global: Argentina’s Currency Board 494Monetary Targeting 496Monetary Targeting in Canada, the United Kingdom, Japan, Germany, and Switzerland 496
Box 2 Global: The European Central Bank’s Monetary Policy Strategy 498Advantages of Monetary Targeting 500 Disadvantages of Monetary Targeting 501Inflation Targeting 501Inflation Targeting in New Zealand, Canada, and the United Kingdom 501 Advantages of Inflation Targeting 504 Disadvantages of Inflation Targeting 506 Nominal GDP Targeting 508Monetary Policy with an Implicit Nominal Anchor 509Advantages of the Fed’s Approach 510 Disadvantages of the Fed’s Approach 510Summary, Key Terms, Questions and Problems, and Web Exercises 512
CHAPTER 22
THE DEMAND FOR MONEY 517
Preview 517Quantity Theory of Money 517Velocity of Money and Equation of Exchange 518 Quantity Theory 519 Quantity Theory of Money Demand 519
Is Velocity a Constant? 520Keynes’s Liquidity Preference Theory 521Transactions Motive 521 Precautionary Motive 522 Speculative Motive 522 Putting the Three Motives Together 523Further Developments in the Keynesian Approach 524Transactions Demand 524
P A R T V I
Trang 25Precautionary Demand 527
Speculative Demand 527
Friedman’s Modern Quantity Theory of Money 528
Distinguishing Between the Friedman and Keynesian Theories 530
Empirical Evidence on the Demand for Money 532
Interest Rates and Money Demand 533
Stability of Money Demand 533
Summary, Key Terms, Questions and Problems, and Web Exercises 533
CHAPTER 23
THE KEYNESIAN FRAMEWORK AND THE ISLM MODEL 536
Preview 536
Determination of Aggregate Output 536
Consumer Expenditure and the Consumption Function 538
Investment Spending 539
Box 1 Meaning of the Word Investment 540
Equilibrium and the Keynesian Cross Diagram 540
Expenditure Multiplier 542
Application The Collapse of Investment Spending and the Great Depression 545
Government’s Role 545
Role of International Trade 548
Summary of the Determinants of Aggregate Output 548
The ISLM Model 551
Equilibrium in the Goods Market: The IS Curve 552
Equilibrium in the Market for Money: The LM Curve 555
ISLM Approach to Aggregate Output and Interest Rates 557
Summary, Key Terms, Questions and Problems, and Web Exercises 558
CHAPTER 24
MONETARY AND FISCAL POLICY IN THE ISLM MODEL 561
Preview 561
Factors That Cause the IS Curve to Shift 561
Factors That Cause the LM Curve to Shift 564
Changes in Equilibrium Level of the Interest Rate and Aggregate Output 566
Response to a Change in Monetary Policy 566
Response to a Change in Fiscal Policy 567
Effectiveness of Monetary Versus Fiscal Policy 568
Monetary Policy Versus Fiscal Policy: The Case of Complete Crowding Out 568
Application Targeting Money Supply Versus Interest Rates 571
ISLM Model in the Long Run 575
ISLM Model and the Aggregate Demand Curve 577
Deriving the Aggregate Demand Curve 577
Factors That Cause the Aggregate Demand Curve to Shift 578
Summary, Key Terms, Questions and Problems, and Web Exercises 580
Trang 26CHAPTER 25
AGGREGATE DEMAND AND SUPPLY ANALYSIS 582
Preview 582Aggregate Demand 582Monetarist View of Aggregate Demand 582
Following the Financial News Aggregate Output, Unemployment, and the Price Level 583Keynesian View of Aggregate Demand 585 The Crowding-Out Debate 586Aggregate Supply 587Shifts in the Aggregate Supply Curve 588Equilibrium in Aggregate Supply and Demand Analysis 588Equilibrium in the Short Run 589 Equilibrium in the Long Run 589 Shifts in Aggregate Demand 592 Shifts in Aggregate Supply 594 Shifts in the Long-Run Aggregate Supply Curve: Real Business Cycle Theory
and Hysteresis 596 Conclusions 597
Application Explaining Past Business Cycle Episodes 598Vietnam War Buildup, 1964–1970 598 Negative Supply Shocks, 1973–1975 and 1978–1980 598 Favorable Supply Shocks, 1995–1999 599Summary, Key Terms, Questions and Problems, and Web Exercises 600
CHAPTER 26
Preview 603Framework for Evaluating Empirical Evidence 603Structural Model Evidence 604 Reduced-Form Evidence 604 Advantages and Disadvantages of Structural Model Evidence 605 Advantages and Disadvantages of Reduced-Form Evidence 606
Box 1 Perils of Reverse Causation: A Russian Folk Tale 606
Box 2 Perils of Ignoring an Outside Driving Factor: How to Lose a Presidential Election 607Conclusions 607Early Keynesian Evidence on the Importance of Money 607Objections to Early Keynesian Evidence 608Early Monetarist Evidence on the Importance of Money 611Timing Evidence 611 Statistical Evidence 613
Trang 27Historical Evidence 615
