Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

1st Semester 2014-2015 (Fall 2014)


Prof. André C. Silva   Office Hours: Fridays 11:00-12:00, 367             webpage


Teaching Assistant:      Carlos Alves,


Classes: Mondays (room 217) and Wednesdays (A223), 16:00-17:30

Syllabus (PDF)


Exam           October 24, Friday, 16:00, Room: Salão Nobre (scheduled by the department)



Oct 20

Plosser: A Limited Central Bank.

For those of you that would like to know more about the conference in which Bernanke made his famous comment about the actions of the Federal Reserve during the 1930s, here is the conference announcement.

Oct 16

WSJ: Fed Could Delay Planned End of Bond-Buying Program.

Oct 15

Another important measure of risk is the spread between the yields of corporate bonds rated Baa and Aaa by Moody’s. According to Moody’s classification, Baa bonds are considered medium grade, subject to moderate credit risk, and Aaa bonds are the highest quality bonds, subject to the lowest credit risk. Higher spread indicates higher perception of risk. The time series available is long; there is data since 1919. Take a look. Notice that the highest spread occurred in the 1930s and the second highest spread in the financial crisis of 2008.

Oct 14

The Economist: Sovereig Defaults.

Oct 13

The Nobel Prize in Economics has just been announced: the prize goes to Jean Tirole, “for his analysis of market power and regulation.” It fits very well to our discussion today on the financial crisis of 2008!

Oct 9

The room of the final exam has already been assigned: the exam will be in Salão Nobre.

Oct 8

The Economist: Yellen and Draghi.

About the way in which the FOMC works, take a look at the article An Introduction to the FOMC, by Kocherlakota (a current member of the FOMC). This article is also listed in the references below.

Oct 3

The grades of the Report 1 are on Moodle. On Monday, Oct/6, at 18:00, room 217, Carlos Alves will give you feedback about the Economic Reports.


The Economist: Carry Trade.

One way in which the government may increase the upper limit of the debt-to-GDP ratio is to direct investors for its own debt. This action is sometimes called financial repression. Carmen Reinhart, Jacob Kirkegaard and Belen Sbrancia talk about this in this paper, also listed below. Take a look.

Sep 30

There is also a very informative interview with Sargent for the Morningstar Advisor on Moodle (look for Sargent Interview Morningstar Advisor on the section Readings on Moodle). Interesting point, Francisco Torralba, who interviews Sargent, was my TA when I used to teach Macroeconomics at Chicago!

Sep 29

Take a look at this interview with Sargent, on financial crises and other topics (the interview is also listed below, among the readings). The comments on the unpleasant monetarist arithmetic are directly related to our classes on monetary policy and fiscal policy. These topics will be discussed today and on Wednesday.

Sep 25

The Economist: Hedge Funds, CaixaBank and the financial crisis.

Here is a nice interview with Eugene Fama, about predictability in financial markets, asset pricing, and other issues.

Sep 19

Remember to update your profile on Moodle. Include your picture.

Sep 18

The Economist: Euro-Zone Economy, Germany and the Euro.


Financial Times: Negative Interest Rates

Sep 17

Please, remember to bring your name tags to class and to use them. That will be great to foster discussion in class.

Sep 13

Here is a interesting resource: the Cooley-Rupert Economic Snapshot. It has for Europe too.

Sep 10

Financial Times: Spending and Eurozone Recovery.

Sep 9

For the first class, read the text by Hayek, “The Use of Knowledge in Society.” There is a link to the text below (the text is free if you connect from the network of Nova). This text is a classic! It gives the whole idea on the relation of prices, including prices of financial assets, to fluctuations of the economy. The text explains the role of prices for the use resources in the best way. And all of this without equations.

Jul 9

The first class will be on Wednesday, September 10, 16:00-17:30, room A223. See you there!




Due Date


Report 1

Sep 25, Thursday

Country Report

Report 2

Oct 9, Thursday

Choice between: 1. Yield Curve; 2. Interest Rates (Fixed Income); and 3. Sovereign Debt Crises

Report 3

Oct 16, Thursday

Free choice!


Additional Data, Texts, and Slides

See the course webpage on Moodle: link.



Because of the need of subscriptions, note that some links work only from computers connected to the university.


The Effects of Monetary Policy

Barro, R. J. (1994). “What the Fed Can't Do.” Wall Street Journal, August 19, 1994. (On Moodle.)

Friedman, Milton (1968). “The Role of Monetary Policy.” American Economic Review 58(1): 1-17, 1968.

McCandless, G. T. and Weber, W. W. (1995). “Some Monetary Facts.” Minneapolis Quarterly Review 19(3): 2-11.


How Central Banks Set the Monetary Policy

Kocherlakota, Narayana (2010). An Introduction to the FOMC.” The Region, September 2010. About how the Federal Open Market Committee works.


Why do Prices Exist?

Hayek, F. A. (1945). “The Use of Knowledge in Society.” American Economic Review, 35(4): 519-530.


