Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

2017-2018 T3 (Spring 2018)


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


Teaching Assistant:      Marco Lourenço,


Classes: Mondays and Thursdays 17:30-19:00, A 223

Syllabus (PDF)


Exam           March 20, Tuesday, 16:00, rooms A223 and A219 (scheduled by the department)



Mar 26

I have already sent the course grades to the Masters’ Office. You can check the grade of your final exam on Moodle. If you want to see your exam, the exam review will be on Wednesday, March 28, 18:00, room 7B. Congratulations on your performance!

Mar 12

Today, we completed our discussion on the topic of Financial Crises and covered our last class. I hope you have enjoyed the course! Please, remember to answer the online evaluations about the course with your comments and suggestions.

The positive and negative effects of bail outs. Take a look at this article by the Minneapolis Fed president, Neel Kashkari at the Washington Post last week.

Mar 8

This is a reminder that today, after class, we have an optional discussion class. We will discuss the last final exam. You are welcome if want to discuss other topics. Attendance is voluntary. This extra class will be from 19:00-20:30, in room A223, after our normal class. In our class of 17:30, we will continue the topic of Financial Crises.

Mar 6

Some articles to note: on trade and tariff wars and debt markets.

Mar 2

Here is a very good practical description of the decision process of the Federal Open Market Committee. This text is also available below, within the topic Central Banks.

Mar 1

As we discuss monetary policy, it is good to see the recent statement on long-run goals of monetary policy of the FOMC: Link.

Feb 27

Digital currencies in Switzerland, risk in the housing market. The second article, on housing risk, is especially relevant for our upcoming topic on the Financial Crisis.

Feb 26

Here is a nice graph connecting the yield curve and stock market behavior. Note how the yield curve behaves just before a fall or an increase in the stock market (link).

Feb 21

Please, if you have not done so, remember to add a picture to your Moodle profile. Thanks.

Feb 20

I have added a text by Cochrane on Moodle, on deflation. Take a look there.

Feb 19

Some students asked me to offer an alternative time for the classes of this week to allow participation on Economia Viva. I arranged extra classes on Friday, Feb/23, 14:30-16:00 and 16:00-17:30, A223. I will repeat the classes of the week. The classes of Monday and Thursday will run normally, at the usual time and place. The classes of Friday are extra time slots. This week, we will discuss monetary policy and fiscal policy.

Feb 16

Switzerland is currently discussing the sovereign money initiative. Take a look at this paper for an evaluation of the proposal. Take a look, too, at these remarks from Thomas Jordan, the chair of the Swiss National Bank.

Feb 15

As you finish your first report, please make sure that you have read the Guidelines for the Reports, in the PDF below. Remember, do your best, but pay attention not to overinvest on one individual report. The grade for the reports is still 30 percent of the grade, and there is a total of three reports.

Feb 14

Optional Discussion Class As announced in class, I have arranged an extra class for the discussion of the material covered in the course. The plan is to discuss the solution of the last final exam. However, you are welcome if want to discuss any topic that you find relevant for the class. Please, see the past final exams on Moodle. This class is optional and attendance is voluntary. It is scheduled for Thursday, Mar/8, 19:00-20:30, room A 223.


Valentine’s Day with FRED Dataset: link.


Articles for this week: on ECB changes (link), check the passage “All else equal, this increases the possibility of a slightly more centrist/hawkish leaning executive board by late 2019;” on market volatility (link), and on asset management (link).

Feb 9

In the next class, on Monday, we will finish the topic on Information and Asset Prices and start to talk about the Term Structure. Please, read slides 3 and 4, available on Moodle, so that we can benefit the most from our discussion. We will start from page 17 of slides 3. Slides 4 is a refresher about key terms on the term structure.

Feb 8

Quantifying the Impact of ECB Policies during the Debt Crisis. “Two-year bond yields declined by 400 basis points for Italy and Spain, by 500 basis points for Ireland and Portugal, and by 1,000 basis points for Greece.”

Feb 5

Take a look at these articles on changing positions in central banks, a new asset based on public debt, and risk factors.

Jan 30

This course is about how macroeconomic events affect financial markets. One of the topics that we discuss are the effects of public debt. Negotiations about the debt ceiling in the US, for example, greatly affect interest rates and other asset prices. As a warm up to the class, listen this podcast, from Planet Money, on the experience of a country with no public debt: #273: When The U.S. Paid Off The Entire National Debt (link, scroll down). On the creation of the public debt, the origins of the public debt, and more.

Dec 22

The first class will be on Thursday, Feb/1, 17:30, room A223 (to be confirmed). 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

Feb 15, Thursday

Country Report

Report 2

Feb 28, Wednesday

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

Report 3

Mar 7, Wednesday

Free choice!


Guidelines for the Reports: PDF


Additional Data, Texts, and Slides

See the course webpage on Moodle: link



We cover six interconnected topics. The readings are grouped into topics

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


1 – Information and Asset Prices

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

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


2 – Term Structure

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


3 – Sovereign Debt Crises

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


4 – International Finance

Ilmanen, Antii (2011). “Currency Carry.” Chapter 13 of Expected Returns: An Investor's Guide to Harvesting Market Rewards, Wiley


5 – Central Banks

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

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

Cecchetti, Stephen G. (2009). “Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis.” Journal of Economic Perspectives 23(1): 51-75.

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

Kocherlakota, Narayana (2010). An Introduction to the FOMC.” The Region, September 2010. A close look at the Federal Open Market Committee

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


6 – Financial Crises

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

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

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

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

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

Diamond, Douglas W. (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)

Kacperczyk, Marcin and Philipp Schnabl (2010). “When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007–2009.” Journal of Economic Perspectives 24(1): 29-50.

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)


Video series on Money and Banking, by Markus Brunnermeier


Other Topics – Government Policies and Market Reaction

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



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

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