Overview of the Monetarist Evidence 615
Box 3 Real Business Cycle Theory and the Debate on Money and
Economic Activity 616
Transmission Mechanisms of Monetary Policy 616
Traditional Interest-Rate Channels 617
Other Asset Price Channels 618
Credit View 621
Box 4 Consumers’ Balance Sheets and the Great Depression 624
Why Are Credit Channels Likely to Be Important? 625
Application Corporate Scandals and the Slow Recovery from the
March 2001 Recession 625
Lessons for Monetary Policy 626
Application Applying the Monetary Policy Lessons to Japan 628
Summary, Key Terms, Questions and Problems, and Web Exercises 629
Origins of Inflationary Monetary Policy 638
High Employment Targets and Inflation 639
Budget Deficits and Inflation 643
Application Explaining the Rise in U.S Inflation, 1960–1980 646
Activist/Nonactivist Policy Debate 650
Responses to High Unemployment 650
Activist and Nonactivist Positions 651
Expectations and the Activist/Nonactivist Debate 652
Box 1 Perils of Accommodating Policy: The Terrorism Dilemma 654
Rules Versus Discretion: Conclusions 654
Application Importance of Credibility to Volcker’s Victory over Inflation 655
Summary, Key Terms, Questions and Problems, and Web Exercises 655
Trang 28CHAPTER 28
RATIONAL EXPECTATIONS: IMPLICATIONS FOR POLICY 658
Preview 658The Lucas Critique of Policy Evaluation 659Econometric Policy Evaluation 659 Example: The Term Structure of Interest Rates 659New Classical Macroeconomic Model 660Effects of Unanticipated and Anticipated Policy 661
Box 1 Proof of the Policy Ineffectiveness Proposition 663Can an Expansionary Policy Lead to a Decline in Aggregate Output? 663 Implications for Policymakers 664New Keynesian Model 665Effects of Unanticipated and Anticipated Policy 666 Implications for Policymakers 666Comparison of the Two New Models with the Traditional Model 666Short-Run Output and Price Responses 668 Stabilization Policy 670 Anti-inflation Policies 671 Credibility in Fighting Inflation 673
Box 2 Global:Ending the Bolivian Hyperinflation: Case Study of a Successful Anti-inflation Program 674
Application Credibility and the Reagan Budget Deficits 675Impact of the Rational Expectations Revolution 676Summary, Key Terms, Questions and Problems, and Web Exercises 677
GLOSSARY G-1
ANSWERS TO SELECTED QUESTIONS AND PROBLEMS A-1
CREDITS C-1
INDEX I-1
Trang 29I have continually strived to improve this textbook with each new edition, and the
Seventh Edition of The Economics of Money, Banking, and Financial Markets is no
exception The text has undergone a major revision, but it retains the basic marks that have made it the best-selling textbook on money and banking in the pastsix editions:
hall-• A unifying, analytic framework that uses a few basic economic principles toorganize students’ thinking about the structure of financial markets, the foreignexchange markets, financial institution management, and the role of monetarypolicy in the economy
• A careful, step-by-step development of models (an approach found in the bestprinciples of economics textbooks), which makes it easier for students to learn
• The complete integration of an international perspective throughout the text
• A thoroughly up-to-date treatment of the latest developments in monetary theory
• Special features called “Following the Financial News” and “Reading the Wall
Street Journal” to encourage reading of a financial newspaper
• An applications-oriented perspective with numerous applications and topic boxes that increase students’ interest by showing them how to apply the-ory to real-world examples
special-What’s New in the Seventh Edition
In addition to the expected updating of all data through the end of 2002 wheneverpossible, there is major new material in every part of the text Indeed, this revision
is one of the most substantial that I have ever done
With the wide swings in the stock prices in recent years, students of money andbanking have become increasingly interested in what drives the stock market As aresult, I have expanded the discussion of this market by describing simple valua-tion methods for stocks and examining recent developments in the stock marketand the link between monetary policy and stock prices I have combined this mate-rial with the discussion of the theory of rational expectations and efficient capitalmarkets to create a new Chapter 7, “The Stock Market, the Theory of RationalExpectations, and the Efficient Market Hypothesis.”
