Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

1st Semester 2013-2014 (Fall 2012)


Prof. André C. Silva          Office Hours: Fridays 15:30-16:30, 367             webpage


Teaching Assistant:      Carla Peixoto,


Classes: Mondays and Wednesdays, 9:30am-11:00a. Mondays: Room A223. Wednesdays: Room 219.

Syllabus (PDF)


Exam           October 18, Friday, 1:00pm, Room: Salão Nobre (scheduled by the department)



Oct 29

I have already sent the grades to the Masters office. You had a great performance! Congratulations. I hope you enjoyed the course as I enjoyed teaching it. Good luck on your future assignments!

If you want to see your exam, the exam review will be on Friday, Nov 1, at 17:30, room 229.

Oct 14

The Nobel Prize went to Fama, Hansen, and Shiller. We have been talking extensively about their work, especially in the discussion of Asset Pricing. Fama worked on the idea that prices reflect information. Hansen worked on ways to study asset prices empirically. The discussion of the pricing factor of lecture 3, especially after page 22, is directly connected to Hansen’s work. Shiller related the dividend-price ratio with future returns. Great prize for Asset Pricing. Here is a link to an interview with Fama (link). Link to the Chicago Tribune (link). Link to the Nobel Foundation: (link).

This is a reminder that today at 18:30, room 219, there will be a special TA session. In this session, Carla Peixoto will discuss general questions about the course and questions of previous exams. You may find previous exams on Moodle.

Oct 11

Just in time: a blog in the Wall Street Journal puts in prominence the names of Diamond and Dybvig as strong candidates for the Nobel prize (link).

You have seen the news, Janet Yellen has been nominated as the next chair of the board. Here is a link from the Washington Post (link).

Oct 10

I have just received an email from the Masters Office with the room of the final exam: it will be in Salão Nobre.

Oct 8

Take a look at this interview with Michael Bordo for the Richmond Fed (link). It is an interesting talk about the financial crisis.

Oct 7

I included an article on the financial crisis by Acharya and Richardson on Moodle. It is in Moodle/Readings. Take a look there.

Also, below, in the topic “The Crisis of 2008 and the Debt Crisis,” you will find many interesting articles on the financial crisis and on the current discussion that followed it. Take a look there too.

Oct 3

This is a reminder that tomorrow, at 17:00, Room 219, we will have a special discussion session. This session is optional. The objective is to discuss informally about general topics related to macroeconomics and financial markets or about current events. See you there!

Oct 1

Chart: US Debt, Budget Negotiations (link).

Sep 30

About the way in which the FOMC works, take a look at this article: Kocherlakota, Narayana (2010). An Introduction to the FOMC.” The Region, September 2010. (Also listed below.)

Sep 25

Take a look at the article below by Reinhart, Kirkegaard and Sbrancia on Financial Repression (in the topic of the 2008 crisis and the debt crisis). We will talk more about this article next class.

Some students asked me about the work of the credit rating agencies. The Journal of Economic Perspectives has an interesting article about these agencies (link). The ECB has a paper on ratings and the spread relative to the German bond (link).

Sep 24

The Economist: When is a debt not a debt? (link).

The Economist: the infrastructure of foreign exchange markets (link).

Sep 23

Take a look at this interview with Sargent (link), on financial crises and other topics. The comments on the unpleasant monetarist arithmetic are directly related to today’s class and next class.

There is also an interview with Sargent for the Morningstar Advisor on Moodle, about the crises in the United States and in Europe. It has many parts related to the discussion in class. For those that want to see the model in more detail, the article on the unpleasant monetarist arithmetic is on Moodle.

Sep 20

There is a link listed below in readings to an interview with Eugene Fama. Take a look. It has many parts related to our discussion on Asset Pricing.

Sep 19

The Washington Post: about the FED (link).

Sep 18

Take a look at this paper on the forecasting power of the yield curve: (link).

Sep 15

The Economist: FED, How to taper safely (link). A follow up on the decision of the chairman of the FED: (link).

Financial Times: Also about the decision of the FED chairman (link).

Sep 14

As announced in the first class, there will be special sessions to talk further about the subjects of the course.

Special TA Sessions: Sep 23, Monday, 18:30, Room 219; and Oct 14, Monday 18:30, Room 219.

Special Discussion Session: Oct 4, Friday, 17:00, Room 219.

In the special TA sessions, the TA will practice questions of past exams. She will be also available to answer general questions about the course.

In the special discussion session, I will encourage an informal discussion about current topics related to macroeconomics and finance. The idea is to exchange views informally about current topics.

None of these sessions are mandatory! But I believe that they will be valuable. Join us and participate.

Sep 10

The Economist: Raghuram Rajan joins the RBI (link). To have an idea of the positions of Rajan, I included an article by him on Moodle. Take a look there too.

The Economist: On Coase (link). Great summary. Notice the discussion on markets for externalities.

Sep 9

About the Economic Reports, notice that you can choose any topic that you find interesting. The only constraint is that the topic be of interest to an investor and that it connects the behavior of the economy with financial markets. Please, look for groups of 2 to 3 participants. You may find some examples of Economic Reports on the links below. There are other examples too on Moodle.

Sep 6

The Economist: Choosing the Chairman of the FED (link).

Because of the number of registrations, I was informed by the Masters Office that we are moving to larger rooms. The classes will now meet in room A223 on Mondays and in room 219 on Wednesdays. Next class will already be in Room A223. See you there!

Aug 29

For the first class, read the text by Hayek, “The Use of Knowledge in Society.” There is a link to the text below. This text is a classic! It gives the whole idea on the relation of prices, which includes prices of financial assets, to fluctuations of the economy. The text also explains the role of prices in pointing out how to use resources in the best way. And all of this without equations.

Aug 27

The first class will be on Wednesday, September 4, room to be announced. See you there!




Due Date

Report 1

September 19

Report 2

October 3

Report 3

October 10


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.

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

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

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 frequently used 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

Asset Pricing

Corporate Finance

Economic Fluctuations and Growth

Monetary Economics


SSRN page


Universidade Nova de Lisboa

Nova School of Business and Economics