Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

1st Semester 2015-2016 (Fall 2015), 1st Half


Prof. André C. Silva   Office Hours: Fridays 16:00-17:00, 367             webpage


Teaching Assistant:      Raquel Dias,


Classes: Tuesdays (A 217) and Thursdays (S 209) 16:00-17:30

Syllabus (PDF)


Exam           24 October, 16:00, Salao Nobre (scheduled by the department)



29 Oct

I have already sent the grades to the Masters office. Congratulations for your performance and for your participation during the course. I hope you enjoyed the course. Good luck on your future assignments!


If you want to see your exam, the exam review will be on Wednesday, Nov 4, at 18:30, room A209.

12 Oct

Interesting articles from The Economist this week: on central bank reserves, fund management, and insider trading.

9 Oct

On global financial stability (Financial Times).

6 Oct

Take a look at these articles from The Economist: on cash holdings and on credit spreads.

30 Sep

A question that arises when the debt-to-GDP ratio increases just before a crisis is about the reaction of governments. One of the actions is the tentative to induce investors to purchase government bonds. This is sometimes called financial repression. Carmen Reinhart, Jacob Kirkegaard and Belen Sbrancia discuss this behavior in this article (also available on the references below).

29 Sep

Target and Effective Federal Funds Rate: FRED.

28 Sep

Take a look at these articles from The Economist, about: Central Banking and Low Interest Rates, Monetary Policy, Trade Finance (notice the effect of financial regulations on the economy and the incentives for new entrants), and Consumer Credit (notice how consumers change behavior after policy changes).

24 Sep

There are two interesting interviews with Thomas Sargent that are very related to our discussion of the next two classes: on monetary policy, fiscal policy, and sovereign crises. They are below in various (a direct link is here) and the other one, given to Morning Star, is on Moodle.


Also, a very good interview, related to the topic of asset prices and rationality, is the interview by Fama. See below in various.

22 Sep

I was yesterday at the Einaudi Institute for Economics and Finance (EIEF) to present a paper. The paper is about firm cash holdings and monetary policy, and is very related to the course as it connects macroeconomics and finance. If you are curious, here is the paper.

19 Sep

“Which investments work best when markets decline?” An article on the Economist talks about this. A strategy portfolio, including carry trade as one of the strategy, is among the investments with good returns. We will talk about carry trade later in the course. Take a look: link.

17 Sep

Andrea Ferrero, from the University of Oxford, will present the paper “Demographics and Real Interest Rates: Inspecting the Mechanism,” tomorrow (Friday), 14:30-15:50, Room 306. Andrea works in various topics of monetary policy. The dicussion will be technical. But it will be a good opportunity to see a presentation of a frontier technical paper on the subject.

15 Sep

I included this post, on the bond market just before the FOMC meeting, at the Nova Finance Center facebook page. It is also relevant for the course: Bloomberg.

13 Sep

To facilitate the creation of new groups for the reports, I will ask, in the next class, the students who are looking for a group to meet just after class by the front rows. This will facilitate matching those that have groups of two with those that are looking for a group.

11 Sep

A news report on the downgrade of Brazil’s debt. As the report says, “The mystery is why it didn’t happen sooner,” Economist. Petrobras, which had its stocks decreasing 4% at the time of the class, was downgraded later in the afternoon.


The next meeting of the Federal Open Market Committee will be on September 16-17. It will be good to watch closely the decisions of the meeting. FOMC calendar: link.

10 Sep

There will not be office hours this Friday, Sep/11. Please, send me an email if you want to schedule another time or if you have a question.

Sep 7

More details on the first class: The first class will be on Tuesday, Sep/8, in room A 217, 16:00. See you there!

Jun 22

The first class will be on the week of September 7. 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. The text 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 use resources in the best way. All of this without equations.




Due Date


Report 1

Sep 24, Thursday

Country Report

Report 2

Oct 8, Thursday

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

Report 3

Oct 15, Thursday

Free choice!


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.


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