Separating Trend from Cycles

Hodrick, Robert J., and Edward C. Prescott (1997). “Postwar U.S. Business Cycles: An Empirical Investigation.” Journal of Money, Credit and Banking, 29(1): 1-16.


The Term Structure of Interest Rates

Estrella, Arturo, and Mary R. Trubin (2006). “The Yield Curve as a Leading Indicator: Some Practical Issues.” Current Issues in Economics and Finance, FED New York.

A webpage on the yield curve: FED New York.


The Crisis of 1929

Bernanke, Ben S. (2002). “The Great Contraction, Remarks.” A speech during a seminar in honor of Milton Friedman in his 90th anniversary.

Cole, Harold L., and Lee E. Ohanian (2004). “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis.” Journal of Political Economy, 112(4): 779-816.


The Crisis of 2008 and the Debt Crisis

Acharya, Viral; Stijn van Nieuwerburgh; Matthew Richardson; and Lawrence White (2011). Guaranteed To Fail: Fannie, Freddie and the Debacle of Mortgage Finance. Princeton University Press.

Cochrane, John (2010). “Lessons from the financial crisis.” Regulation 32(4): 34-37.

Diamond, Douglas W.; and Philip H. Dybvig (1983). “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy, 91(3): 401-419. See also: Douglas W. Diamond (2007). “Banks and Liquidity Creation: A Simple Exposition of the Diamond-Dybvig Model.” Economic Quarterly, 93(2): 189-200.

Diamond and Kashyap on the Recent Financial Upheavals. (On Moodle.)

Kroszner, Randall S.; and William Melick (2009). “The Response of the Federal Reserve to the Recent Banking and Financial Crisis.” Working Paper.

Lucas, Robert E. (2009). “In Defence of the Dismal Science.” The Economist, Aug 6th 2009. (On Moodle.)

Reinhart, Carmen, Jacob F. Kirkegaard, and M. Belen Sbrancia (2011). “Financial Repression Redux.” Finance and Development (IMF), June 2011.


Labor Taxes and the Economy

Clement, Douglas (2003). “European Vacation: Why Americans Work More Than Europeans.” The Region, December 2003.

Rogerson, Richard (2006). “Understanding Differences in Hours Worked.” Review of Economic Dynamics, 9(3): 365-409.

Silva, Andre C. (2005). “Taxes and Labor Supply: Portugal, Europe, and the United States.” III Conference Desenvolvimento Económico Português no Espaço Europeu. A technical version of this paper, with additional results, is here.



Barro, Robert (2005). Interview for The Region, FED Minneapolis, September 2005. About the public deficit, economic growth, inflation targeting and other topics.

Bernanke, Ben S. (2004). Interview for The Region, FED Minneapolis, June 2004. On October 2005, Bernanke was appointed chairman of the Federal Reserve System.

Fama, Eugene (2007). Interview for The Region, FED Minneapolis, December 2007. On asset pricing, financial crises, efficient markets and many other issues.

Sargent, Thomas (2010). Interview for The Region, FED Minneapolis, September 2010. On macroeconomics, financial crises and other issues.



Allen, Franklin, and Douglas Gale (2007). Understanding Financial Crises. Clarendon Lectures in Finance, Oxford University Press.

Bodie, Zvi, Alex Kane, and Alan J. Marcus (2014). Investments, 10th Global Ed. MacGraw-Hill.

Cochrane, John (2005). Asset Pricing, Revised Ed. Princeton: Princeton University Press.

Farmer, Roger E. H. (2010). How the Economy Works. Oxford: Oxford University Press.

Ilmanen, Antii (2011). Expected Returns: An Investor's Guide to Harvesting Market Rewards, Wiley.

Malkiel, Burton G. (2003). A Random Walk Down Wall Street. New York: WW Norton.



BlackRock Investment Institute

J.P. Morgan

Morgan Stanley: Global Economic Forum



Estatísticas do Banco de Portugal—national accounts, interest rates, money and other statistics for Portugal

Instituto Nacional de Estatística—data for Portugal


Bureau of Economic Analysis—national accounts and other statistics for the U.S.

Bureau of Labor Statistics—labor market data

Congressional Budget Office—data on the US federal budget.

Department of the Treasury (U.S.), Office of Debt Managementadditional data on interest rates


FRED—a very useful dataset, from the Federal Reserve Bank of Saint Louis


OECD—data for OECD countries

Penn World Table—for international comparisons of GDP data


Central Banks

Banco de Portugal

European Central Bank

United States: Board of Governors of the Federal Reserve System

Minutes from the Federal Open Market Committee meetings



American Economic Association

For Graduate Students

American Finance Association


NBER—recent research and data. Look for the Working Papers of the Asset Pricing group

Asset Pricing

Corporate Finance

Economic Fluctuations and Growth

Monetary Economics


Other Resources and Blogs

Cooley-Rupert Economic Snapshot: U.S., Europe

John Cohrane’s - The Grumpy Economist

John Taylor’s - Economics One

WSJ Real Time Economics


SSRN page


Universidade Nova de Lisboa

Nova School of Business and Economics