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Table of Contents

    • About the Author
    • Acknowledgments
    • Preface
    • 1Money, Banking, and Your World
      • 1.1Dreams Dashed
      • 1.2Hope Springs
      • 1.3Suggested Browsing
      • 1.4Suggested Reading
    • 2The Financial System

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      • 2.1Evil and Brilliant Financiers?

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      • 2.2Financial Systems

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      • 2.3Asymmetric Information: The Real Evil

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      • 2.4Financial Instruments

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      • 2.5Financial Markets

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      • 2.6Financial Intermediaries

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      • 2.7Competition Between Markets and Intermediaries

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      • 2.8Regulation

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      • 2.9Suggested Reading

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    • 3Money

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      • 3.1Of Love, Money, and Transactional Efficiency

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      • 3.2Better to Have Had Money and Lost It Than to Have Never Had Money at All

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      • 3.3A Short History of Moolah

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      • 3.4Commodity and Credit Monies

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      • 3.5Measuring Money

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      • 3.6Suggested Reading

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    • 4Interest Rates

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      • 4.1The Interest of Interest

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      • 4.2Present and Future Value

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      • 4.3Compounding Periods

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      • 4.4Pricing Debt Instruments

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      • 4.5What’s the Yield on That?

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      • 4.6Calculating Returns

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      • 4.7Inflation and Interest Rates

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      • 4.8Suggested Reading

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    • 5The Economics of Interest Rate Fluctuations

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      • 5.1Interest Rate Fluctuations

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      • 5.2Shifts in Supply and Demand for Bonds

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      • 5.3Predictions and Effects

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      • 5.4Suggested Reading

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    • 6The Economics of Interest-Rate Spreads and Yield Curves

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      • 6.1Interest-Rate Determinants I: The Risk Structure

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      • 6.2The Determinants of Interest Rates II: The Term Structure

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      • 6.3Suggested Reading

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    • 7Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

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      • 7.1The Theory of Rational Expectations

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      • 7.2Valuing Corporate Equities

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      • 7.3Financial Market Efficiency

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      • 7.4Evidence of Market Efficiency

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      • 7.5Suggested Reading

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    • 8Financial Structure, Transaction Costs, and Asymmetric Information

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      • 8.1The Sources of External Finance

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      • 8.2Transaction Costs, Asymmetric Information, and the Free-Rider Problem

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      • 8.3Adverse Selection

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      • 8.4Moral Hazard

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      • 8.5Agency Problems

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      • 8.6Suggested Reading

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    • 9Bank Management

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      • 9.1The Balance Sheet

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      • 9.2Assets, Liabilities, and T-Accounts

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      • 9.3Bank Management Principles

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      • 9.4Credit Risk

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      • 9.5Interest-Rate Risk

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      • 9.6Off the Balance Sheet

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      • 9.7Suggested Reading

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    • 10Innovation and Structure in Banking and Finance

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      • 10.1Early Financial Innovations

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      • 10.2Innovations Galore

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      • 10.3Loophole Mining and Lobbying

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      • 10.4Banking on Technology

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      • 10.5Banking Industry Profitability and Structure

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      • 10.6Suggested Reading

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    • 11The Economics of Financial Regulation

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      • 11.1Market Failures and Public Choice

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      • 11.2The Great Depression as Regulatory Failure

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      • 11.3The Savings and Loan Regulatory Debacle

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      • 11.4Better but Still Not Good: U.S. Regulatory Reforms

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      • 11.5Basel II, Basel III, and Dodd-Frank

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      • 11.6Suggested Reading

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    • 12Financial Derivatives

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      • 12.1Derivatives and Their Functions

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      • 12.2Forwards and Futures

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      • 12.3Options and Swaps

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      • 12.4Suggested Reading

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    • 13Financial Crises: Causes and Consequences

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      • 13.1Financial Crisis Taxonomies

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      • 13.2Asset Bubbles

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      • 13.3Financial Panics

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      • 13.4Lender of Last Resort (LLR)

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      • 13.5Bailouts and Resolutions

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      • 13.6The Crisis of 2007–2009

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      • 13.7Islamic Banking and Financial Stability

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      • 13.8Suggested Reading

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    • 14Central Bank Form and Function

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      • 14.1America’s Central Banks

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      • 14.2The Federal Reserve System’s Structure

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      • 14.3Other Important Central Banks

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      • 14.4Central Bank Independence

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      • 14.5Suggested Reading

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    • 15The Money Supply Process and the Money Multipliers

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      • 15.1The Central Bank’s Balance Sheet

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      • 15.2Open Market Operations

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      • 15.3A Simple Model of Multiple Deposit Creation

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      • 15.4A More Sophisticated Money Multiplier for M1

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      • 15.5The M2 Money Multiplier

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      • 15.6Summary and Explanation

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      • 15.7Suggested Reading

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    • 16Monetary Policy Tools

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      • 16.1The Federal Funds Market and Reserves

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      • 16.2Open Market Operations and the Discount Window

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      • 16.3Additional Policy Tools

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      • 16.4Suggested Reading

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    • 17Monetary Policy Targets and Goals

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      • 17.1A Short History of Fed Blunders

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      • 17.2Central Bank Goal Trade-offs

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      • 17.3Central Bank Targets

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      • 17.4The Taylor Rule

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      • 17.5Suggested Reading

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    • 18Foreign Exchange

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      • 18.1The Economic Importance of Currency Markets

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      • 18.2Determining the Exchange Rate

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      • 18.3Long-Run Determinants of Exchange Rates

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      • 18.4Short-Run Determinants of Exchange Rates

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      • 18.5Modeling the Market for Foreign Exchange

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      • 18.6Suggested Reading

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    • 19International Monetary Regimes

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      • 19.1The Trilemma, or Impossible Trinity

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      • 19.2Two Systems of Fixed Exchange Rates

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      • 19.3The Managed or Dirty Float

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      • 19.4The Choice of International Policy Regime

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      • 19.5Suggested Reading

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    • 20Money Demand

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      • 20.1The Simple Quantity Theory and the Liquidity Preference Theory of Keynes

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      • 20.2Friedman’s Modern Quantity Theory of Money

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      • 20.3The Policy Failure of the Modern Quantity Theory of Money

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      • 20.4Suggested Reading

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    • 21IS-LM

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      • 21.1Aggregate Output and Keynesian Cross Diagrams

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      • 21.2The IS-LM Model

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      • 21.3Suggested Reading

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    • 22IS-LM in Action

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      • 22.1Shifting Curves: Causes and Effects

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      • 22.2Implications for Monetary Policy

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      • 22.3Aggregate Demand Curve

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      • 22.4Suggested Reading

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    • 23Aggregate Supply and Demand and the Growth Diamond

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      • 23.1Aggregate Demand

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      • 23.2Aggregate Supply

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      • 23.3Equilibrium Analysis

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      • 23.4The Growth Diamond

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      • 23.5Suggested Reading

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    • 24Monetary Policy Transmission Mechanisms

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      • 24.1Modeling Reality

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      • 24.2How Important Is Monetary Policy?

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      • 24.3Transmission Mechanisms

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      • 24.4Suggested Reading

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    • 25Inflation and Money

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      • 25.1Empirical Evidence of a Money-Inflation Link

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      • 25.2Why Have Central Bankers So Often Gotten It Wrong?

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      • 25.3Suggested Reading

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    • 26Rational Expectations Redux: Monetary Policy Implications

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      • 26.1Rational Expectations

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      • 26.2New Keynesians

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      • 26.3Inflation Busting

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      • 26.4Suggested Reading

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