Economics 423
Financial Markets
Fall Semester, 2006

Page Last Revised: December 5, 2006
This course is team taught by Professors Froyen and Salemi. 
Dynamic Yield Curve

Class Meetings:        
Tuesday & Thursday, 9:30-10:45, Gardner 307

Michael K. Salemi
:   301 Gardner Hall, 966-5391 (office), 929-9504 (home),

Office Hours:  T 3:30-5:00, W 3:00-4:00, and by appointment

Richard Froyen:       300e Gardner Hall, 966-5375 (office), 929-5945 (home), email:
Office Hours:  T & Th 3:30-4:30, W 3:00-4:00, and by appointment

The course Syllabus explains the goals and rules of the course, organizes its by topics, and provides an expanded reading list..
The course Calendar provides a class-by-class list of topics and assignments. 

The midterm examination for the course takes place in class on October 10, 2005.  The exam is closed book and closed notes.
The exam will be composed of multiple choice and essay questions. 

Final Examination
The final exam will be held at 8:00 on Thursday, December 14, 2006, in our regular class room.
Final Exam Office Hours are December 7, 8, and 12 at 1:30 through 3:00 p.m.
Final Exam Guide and Practice Questions

Readings (pdf copies of course readings)

What makes the Yield Curve Move?  FRBSF Economic Letter, June 6, 2003
       Discussion Questions

Longer-Term Perspectives on the Yield Curve and Monetary Policy, Sharon Kozicki and Gordon Sellon,
       Federal Reserve Bank of Kansas City Review, Fourth Quarter, 2005, 5-33.
       Discussion Questions

From the Efficient Markets Theory to Behavioral Finance, Robert Shiller, Journal of Economic Perspectives, 17,1, 83-104
       Discussion Questions

Depression-Era Bank Failures: The Great Contagion or the Great Shakeout?, John R. Walter,
       Federal Reserve Bank of Richmond Economic Quarterly, Winter 2005, 39-54.
        Discussion Questions

Class Topics and Assignments for Salemi's Half of the Course

Reading Assignment and Exercises
(Links to Supplemental Reading appear in the Section Above)
Class Notes
Oct 17
Determination of Interest Rates in the Long Run
Present Value Exercises Assigned
Interest Rate Exercise (Exercise One) Assigned
Data Spreadsheet for Interest Rate Exercise
C1 Notes
Oct 24
Determination of Interest Rates in the Short Run
Mishkin, Chapter 5, pp. 85-104
C2 Notes
Oct 26
Why Interest Rates Move Together, Intoduction to Term Structure
Mishkin, Chapter 6
Exercise One is Due
Exercise One Feedback
C3 Notes
Oct 31
Term Structure Continued
Discussion of "What Makes the Yield Curve Move?"
FRBSF Economic Letter, June 6, 2003 No New Notes
Nov 2
Discussion of "Longer-Term Perspectives on the Yield Curve and Monetary Policy"
Kozicki and Sellon
Discussion Questions
Nov 7
Decision Making When Outcomes are Uncertain

C6 Notes
Nov 9
The Stock Market
Mishkin, Chapter 7
C7 Notes
Nov 14
Discussion of "From Efficient Market Theory to Behavioral Finance"
Commercial Bank Exercise (Exercise Two) Assigned
H8 11_3_2006
H8 11_3_2000

Discussion Questions
Nov 16
Stock Trading Simulation
Mishkin, Chapter 7
Recording Sheet
Simulation Results
Nov 21
Economic Analysis of Financial Structure
Mishkin, Chapter 8
Exercise Two is Due
C10 Notes
Nov 28
Structure and Competition of the Banking Industry Mishkin, Chapter 10
Exercise Two De-briefed
C11 Notes
Nov 30
Economic Analysis of Banking Regulation
Mishkin, Chapter 11
"Global Financial Instability: Framework, Events, Issues", Mishkin, J Econ Perspectives, 13(4), 3-20
C12 Notes
Dec 5
Discussion of "Depression Era Bank Failures..."
Discussion Questions

Supplemental Notes (Not Assigned but Potentially Useful)

    Notes on Present Value and Internal Rate of Return