Expanded
Coverage of the
Stock Market
xxix
Trang 30In light of continuing changes in financial markets and institutions, I have addedthe following new material to keep the text current:
• Extensive discussion of recent corporate scandals and the collapse of Enron,including their impact on the economy (Chapters 6, 7, 11, and 26)
• Discussion of the role of venture capitalists in the high-tech sector (Chapter 8)
• Examination of how information technology is influencing bank consolidation,and analysis of whether clicks will dominate bricks in the banking industry(Chapter 10)
• New material on the Basel Committee on Bank Supervision and where the BaselAccord is heading (Chapter 11)
• Discussion of the spread of deposit insurance throughout the world (Chapter 11)
• Perspective on the growing concerns about Fannie Mae and Freddie Mac(Chapter 12)
• A new type of special-interest box, the E-Finance box, which relates howchanges in technology have affected the conduct of business in banking andfinancial markets The placement of these boxes throughout the text helps todemonstrate the impact of technology across a broad range of areas in finance
The growing importance of the global economy has encouraged me to add morenew material with an international perspective:
• Extensive discussion of recent developments in Argentina (Chapters 1, 8, 11,
20, and 21)
• Analysis of how central banks set overnight interest rates in other countries(Chapter 17)
• Discussion of how the euro has fared in its first four years (Chapter 19)
• Additional treatment of recent events in the Japanese economy (Chapters 11and 26)
Drawing on my continuing involvement with central banks around the world, Ihave added new material to keep the discussion of monetary theory and policycurrent:
• New boxes on Fed watching and Federal Reserve transparency (Chapters 14and 18)
• Discussion of the changes (implemented in 2003) in the way the Fed ters the discount window (Chapter 17)
adminis-• An updated discussion of the market for reserves and how the dor system for setting interest rates works (Chapter 17)
channel/corri-• Discussion of how the recent corporate scandals have hindered the recovery ofthe economy from the 2001–2002 recession (Chapter 25)
The incredible advances in electronic (computer and telecommunications) nology in recent years have had a major impact on the financial system This SeventhEdition reflects these developments by adding many new features with an electronicfocus
tech-Web Enhancement. The Seventh Edition embraces the exploding world of tion now available over the World Wide Web There are few areas where the Internet
Trang 31has been as valuable as in the realm of money, banking, and financial markets Datathat were once difficult and tedious to collect are now readily available To help stu-dents appreciate what they can access online, I have added a number of new features:
