Course Syllabus

Course Information

Course title

Seminar on Politics of Modern Central Banking

Semester

111-1

Designated for

COLLEGE OF SOCIAL SCIENCES DEPARTMENT OF POLITICAL SCIENCE

Instructor

HUAN-KAI TSENG

Curriculum Number

PS5689

Curriculum Identity Number

322EU2070

Class

Credits

2.0

Full/Half
Yr.

Half

Required/
Elective

Elective

Time

Tuesday 8,9(15:30~17:20)

Remarks

Restriction: juniors and beyond
The upper limit of the number of students: 20.
The upper limit of the number of non-majors: 10.

Course
Website

https://www.dropbox.com/sh/5vsy7ux1fbn9on8/AADY-uuRy6Hx08o4M8RjEamea?dl=0

Course introduction video

Table of Core Capabilities and Curriculum Planning

Course Syllabus

Please respect the intellectual property rights of others and do not copy any of the course information without permission

Course Description

This course focuses on the role of central banking in contemporary politics in the post-World War II era. Emphasis will be placed on understanding the political processes in various aspects of central banking and their consequences. The first part of the course covers topics of more domestic nature – the origin of central banking, roles and objectives, relations with the state and the market. Armed with this domain knowledge, we further explore the central bank's relations with the rest of society—including foreign countries—in selected issue areas. The second part of the course considers other dimensions of central banking: trade, international finance, and democracy; in particular, we focus on the interactions between international factors and domestic political processes of central banking. Each class meeting begins with a lecture, followed by a discussion of that week's readings.

Each week's readings consists of assigned book chapter(s) and/or research articles covering related materials of the same topic. Further readings are NOT mandatory, they serve to provide supplemental information or alternative perspectives to give each week's materials. Recent global and country-specific examples are prioritized to increase their relevance to current events, with the aim of enhancing student learning.

Prerequisites

Principles for Economics/w Recitation (ECON 1004 and 1005), Intro. to Politics (PS 1005) or equivalent.

Mathematics for Economists (ECON 5100) and Statistics and Econometrics with Recitation (ECON 2014/2015) or equivalent are strongly recommended (but not required). Please consult the instructor prior to registration.

A number of assigned readings involve technical research methods, primarily statistics. It is strongly recommended that students have the ability to comprehend inferential statistics. Simplified version of more sophisticated readings will be presented in class slides; a good grasp of these would suffice to understand the materials well. Students will NOT be tested on technical materials.

Week 1: Introduction
Week 2: The role of money
Week 3: History of central banking
Week 4: Monetary theory
Week 5: International monetary system
Week 6: Financial market
Week 7: Monetary commitment regimes
Week 8: Movie
Week 9: Monetary decisions and the market
Week 10: State-central bank relations I
Week 11: School Anniversary (No class)
Week 12: State-central bank relations II
Week 13: Central bank independence
Week 14: Trade and monetary policy
Week 15: Shocks, crises, and responses
Week 16: Final (No class)
Week 17: Final (No class)

Course Objective

At the completion of this course, students will be able to:

1. Familiarize with key issues and related political processes in central banking.

2. Understand the main actors, modes of interaction, and international dimensions in each issue area.

3. Relate and explain observed political and economic phenomena with the theories learned from this course.

Course Requirement

Grading: Assessment and Grading Scale

Assessment methods, definitions of grades, grading scale and letter grade-to-GP/percentage conversions are explained at below. Graduate (Undergraduate) students must achieve B+ (C+) or higher in order to pass this course.

Assessment Methods

Participation 20%

Quizzes 20%

Oral presentation 20%

Timed final exam 40%

Course Requirements

Participation

Active participation is essential, and you cannot participate if you have not done the readings; you cannot possibly take part in the discussion unless you attend class. You are therefore expected to have finished all the readings before each week's meeting, and come to class ready to participate in the discussion. While reading the assigned materials, it will be useful to consider the questions listed in each week's course content.

Quizzes

A total of FOUR quizzes may be given during classes to keep students in touch with course materials and help the instructor track students' learning. Quizzes will be closed-book/closed-note in format.

