Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

2017-2018 T1 (Fall 2017)


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


Teaching Assistant:      Marco Lourenço,


Classes: Tuesdays and Thursdays 16:00-17:30, A 219

Syllabus (PDF)


Exam           October 20, Friday, 19:00, Salao Nobre (scheduled by the department)



Oct 13

Taxes have a great influence on corporate decisions which, in turn, influence financial markets. Listen to this radio broadcast, from Planet Money, on the changes on the US corporate income tax (Corporate! Income! Tax!). It is also good to see how the political process works during discussions on taxes.

Oct 10

A good description of the financial crisis is on Diamond and Kashyap “on the Recent Financial Upheavals.” The text is on Moodle.

Oct 9

Richard Thaler was awarded the Nobel Prize today, by his work on the psychological aspects of financial decisions. Here is an interesting interview on market efficiency with Richard Thaler and Eugene Fama together: link.

Oct 3

The text on Financial Repression below, by Reinhart, Kirkegaard, and Sbrancia discusses the interference of the government around sovereign crises. Take a look.


Articles from the Economist this week: on MiFID 2, international trade, and financial crises

Sep 26

Uncertainty. Here is a measure for economic policy uncertainty. It is interesting to see how this kind of measure relates to financial markets.

Sep 22

You have already heard. For the record, here are some articles on the reaction after the ratings raise of Portugal’s bonds to investment grade: Rally, Prospects. S&P raised the rating from BB+/B to BBB-/A-3.

Sep 21

Check it out the last press conference after the FOMC meeting. Janet Yellen states the maintenance of the bounds for the federal funds rate and confirms the gradual decrease of the Fed’s balance sheet. It is a long video, but take a look at some parts to see how the information on monetary policy is transmitted in practice: link.

Sep 19

I have included additional examples of country reports on Moodle. See also the links below (on Reports).

Sep 15

Some interesting articles from The Economist on the composition of the Board and the Fed asset holdings, and from the Financial Times, on markets and the debt ceiling.


A good source of information about finance and economics is the Museum of American Finance, They have interesting videos about many subjects such as Central Banks and financial crises.

Sep 13

The ideas in the framework that we discussed yesterday have been developed gradually by especially Lucas, Fama, and Hansen; three researchers that later received the Nobel prize. To learn more about these ideas, read the text by Lucas “In Defence of the Dismal Science” on Moodle, and the interviews with Fama and with Hansen below. See especially the part on he efficient market theory in Fama’s interview, and the part on asset prices and the macroeconomy in Hansen’s interview.

You can find examples of actual Economic Reports from different firms below. Moodle has additional examples. Here is a recent report from BlackRock.

Sep 7

There will be an extra class on Monday, Sep 11, 17:30-19:00, room A 219. We will cover the relation between interest rates and the economy. This class was rescheduled from the class previously scheduled for Friday afternoon.

Take a look at these articles from The Economist: on exchange rates and on monetary and fiscal policy. See also this one about exchange rates from the Financial Times.


The Federal Reserve has published recently the Beige Book of September. This report summarizes current economic conditions in each district of the Federal Reserve.

Sep 6

The first class will be on September 7, 16:00, room A219. See you there!


For the first class, read the text by Hayek, “The Use of Knowledge in Society.” There is a link to the text below. It is free if you connect from the network of Nova. This text is a classic! It explains the idea on the relation between prices, including prices of financial assets, and economic fluctuations. The main point to is to understand the role of prices for the best use of resources. All of this without equations.


Comments about the course (PDF)




Due Date


Report 1

Sep 25, Monday

Country Report

Report 2

Oct 4, Wed

Choice between: 1. The yield curve; 2. Fixed income; and 3. Sovereign debt crises

Report 3

Oct 11, Wed

Free choice!


Guidelines for the Reports: PDF.


Additional Data, Texts, and Slides

See the course webpage on Moodle: link.



Because of the need of subscriptions, 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.


Sovereign Debt

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

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


The Crisis of 2008

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

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.)

Rajan, Raghuram (2012). “The True Lessons of the Recession.” Foreign Affairs 91(3): 69-79. (On Moodle.)


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.


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. The Region, FED Minneapolis, September 2005. Public deficit, economic growth, inflation targeting and other topics.

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

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

Hansen, Lars P. (2015). Interview. The Region, FED Minneapolis, December 2015. Asset pricing and uncertainty.



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