1 Web Exercises This edition adds all-new end-of-chapter Web Exercises.
These require that students collect information from online sources or useonline resources to enhance their learning experience The Web Exercises arerelatively quick and easy to complete, while still accomplishing the goal offamiliarizing students with online sources of data
2 Web Sources Much of the data used to create the many tables and charts were
collected from online sources Wherever a Web URL is available, it is exactlyreported as the source The interested student or instructor can use this URL tosee what has happened since the chart or table was created
3 Marginal Web References In addition to listing the sources of data used to
create the charts and graphs, I have also included in the margin URLs to Websites that provide information or data that supplement the text These refer-ences include a brief description of what students will find at the site
Interested students can use these sites to extend their study, and instructors candraw from them to supplement their lecture notes Because the URLs for Websources and references do sometimes change, the Mishkin Companion WebSite at www.aw.com/mishkinwill provide the new URLs when they are needed
E-Finance Boxes. To illustrate how electronic technology has increasingly ated financial markets and institutions, I have included the all-new E-Financeboxes, described earlier, to show the ongoing real-world impact of this remarkabledevelopment
perme-As textbooks go into later editions, they often grow in length Over the years, I haveresisted this tendency, and in this edition have made even greater efforts to stream-line the book Despite the addition of a lot of new material, the book is substantiallyshorter Moreover, at the suggestion of reviewers, I have moved the discussion ofrational expectations and efficient markets earlier in the book, to Chapter 7 I havealso shifted the material on the foreign exchange market and the determination ofexchange rates to Chapter 19 so that it comes immediately before the chapter onthe international financial system, allowing this material to be taught together
The Web site for this book, www.aw.com/mishkin, has allowed me to produce alarge amount of new material for the book without lengthening the text, because wehave placed this material in appendices on the Web site The appendices include:
Chapter 2: Financial Market InstrumentsChapter 4: Measuring Interest-Rate Risk: DurationChapter 5: Models of Asset Pricing
Chapter 5: Applying the Asset Market Approach to a Commodity Market:
The Case of GoldChapter 9: Duration Gap AnalysisChapter 9: Measuring Bank PerformanceChapter 11: Evaluating FDICIA and Other Proposed Reforms of the Bank
Trang 32Chapter 15: The Fed’s Balance Sheet and the Monetary BaseChapter 16: The M2 Money Multiplier
Chapter 16: Explaining the Behavior of the Currency RatioChapter 22: A Mathematical Treatment of the Baumol-Tobin and Tobin Mean
Variance ModelChapter 22: Empirical Evidence on the Demand for Money
Chapter 24: Algebra of the ISLM Model
Chapter 25: Aggregate Supply and the Phillips CurveInstructors can either use these appendices in class to supplement the material inthe textbook, or recommend them to students who want to expand their knowledge
of the money and banking field
Flexibility
In using previous editions, adopters, reviewers, and survey respondents have tinually praised this text’s flexibility There are as many ways to teach money, bank-ing, and financial markets as there are instructors To satisfy the diverse needs ofinstructors, the text achieves flexibility as follows:
con-• Core chapters provide the basic analysis used throughout the book, and otherchapters or sections of chapters can be used or omitted according to instructorpreferences For example, Chapter 2 introduces the financial system and basicconcepts such as transaction costs, adverse selection, and moral hazard Aftercovering Chapter 2, the instructor may decide to give more detailed coverage
of financial structure by assigning Chapter 8, or may choose to skip Chapter 8and take any of a number of different paths through the book
• The text also allows instructors to cover the most important issues in monetary
theory and policy without having to use the ISLM model in Chapters 23 and
24, while more complete treatments of monetary theory make use of the ISLM
chapters
• The internationalization of the text through marked international sections withinchapters, as well as through complete separate chapters on the foreign exchangemarket and the international monetary system, is comprehensive yet flexible.Although many instructors will teach all the international material, others willnot Instructors who want less emphasis on international topics can easily skipChapter 19 on the foreign exchange market and Chapter 20 on the internationalfinancial system and monetary policy The international sections within chaptersare self-contained and can be omitted with little loss of continuity
To illustrate how this book can be used for courses with varying emphases, eral course outlines are suggested for a semester teaching schedule More detailedinformation about how the text can be used flexibly in your course is available inthe Instructor’s Manual
sev-• General Money and Banking Course: Chapters 1–5, 9–11, 14, 17, 18, 25, 27,
with a choice of 6 of the remaining 15 chapters
• General Money and Banking Course with an International Emphasis: Chapters 1–5,
9–11, 14, 17–20, 25, 27 with a choice of 4 of the remaining 13 chapters
Trang 33• Financial Markets and Institutions Course: Chapters 1–13, with a choice of 6 of
the remaining 15 chapters
• Monetary Theory and Policy Course: Chapters 1–5, 14, 15, 17, 18, 21, 25–28,
with a choice of 5 of the remaining 14 chapters
Pedagogical Aids
In teaching theory or its applications, a textbook must be a solid motivational tool
To this end, I have incorporated a wide variety of pedagogical features to make thematerial easy to learn:
1 Previews at the beginning of each chapter tell students where the chapter is
heading, why specific topics are important, and how they relate to other topics
in the book
2 Applications, numbering more than 50, demonstrate how the analysis in the
book can be used to explain many important real-world situations A special set
of applications, called “Reading the Wall Street Journal,” shows students how to
read daily columns in this leading financial newspaper
3 “Following the Financial News” boxes introduce students to relevant news
articles and data that are reported daily in the press, and explain how to readthem