Oral Presentation & Feedback

Beginning the 4th week of and throughout this semester, students are required to make ONE oral presentations on reading(s) of their own choosing (articles or book chapters) in weeks when that specific readings are assigned.

You can (1) pick one or more than one readings from a particular week, (2) summarize one reading and/or compare several of them, and most importantly, (3) articulate your point of view. The entire presentation should last no longer than 10 minutes. Students will receive 10 points as baseline for each presentation with remaining points determined by how well students organize their talk (5 points) and respond to peers' questions (5 points). The oral presentations will count toward 20% of total grade: 10 + 5 + 5 = 20.

While fluency and pronunciation are important facilitators in oral expression, more weight will be given to the originality of thoughts and the clarity with which students convey these ideas. For each equation a student asked following peers' presentation, that student will receive 0.5 point (2 questions at most in any given week), which will be counted toward their final course grade.

Students are allowed to bring note during presentation and coordinate with peers for Q & A, but the key point is to encourage you to get more actively involved in class discussion.

Timed final exam

In the last week of this semester (Week 16th), students will be required to take a 72-hour (timed) written exam at venue(s) of their own choosing. Once a student determined that (s)he is ready, (s)he will need to email the instructor informing his/her readiness to take the exam, students will then receive the exam from the instructor's reply email. Students are expected to complete the exam and submit the completed exam to the instructor (via email) within 72 hours upon receiving the instructor's reply email.

The exam is open-book, open-note, and can take place at any venues. Students can write as many or as little as they prefer, taking a break when necessary, but note that the clock will not stop. At any rates, students MUST complete the exam and submit the completed exam to the instructor in 72 hours. The completed exam should be emailed to the instructor and students shall receive a confirmation email by the instructor. All questions come from weekly questions listed on the syllabus.

Students must abide by the honor code. The submitted exam should be the work of one's own. Students are not allowed to consult with peers but are free to consult the instructor.

Student Workload (expected study time outside of class per week)

6-8 hours/week

Office Hours

Appointment required. Note: hktseng1983@ntu.edu.tw

Designated reading

Textbooks

Thammarak Moenjak, Central Banking: Theory and Practice in Sustaining Monetary and Financial Stability (Singapore: Wiley & Sons, 2014).

Carl Walsh, Monetary Theory and Policy 3rd edition (Cambridge, MA: MIT Press, 2010).

Michael W. Klein and Jay C. Shambaugh, Exchange Rate Regimes in the Modern Era (Cam-bridge, MA: MIT Press, 2009).

Walsh's book builds the theoretical foundation for this course. Explanation and outlines for the models covered in each chapter will be provided in class slides for ease of comprehension.

Other readings come from book chapters and articles published in academic journals and websites. Specific readings for each class are identified on this syllabus. Readings marked with a worldwideweb will be available on course website; readings marked with a X means “review” from past weeks. Items marked with a globe are clickable web-based materials. Items marked with [] are brief introduction on specific subjects provided by the instructor.

Weekly Topics and Reading Assignments

The weekly coverage might change as it depends on the progress of the class. However, you must keep up with the reading assignments.

_______________________________________________________________________________________
Week 1: Introduction

Introduction and overview of the course. (No reading)

_____________________________________________________________________________________
Week 2: The Role of Money

Lecture 1: Different schools of thought on the role of money

Readings:

The hierarchy of money

Mehrling, Perry G. "The Inherent Hierarchy of Money." memo, Barnard College and Columbia University, 2012. http://ieor.columbia.edu/files/seasdepts/industrial-engineering-operations-research/pdf-files/Mehrling_P_FESeminar_Sp12-02.pdf

Keynesianism

Blinder, Alan S. "The Concise Encyclopedia of Economics". Library of Economics and Liberty. http://www.econlib.org/library/Enc/KeynesianEconomics.html}{Keynesian Economics
Fonseca, Goncalo L. "Schools of Economic Thought.'' The History of Economic Thought (HET) Website. http://www.hetwebsite.net/het/fonseca/notes/schoolsofthought.pdf

Monetarism

Friedman, Milton. 1968. "The Role of Monetary Policy.'' American Economic Review Vol. 58, No. 1, pp. 1-17.
McCallum, Bennett T. Monetarism. The Concise Encyclopedia of Economics. Library of Economics and Liberty. http://www.econlib.org/library/Enc/Monetarism.html

Further readings:

Gordon, Robert J. 1990. "What Is New-Keynesian Economics?" Journal of Economic Literature Vol. 28, No. 3, pp. 1115-1171.
Friedman, Milton. 1970. "A Theoretical Framework for Monetary Analysis." Journal of Political Economy Vol. 8, No. 2, pp. 193-238.
Mankiw, N. Gregory. 1989. "Real Business Cycles: A New Keynesian Perspective." Journal of Economic Perspectives Vol. 3, No. 3, pp. 79-90.
Everything explained. "Saltwater and freshwater economics explained" URL: https://everything.explained.today/Saltwater_and_freshwater_economics/

Questions:

1 According to Mehrling's classification, illustrate with an example when does the scarcity (elasticity) principle become more dominant?
2 In what ways do Monetarism differ from Keynesianism?
3 According to Friedman, what should be the goals of monetary policy? What policy instruments can be used to achieve those goals? (The answer to the second question will be clear to you after you complete the first part of this course)

_______________________________________________________________________________________
Week 3: History of Central Banking

Lecture 2: Where did central banks come from and what do they do?

History of Central Banking

Moenjak, Ch. 1.
Broz, J. Lawrence. 1998. "The Origins of Central Banking: Solutions to the Free-Rider Problem.'' International Organization Vol. 52, No. 2, pp. 231-268.
Chang, Kelly H. 2003. Appointing Central Bankers: The Politics of Monetary Policy in the United States and the European Monetary Union (New York, NY: Cambridge University Press), Ch. 6.1-6.2 (skim 6.2.2, 6.3.1, 6.3.2).

Roles and Functions

Moenjak, Ch. 3 (pp. 37-74)
Bank for International Settlements (BIS). 2009. "Roles and Objectives of Modern Central Banks'' in Issues in the Governance of Central Banks (Basel, Switzerland: Bank for International Settlements). (skim the first part)

Further readings:

Federal Reserve Bank of San Francisco. 2004. "Why do we need a central bank like the Fed when the laws of supply and demand will keep everything working perfectly?" http://www.frbsf.org/education/publications/doctor-econ/2004/december/supply-demand-central-bank-established/
Constitution of Chile https://www.constituteproject.org/constitution/Chile_2012.pdf (read Article 97)

Questions:

1 According to this week's readings, most countries did not have a central bank for the most part of their history, what purposes do central banks serve that make them almost a sine qua non for modern public finance?
2 In what aspects do central banks differ from their commercial counterparts?

Week 4: Monetary Theory

************Quiz 1*************

Lecture 3: Theory and practice of modern monetary policy-making

Readings:

Theory: Supply, Demand, and Welfare

Carl Walsh, Ch. 2.2-2.3

The money market

Bagehot, Walter. 1873. Lombard Street: A Description of the Money Market, Ch I-II. (Highly recommended, I will briefly discuss it in class)

Monetary Stability

Moenjak, Ch. 5-6.

Further readings:

Federal Reserve, Conducting Monetary Policy https://www.federalreserve.gov/pf/pdf/pf_3.pdf
Rogoff, Kenneth S. 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target.'' Quarterly Journal of Economics Vol. 100, No. 4, pp. 1169-1189.
"Money Market: What Is It?'' https://www.investopedia.com/university/moneymarket/moneymarket1.asp Investopedia
Lagos, Ricardo. 2006. "Inside and Outside Money.'' Federal Reserve Bank of Minneapolis Research Department Staff Report 374

Questions:

1 Describe the process by which inflation affect firms' and individuals' consumption and saving behaviors.
2 What did Bagehot mean by ``lend freely''?
3 Explain the trade-off between consumption and saving. Why does it matter in public policy sense? (We will come to that later in this course

_____________________________________________________________________________________________________
Week 5: International Monetary System

Lecture 4: International monetary system and the choice of exchange rate regime

Readings:

Exchange Rate Regimes

Moenjak, Ch. 2
Klein and Shambaugh, Ch. 2-4, skim Ch. 5

Geopolitical implications

Friedman, Milton. 1992. "Franklin D. Roosevelt, Silver, and China.'' Journal of Political Economy Vol. 100, No. 1, pp. 62-83.
Broz, J. Lawrence, Zhang, Zhiwen, & Wang Gaoyang. 2020. "Explaining Foreign Support for China's Global Economic Leadership.'' International Organization Vol. 72, No. 3, pp. 417-452.