4 “Inside the Fed” boxes give students a feel for what is important in the
oper-ation and structure of the Federal Reserve System
5 Global boxes include interesting material with an international focus.
6 E-Finance boxes relate how changes in technology have affected financial
mar-kets or institutions
7 Special-interest boxes highlight dramatic historical episodes, interesting
ideas, and intriguing facts related to the subject matter
8 Study Guides are highlighted statements scattered throughout the text that
provide hints to the student on how to think about or approach a topic
9 Summary tables provide a useful study aid in reviewing material.
10 Key statements are important points set in boldface italic type so that students
can easily find them for later reference
11 Graphs with captions, numbering more than 150, help students clearly
understand the interrelationship of the variables plotted and the principles ofanalysis
12 Summary at the end of each chapter lists the main points covered.
13 Key terms are important words or phrases, boldfaced when they are defined
for the first time and listed by page number at the end of the chapter
14 End-of-chapter questions and problems, numbering more than 400, help
students learn the subject matter by applying economic concepts, including aspecial class of problems that students find particularly relevant, under theheading “Using Economic Analysis to Predict the Future.”
15 Web Exercises encourage students to collect information from online sources
or use online resources to enhance their learning experience
16 Web sources report the Web URL source of the data used to create the many
tables and charts
Trang 3417 Marginal Web references point the student to Web sites that provide
infor-mation or data that supplement the text material
18 Glossary at the back of the book provides definitions of all the key terms.
19 Answers section at the back of the book provides solutions to half of the
ques-tions and problems (marked by *)
An Easier Way to Teach Money, Banking, and Financial Markets
The demands for good teaching have increased dramatically in recent years Tomeet these demands, I have provided the instructor with supplementary materials,unlike those available with any competing text, that should make teaching thiscourse substantially easier
This book comes with not only full-color Microsoft PowerPoint electronictransparencies of all the figures and tables but also full-color overhead transparen-cies Furthermore, the Instructor’s Manual contains transparency masters of the lec-ture notes, perforated so that they can be easily detached for use in class
The lecture notes are comprehensive and outline all the major points covered
in the text They have been class-tested successfully—they are in fact the notes that
I use in class—and they should help other instructors prepare their lectures as theyhave helped me Some instructors might use these lecture notes as their own classnotes and prefer to teach with a blackboard But for those who prefer to teach withvisual aids, the PowerPoint presentation and the full-color transparencies of the fig-ures and tables afford the flexibility to take this approach
I am also aware that many instructors want to make variations in their lecturesthat depart somewhat from material covered in the text For their convenience, theentire set of lecture notes has been put on the Instructor’s Resource CD-ROM usingMicrosoft Word Instructors can modify the lecture notes as they see fit for their ownuse, for class handouts, or for transparencies to be used with an overhead projector.The Instructor’s Resource CD-ROM also offers the entire contents of theInstructor’s Manual, which includes chapter outlines, overviews, and teaching tips;answers to the end-of-chapter problems that are not included in the text Using thishandy feature, instructors can prepare student handouts such as solutions to prob-lem sets made up of end-of-chapter problems, the outline of the lecture that day, oressay discussion questions for homework I have used handouts of this type in myteaching and have found them to be very effective Instructors have my permissionand are encouraged to photocopy all of the materials on the CD-ROM and use them
as they see fit in class
Supplements Program to Accompany the Seventh Edition
The Economics of Money, Banking, and Financial Markets, Seventh Edition, includes
the most comprehensive program of supplements of any money, banking, andfinancial markets textbook These items are available to qualified domestic adopters,but in some cases may not be available to international adopters
1 Instructor’s Resource Manual, a print supplement prepared by me and
offer-ing conventional elements such as sample course outlines, chapter outlines, and
For the Professor
Trang 35answers to questions and problems in the text In addition, the manual contains
my Lecture Notes, numbering more than 300, in transparency master format;
these notes comprehensively outline the major points covered in the textbook
2 Instructor’s Resource CD-ROM, which conveniently holds the MS Word files
to the Instructor’s Manual, the Computerized Test Bank, and the MS PowerPointLecture Presentation
3 Full-Color Transparencies, numbering more than 150, for all of the figures,
tables, and summary tables
4 PowerPoint Electronic Lecture Presentation, numbering more than 300
images, which include all the book’s figures and tables in full color, plus the ture notes Available on the Instructor’s Resource CD-ROM
lec-5 Printed Test Bank by James Butkiewicz of the University of Delaware,
compris-ing more than 4,500 multiple-choice and essay test items, many with graphs