Further readings:

Reinhart, Carmen M. and Kenneth S. Rogoff. 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation.'' Quarterly Journal of Economics Vol. 119, No. 1, pp. 1-48.

Questions:

1 What does the end of the Gold Standard portend mean for the choice of exchange rate regime?
2 What are the pro(s) and con(s) of maintaining a fixed/floating exchange rate regime? Would you illustrate each of them with some real-world examples?

__________________________________________________________________________
Week 6: Financial Markets

Lecture 5: Financial markets and monetary decisions

Readings:

The Credit View of Financial Market

Walsh 10.5.1 – 10.5.4

Financial Stability

Moenjak, Ch. 10-11.

Policy Operations

Federal Reserve. Open Market Operations (OMOs)
Federal Reserve. What is the FOMC and when does it meet?
Robin Tietz & Burke Visser. "Voting rights rotation on the US Federal Open Market Committee affects the behaviour of Reserve Bank presidents and matters to financial markets.'' VOX CEPR June 29th, 2021. (To read the full article, see Ehrmann et al. (2022) below)

Further readings:

International Monetary Fund. 2009. "Balance of Payments and International Investment Position Manual.'' 6th Edition.
Rosa, Carlo. 2013. "The Financial Market Effect of FOMC Minutes." Federal Reserve Bank of New York Economic Policy Review Vol. 19, No. 2, pp. 67-81.
Ehrmann, Michael, Robin Tietz, & Bauke Visser. 2022. "Voting Right Rotation, Behavior of Committee Members and Financial Market Reactions: Evidence from the U.S. Federal Open Market Committee." IMF working papers} WP/22/105.

Questions:

1 Recall Mehrling's "hierarchy of money'' in Week 3's reading. Why is it important to have a central bank (of some sort)?
2 Pick at least one of the key problems characterizing financial instability (i.e., adverse selection, moral hazard, monitoring costs, agency costs), apply its logic to explain a real world example.

_________________________________________________________________________________________

Week 7: Political Economy of Monetary Commitment Regimes

************Quiz 2*************

Lecture 6: The political economy of monetary commitments.

Readings:

Political Systems and Monetary Commitment Regimes

Bernhard, William and David Leblang. 1999. "Democratic Institutions and Exchange-Rate Commitments.'' International Organization Vol. 53, No. 1, pp. 71-97.
Broz, Lawrence J. 2002. "Political System Transparency and Monetary Commitment Regimes." International Organization Vol. 56, No. 4, pp. 861-87.

Exchange Rate Volatility

Bernhard, William and David Leblang. 2002. "Democratic Processes, Political Risk, and Foreign Exchange Markets.'' American Journal of Political Science Vol. 46, No. 2, pp. 316-333.

Economic Reform

Vreeland, James R. 2003. "Why Do Governments and the IMF Enter into Agreements? Statistically Selected Cases.'' International Political Science Review Vol. 24, No. 3, pp. 321-343.

Further readings:

Freeman, John R., Jude C. Hays, and Helmut Stix. 2000. "Democracy and Markets: The Case of Exchange Rates.'' American Journal of Political Science Vol. 44, No. 3, pp. 449-468.
Finegold-Catalan, Jonathan M. ``A Closer Look at China's Currency Manipulation}'' Mises Daily, April 23 2010.

Questions:

1 What are the risks of anchoring a country's currency on other major currencies?
2 What market information can market actors infer from a country's political system?
3 According to Vreeland, why did some governments, who are least in need of loan, participate in IMF programs anyway? What does this imply for their monetary policies?

____________________________________________________________________________________
Week 8: Film

Inside the Federal Reserve: Money for Nothing (2013)
Pizza and soft drinks will be provided

__________________________________________________________________________________________
Week 9: Monetary Decisions and the Market

Lecture 7: How monetary decisions of a country affect that of other countries

Readings:

Monetary Policy-Making

Walsh, Ch. 9.2-9.3
Klein and Shambaugh, Ch. 8-10. (skip the statistical modeling part, I will cover it in lecture)

Capital Mobility and Policy Implications

Andrews, David M. 1994. "Capital Mobility and State Autonomy: Toward a Structural Theory of International Monetary Relations.'' International Studies Quarterly Vol. 38, No. 2, pp. 193-218. (skim the case studies section)
Obstfeld, Maurice and Jay C. Shambaugh and Alan M. Taylor. 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility.'' The Review of Economics and Statistics Vol. 87, No. 3, pp. 423-438.

Further readings:

Mundell, Robert A. 1963. "Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates." The Canadian Journal of Economics and Political Science Vol. 29, No. 4, pp. 475-485.
Garrett, Geoffrey. 2000. "Capital Mobility, Exchange Rates and Fiscal Policy in the Global Economy.'' Review of International Political Economy Vol. 7, No. 1, pp. 153-170.

Questions:

Why can't policy autonomy co-exist with fixed exchange rates in an open economy? In do what ways do such "trilemma'' constrain central banks' monetary policy choices?
What distinguishes "sterilized'' intervention from "unsterilized'' intervention?

__________________________________________________________________________
Week 10: State-Central Bank Relations I

Lecture 8: Executive influence on central banking.

Readings:

Fiscal Dominance #Pick one

Bagus, Philipp and David Howden. 2014. "Fiscal Considerations of Central Bank Recapitalization." Journal of Prices & Market 2(2): 36-47.
Del Negroa, Marco and Christopher A. Sims. 2015. "When Does a Central Bank's Balance Sheet Require Fiscal Support?'' Journal of Monetary Economics Vol. 73, pp. 1-19.

Public Financing

Sullivan, Kenneth. 2002. "Profits, Dividends and Capital Considerations for Central Banks." LEG Seminar for Central Bank Lawyers, International Monetary Fund.

Personnel Appointment

Adolph, Christopher. 2013. Bankers, Bureaucrats, and Central Bank Politics: The Myth of Neutrality (New York, NY: Cambridge University Press), Ch. 1-2 (skim pp. 1-5, skip pp. 25-6).
Chang, Kelly H. 2003. Appointing Central Bankers: The Politics of Monetary Policy in the United States and the European Monetary Union (New York, NY: Cambridge University Press), Ch. 1, 5, 6.3-6.4 (skip 1.6; skim 5.2-5.3)

Further readings:

Kumhof, Michael Ricardo C. Nunes, and Irina V. Yakadina. 2010. "Simple Monetary Rules under Fiscal Dominance.'' Journal of Money, Credit and Banking Vol. 42, No. 1, pp. 63-92.

Gregory, Mankiw, N. 1988. "Recent Developments in Macroeconomics: A Very Quick Refresher Course.'' Journal of Money, Credit and Banking Vol. 20, No. 2-3, pp. 436-449.

Sargent, Thomas J. and Neil Wallace. 1975. "Rational Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule.'' Journal of Political Economy Vol. 83, No. 2, pp. 241-254.

Pessoa, Mario and Michael J. Williams. 2010. "Government Cash Management: Relationship between the Treasury and the Central Bank," IMF Technical Notes and Manuals No. 2012/2.

The Federal Reserve Board. 1996. "Remarks by Chairman Alan Greenspan: The Challenge of Central Banking in a Democratic Society." (Note: Search "irrational exuberance")

Questions:

1 What other channels can be exploited by the governments to influence the central bank's monetary policy?
2 Should central banks be allowed to make profits?

___________________________________________________________________________
Week 11: School Anniversary
No class.

_____________________________________________________________________________
Week 12: State-Central Bank Relations II

*************Quiz 3*************

Lecture 9: State-central bank policy interaction.

Readings:

Fiscal and Monetary Policy-Making

Walsh, Ch. 4 (read 4.1-4.3, skim 4.4
Clark, William Roberts. 2005. Capitalism, Not Globalism: Capital Mobility, Central Bank Independence, and the Political Control of the Economy (Ann Arbor, MI: University of Michigan Press), Ch. 2-4.