6 Computerized Test Bank, allowing the instructor to produce exams efficiently.
This product consists of the multiple-choice and essay questions in the printedTest Bank and offers editing capabilities It is available in Macintosh and Windowsversions on the Instructor’s Resource CD-ROM
1 Study Guide and Workbook, prepared by Erick Eschker of Humboldt State
University, John McArthur of Wofford College, and me, which includes ter synopses and completions, exercises, self-tests, and answers to the exercisesand self-tests
chap-2 Readings in Money, Banking, and Financial Markets, edited by James W.
Eaton of Bridgewater College and me, updated annually, with over half the cles new each year to enable instructors to keep the content of their course cur-rent throughout the life of an edition of the text The readings are availablewithin MyEconLab (see next section)
arti-Course Management with MyEconLab
Every student who buys a new textbook receives a prepaid subscription to
MyEconLab New to the Seventh Edition of The Economics of Money, Banking, and
Financial Markets, MyEconLab delivers rich online content and innovative learning
tools to your classroom Instructors who use MyEconLab gain access to powerfulcommunication and assessment tools, and their students receive access to the addi-tional learning resources described next
MyEconLab delivers the content and tools your students need to succeed withinAddison-Wesley’s innovative CourseCompass system Students whose instructorsuse MyEconLab gain access to a variety of resources:
• The complete textbook online, in PDF format, with animated graphs that helpstudents master the key concepts
• MathXL for Economics—a powerful tutorial to refresh students on the basics
of creating and interpreting graphs; solving applied problems using graphs; culating ratios and percentages; performing calculations; calculating average,median, and mode; and finding areas
cal-• Research Navigator™—a one-stop research tool, with extensive help on the entireresearch process, including evaluating sources, drafting, and documentation, as
Students and
MyEconLab
For the Student
Trang 36well as access to a variety of scholarly journals and publications, a complete
year of search for full-text articles from the New York Times, and a “Best of the
Web” Link Library of peer-reviewed Web sites
• eThemes of the Times—thematically related articles from the New York Times,
accompanied by critical-thinking questions
• Readings on Money, Banking, and Financial Markets—edited by James W Eaton
of Bridgewater College and me and updated annually, with a focus on articlesfrom Federal Reserve publications and economics and finance journals
• Additional study resources such as self-testing quizzes for each chapter, aweekly current events feature, online glossary term flashcards, and additionalarticles and supplemental materials
The Student Access Kit that arrives bundled with all new books walks studentsstep-by-step through the registration process
With MyEconLab, instructors can customize existing content and add their own.They can manage, create, and assign tests to students, choosing from our Test Bank,
or upload tests they’ve written themselves MyEconLab also includes advancedtracking features that record students’ usage and performance and a Gradebook fea-
ture to see students’ test results Please refer to the Instructor Quick Start Guide or
contact your Addison-Wesley sales representative to set up MyEconLab for yourcourse
Acknowledgments
As always in so large a project, there are many people to thank My gratitude goes
to Victoria Warneck, economics editor at Addison Wesley; Sylvia Mallory, ExecutiveDevelopment Manager; and Jane Tufts, the best development editor in the business
I also have been assisted by comments from my colleagues at Columbia and from
my students
In addition, I have been guided by the thoughtful commentary of outsidereviewers and correspondents, especially Jim Eaton Their feedback has made this
a better book In particular, I thank the following:
Burton Abrams, University of DelawareFrancis W Ahking, University of ConnecticutMohammed Akacem, Metropolitan State College of DenverHarjit K Arora, Le Moyne College
Stacie Beck, University of DelawareGerry Bialka, University of North FloridaDaniel K Biederman, University of North DakotaJohn Bishop, East Carolina University
Daniel Blake, California State University, NorthridgeRobert Boatler, Texas Christian University