Political Business Cycles (PBC)

Drazan, Allen. 2001. "The Political Business Cycle After 25 Years.'' NBER Macroeconomics Annual 2000, Vol. 15, pp. 75-138. (skip the modeling part, I will cover it in lecture)

Electorally-induced devaluation

Stein, Ernesto H. & Streb, Jorge M. 2004. "Elections and the timing of devaluations." Journal of International Economics, Vol. 63, No. 1, pp. 119-145.

Further readings:

Sargent, Thomas J. and Neil Wallace. 1981. "Some Unpleasant Monetarist Arithmetic." Federal Reserve Bank of Minneapolis Quarterly Review Vol. 5, pp. 1-17.
Sanches, Daniel. 2012. "The Optimum Quantity of Money.'' Federal Reserve Bank of Philadelphia Business Review Q4: 8-15. (read p. 10)
Clark, William Roberts and Mark Hallerberg. 2000. "Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy.'' American Political Science Review Vol. 94, No. 2, pp. 323-346.

Questions:
1 What would happen when the government's fiscal policy is in conflict with the central bank's monetary policy?
2 When does central bank ``lending'' occur? Where does the money come from? (recall Mehrling's "hierarchy of money'' from Week 2

Week 13: Central Bank Independence

Lecture 10: Central Bank Independence (CBI) in perspectives.

Readings:

Theory

de Haan, Jakob and Helge Berger. 2003. "Chapter 6: How to Tie Your Hands: A Currency Board versus an Independent Central Bank.'' in Andrew W. Mullineux and Victor Murinde co-eds. Handbook of International Banking (Cheltenham, UK: Edward Elgar Publishing).

Concepts and Measure

Grilli, Vittorio, Donato Masciandaro, Guido Tabellini, Edmond Malinvaud, and Marco Pagano. 1991. "Political and Monetary Institutions and Public Financial Policies in the Industrial Countries.'' Economic Policy Vol. 6, No. 13, pp. 341-392. (Read the "measurement'' section, skim the rest)
Cukierman, Alex, Steven Webb, and Bilin Neyapti. 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes." The World Bank Economic Review Vol. 6, No. 3, pp. 353-398. (Read the "measurement'' section, skim the rest

Political Origins of CBI

Boylan, Delia M. 2001. "Democratization and Institutional Change in Mexico : The Logic of Partial Insulation.'' Comparative Political Studies Vol. 34, No. 1, pp. 3-29.
Keefer, Philip and David Stasavage. 2003. "The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy." American Political Science Review Vol. 97, No. 3, pp. 407-423.

International Liquidity

Maxfield, Sylvia. 1997. Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries (Princeton, NJ: Princeton University Press), Ch. 1.

Further readings:

Kydland, Finn E. and Edward C. Prescott. 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans." Journal of Political Economy Vol. 85, No. 3, pp. 473-491. (I will explain their model in class slides)
Debelle, Guy. 2017. "Central Bank Independence in Retrospect.'' Address at Bank of England Independence: 20 Years On Conference.
Goodman, John B. 1991. "The Politics of Central Bank Independence.'' Comparative Politics Vol. 23, No. 3, pp. 329-349.

Questions:

1 Recall readings from Week 3, 9, and 10, does CBI offer a better solution to the IS-LM trade-off?
2 According to this week's readings, what are the favorable conditions for the emergence of CBI?
3 Should monetary decision-making be insulated from the executive branch of the government?

_________________________________________________________________________________________________________________
Week 14: Trade and Currency Swap

Lecture 11: Considerations for cross-country comparative advantage in monetary decisions.

Readings:

Currency Swap

Goldberg, Linda S., Craig Kennedy, and Jason Miu. 2011. "Central Bank Dollar Swap Lines and Overseas Dollar Funding Costs.'' Federal Reserve Bank of New York Economic Policy Review, pp. 1-20.
McDowell, Daniel and Steven Liao. 2015. "Redback Rising: China's Bilateral Swap Agreements and Renminbi Internationalization.'' International Studies Quarterly Vol. 59, No. 3, pp. 401-422.

Sectoral Influence on Exchange Rate Policies

Frieden, Jeffrey A. 2008. "Chapter 18: Globalization and Exchange Rate Policy.'' in Ernesto Zedillo ed. The Future of Globalization (New York, NY: Routledge), pp. 344-357.

Free trade agreements and exchange rate policy

Copelovitch, Mark S. and Pevehouse, Jon C.W. 2013. "Ties that Bind? Preferential Trade Agreements and Exchange Rate Policy Choice.'' International Studies Quarterly Vol. 57, No. 2, pp. 385-399.

Further readings:

Slaughter, Matthew J. "The Myths of China's Currency `Manipulation' '' The Wall Street Journal, January 8th, 2016.
Frieden, Jeffrey A., Piero Ghezzi, and Ernesto Stein. 2001. "Politics and Exchange Rates: A Cross-Country Approach'' In Jeffrey A. Frieden and Ernesto Stein co-eds. The Currency Game: Exchange Rate Politics in Latin America (Washington D.C.: Inter-American Development Bank).

Questions:

1 Why do countries swap their currencies?
2 How might exchange rate swap affect bilateral import and export?
3 Why do countries tend not to peg their currencies to countries with whom they have extensive preferential trade ties?

________________________________________________________________________________________________
Week 15: Shocks, Crises, and Responses

************Quiz 4*************

Lecture 12: Policy responses to unpredictable macroeconomic shocks.

Readings:

Speculative Attacks

A crash course on solving extensive form games, introducing binomial distribution and backward induction. (I will discuss Leblang's model (see below) in class slides)

Leblang, David. 2003. "To Devalue or to Defend? The Political Economy of Exchange Rate Policy.'' International Studies Quarterly Vol. 47, No. 4, pp. 533-560.

Asian Financial Crisis

Walter, Stefanie. 2008. "A New Approach for Determining Exchange-Rate Level Preferences.'' International Organization Vol. 62, No. 3, pp. 405-438.
Pepinsky, Thomas B. 2008. "Capital Mobility and Coalitional Politics: Authoritarian Regimes and Economic Adjustment in Southeast Asia.'' World Politics Vol. 60, No. 3, pp. 438-474.

The Fed's response to the 2008 financial crisis

Stephen Golub, Stephen, Kaya, Ayse, & Reay Michael. 2015. "What were they thinking? The Federal Reserve in the run-up to the 2008 financial crisis." Review of International Political Economy Vol. 22, No. 4, pp. 657-692.

Further readings:
Kaminsky, Graciela L. & Reinhart, Carmen M. 1999. "The Twin Crises: The Causes of Banking and Balance-Of-Payments Problems." The American Economic Review Vol. 89, No. 3, pp. 437-500.
Berg, Andrew. 1999. "The Asia Crisis: Causes, Policy Responses, and Outcomes.'' IMF Working Paper WP/99/138. (read Appendix I-II)
Bodea, Cristina. 2010. "Exchange Rate Regimes and Independent Central Banks: A Correlated Choice of Imperfectly Credible Institutions.'' International Organization Vol. 64, No. 3, pp. 411-442.
Ali Bas, Muhammet, Curtis S. Signorino, and Robert W. Walker. 2008. "Statistical Backward Induction: A Simple Method for Estimating Recursive Strategic Models.'' Political Analysis. Vol. 16, No. 1, pp. 21-40. (I will cover this in class slides as a supplement to Leblang's model)

Questions:

1 How do speculators evaluate the "defense capability'' of a given currency? How does the monetary authority of that country assess the ``offensive intentions'' of the speculators?
2 Why do countries with fixed exchange rate regimes tend to implement some sort of capital control during crisis? (Recall readings from Week 5-7, you may also find helpful hint from Bodea's piece in this week's Further readings section

_________________________________________________________________________
Week 16: Final exam
Timed final exam (please schedule your exam session with the instructor via email)

__________________________________________________________________________
Week 17

No class.

References

Thammarak Moenjak, Central Banking: Theory and Practice in Sustaining Monetary and Financial Stability (Singapore: Wiley & Sons, 2014).