Henning Bohn, University of California, Santa BarbaraMichael W Brandl, University of Texas at AustinOscar T Brookins, Northeastern UniversityWilliam Walter Brown, California State University, Northridge
Instructors and
MyEconLab
Trang 37James L Butkiewicz, University of Delaware
Colleen M Callahan, Lehigh University
Ray Canterbery, Florida State University
Sergio Castello, University of Mobile
Jen-Chi Cheng, Wichita State University
Patrick Crowley, Middlebury College
Sarah E Culver, University of Alabama, Birmingham
Maria Davis, San Antonio College
Ranjit S Dighe, State University of New York, Oswego
Richard Douglas, Bowling Green University
Donald H Dutkowsky, Syracuse University
Richard Eichhorn, Colorado State University
Paul Emberton, Southwest Texas State University
Erick Eschker, Humboldt State University
Robert Eyler, Sonoma State University
L S Fan, Colorado State University
Sasan Fayazmanesh, California State University, Fresno
Dennis Fixler, George Washington University
Gary Fleming, Roanoke College
Grant D Forsyth, Eastern Washington University
James Gale, Michigan Technological University
Stuart M Glosser, University of Wisconsin, Whitewater
Fred C Graham, American University
Jo Anna Gray, University of Oregon
David Gulley, Bentley College
Daniel Haak, Stanford University
Larbi Hammami, McGill University
Bassan Harik, Western Michigan University
J C Hartline, Rutgers University
Scott E Hein, Texas Tech University
Robert Stanley Herren, North Dakota State University
Jane Himarios, University of Texas, Arlington
Dar-Yeh Hwang, National Taiwan University
Jayvanth Ishwaran, Stephen F Austin State University
Jonatan Jelen, Queens College and City College of CUNY
U Jin Jhun, State University of New York, Oswego
Frederick L Joutz, George Washington University
Bryce Kanago, University of Northern Iowa
Magda Kandil, International Monetary Fund
George G Kaufman, Loyola University Chicago
Richard H Keehn, University of Wisconsin, Parkside
Elizabeth Sawyer Kelly, University of Wisconsin, Madison
Jim Lee, Fort Hays State University
Robert Leeson, University of Western Ontario
Tony Lima, California State University, Hayward
Bernard Malamud, University of Nevada, Las Vegas
Marvin Margolis, Millersville University
Stephen McCafferty, Ohio State University
James McCown, Ohio State University
Trang 38Cheryl McGaughey, Angelo State University
W Douglas McMillin, Louisiana State UniversityWilliam Merrill, Iowa State University
Carrie Meyer, George Mason UniversityStephen M Miller, University of ConnecticutMasoud Moghaddam, Saint Cloud State UniversityThomas S Mondschean, DePaul UniversityClair Morris, U.S Naval Academy
Jon Nadenichek, California State University, NorthridgeJohn Nader, Grand Valley State University
Leonce Ndikumana, University of Massachusetts, AmherstRay Nelson, Brigham Young University
Inder P Nijhawan, Fayetteville State UniversityNick Noble, Miami University of Ohio
Dennis O’Toole, Virginia Commonwealth UniversityMark J Perry, University of Michigan, Flint
Chung Pham, University of New MexicoMarvin M Phaup, George Washington UniversityGanga P Ramdas, Lincoln University
Ronald A Ratti, University of Missouri, ColumbiaHans Rau, Ball State University
Prosper Raynold, Miami UniversityJavier Reyes, Texas A&M UniversityJack Russ, San Diego State UniversityRobert S Rycroft, Mary Washington CollegeLynn Schneider, Auburn University, MontgomeryWalter Schwarm, Colorado State UniversityHarinder Singh, Grand Valley State UniversityLarry Taylor, Lehigh University
Leigh Tesfatsion, Iowa State UniversityFrederick D Thum, University of Texas, AustinRobert Tokle, Idaho State University
C Van Marrewijk, Erasmus UniversityChristopher J Waller, Indiana UniversityMaurice Weinrobe, Clark UniversityJames R Wible, University of New HampshirePhilip R Wiest, George Mason UniversityWilliam Wilkes, Athens State UniversityThomas Williams, William Paterson UniversityLaura Wolff, Southern Illinois University, EdwardsvilleRobert Wright, University of Virginia
Ben T Yu, California State University, Northridge
Ky H Yuhn, Florida Atlantic UniversityJeffrey Zimmerman, Methodist CollegeFinally, I want to thank my wife, Sally; my son, Matthew; and my daughter,Laura, who provide me with a warm and happy environment that enables me to do
my work, and my father, Sydney, now deceased, who a long time ago put me on thepath that led to this book
Frederic S Mishkin
Trang 39P a r t I
Introduction