Carl Walsh, Monetary Theory and Policy 3rd edition (Cambridge, MA: MIT Press, 2010).

Michael W. Klein and Jay C. Shambaugh, Exchange Rate Regimes in the Modern Era (Cam-bridge, MA: MIT Press, 2009).

Walsh's book builds the theoretical foundation for this course. Explanation and outlines for the models covered in each chapter will be provided in class slides for ease of comprehension.

Other readings come from book chapters and articles published in academic journals and websites. Specific readings for each class are identified on this syllabus. Readings marked with a worldwideweb will be available on course website; readings marked with a X means “review” from past weeks. Items marked with m are clickable web-based materials. Items marked with are brief introduction on specific subjects provided by the instructor.

Grading

No.	Item	%	Explanations for the conditions
1.	Participation	20%	Active participation is essential, and you cannot participate if you have not done the readings; you cannot possibly take part in the discussion unless you attend class. You are therefore expected to have finished all the readings before each week's meeting, and come to class ready to participate in the discussion. While reading the assigned materials, it will be useful to consider the questions listed in each week's course content.
2.	Quizzes	20%	A total of 5 quizzes may be given during classes to keep students in touch with course materials and help the instructor track students' learning. Quizzes will be closed-book/closed-note in format.
3.	Oral presentation	20%	Beginning the 4th week of and throughout this semester, students are required to make ONE oral presentations on reading(s) of their own choosing (articles or book chapters) in weeks when that specific readings are assigned. You can (1) pick one or more than one readings from a particular week, (2) summarize one reading and/or compare several of them, and most importantly, (3) articulate your point of view. The entire presentation should last no longer than 10 minutes. Students will receive 10 points as baseline for each presentation with remaining points determined by how well students organize their talk (5 points) and respond to peers' questions (5 points). The oral presentations will count toward 20% of total grade: 10 + 5 + 5 = 20. While fluency and pronunciation are important facilitators in oral expression, more weight will be given to the originality of thoughts and the clarity with which students convey these ideas. For each equation a student asked following peers' presentation, that student will receive 0.5 point (2 questions at most in any given week), which will be counted toward their final course grade. Students are allowed to bring note during presentation and coordinate with peers for Q & A, but the key point is to encourage you to get more actively involved in class discussion.
4.	Time final exam	40%	In the last week of this semester (Week 16th), students will be required to take a 72-hour (timed) written exam at venue(s) of their own choosing. Once a student determined that (s)he is ready, (s)he will need to email the instructor informing his/her readiness to take the exam, students will then receive the exam from the instructor's reply email. Students are expected to complete the exam and submit the completed exam to the instructor (via email) within 72 hours upon receiving the instructor's reply email. The exam is open-book, open-note, and can take place at any venues. Students can write as many or as little as they prefer, taking a break when necessary, but note that the clock will not stop. At any rates, students MUST complete the exam and submit the completed exam to the instructor in 72 hours. The completed exam should be emailed to the instructor and students shall receive a confirmation email by the instructor. All questions come from weekly questions listed on the syllabus. Students must abide by the honor code. The submitted exam should be the work of one's own. Students are not allowed to consult with peers but are free to consult the instructor.

Adjustment methods for students

Teaching methods	Assisted by video, Provide students with flexible ways of attending courses
Assignment submission methods	Extension of the deadline for submitting assignments, Oral report replaces written report
Exam methods	Final exam date postponement
Others

Progress

Week	Date	Topic
Week 1	9/6	Introduction
Week 2	9/13	The role of money
Week 3	9/20	The history of central banking
Week 4	9/27	Monetary theory
Week 5	10/4	International monetary system
Week 6	10/11	Financial market
Week 7	10/18	Monetary commitment regimes
Week 8	10/25	Movie
Week 9	11/1	Monetary decisions and the market
Week 10	11/8	State-central bank relations I
Week 11	11/15	School Anniversary Celebration (No class)
Week 12	11/22	State-central bank relations II
Week 13	11/29	Central bank independence
Week 14	12/6	Trade and monetary policy
Week 15	12/13	Shocks, crises, and responses
Week 16	12/20	Final (No class)
Week 17	12/27	Final (No class)