Nova School of Business and Economics

Universidade Nova de Lisboa

The Macroeconomics of Financial Markets—2233

1st Semester 2016-2017 (Fall 2016), 1st Half


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


Teaching Assistant:      Marco Lourenço,


Classes: Wednesdays (A223) and Thursdays (A 217) 14:30-16:00

Syllabus (PDF)


Exam           October 25, Tuesday, 9:30am, Salao Nobre (scheduled by the department)



Nov 2

The final grades of the Macroeconomics of Financial Markets have already been sent to the system.

If you want to see your exam, the exam review will be on Thursday, Nov 3, 18:00, Library office 2B.

Oct 19

We already have the grades of the third report! And the prize goes to... Angelo Migliorino and Francesco Mazzola, for the report “Still Worthwhile Investing in Oil?” The prize is a bag of “genuine, although shredded, U.S. Currency,” a nice promotional material of the Federal Reserve. Congratulations for Angelo and Francesco!

Oct 13

Here are the remarks on monetary policy during the 1930s made by Ben Bernanke. These remarks show the striking contrast with the monetary policy actions implemeted just a few years afterwards (link). For a direct discussion on the recent financial crisis, see this other text, especially the part that he talks about The Crisis as a Classic Financial Panic.

Today was the last class. I hope you enjoyed the course!

Oct 12

Take a look at this interesting site with data for Europe: They also provide another site focused on the United States.

Oct 10

The topic below on the crisis of 2008 has many interesting papers on the subject. See, in particular, the Lessons from the Financial Crisis, by Cochrane, and the texts by Diamond and Kashyap, and by Rajan on Moodle.

Oct 6

Take a look at this recent speech, by Stanley Fischer, the vice-chairman of the board, about low interest rates.

From the Economist: exchange rates and the economy.

Sep 29

Some students pointed out that the day of the make-up class is Saturday, October 8th. That’s correct! Therefore, the next class is on Thursday. We will talk about the design of Central Banks. Especially, on how to ensure Central Bank independence. See you on Thursday!

Sep 28

Take a look below at the article by Reinhart, Kirkegaard, and Sbrancia on financial repression.


Remember that the department has scheduled a make-up class for this Saturday, 14:30, room 223. (Corrected: the day of the make-up class is Saturday, October 8th).


Notice that I have changed the office hours to Thursdays 16:00-17:00.

Sep 26

This article describes how carry trade works (link). Carry trade is the subject of our class on Thursday. The article errs, though, when it says that carry trade is a recent phenomenon. Take a look.

Sep 24

And then an investor comes to your office for advice on how to invest across assets: Norway’s global fund, from the Economist. Take at look at these articles, too: low interest rates, investment banking.

Sep 22

Here is the graph that I showed today in class, with the ratio of investment to GDP (link). It is improved as I am using longer time series and calculating the ratio of two nominal variables. Using nominal variables gives more precise estimates to calculate the ratio. Notice how investment has been increasing since 2010. Try to generate this graph. Add the series for the volatility of the world stock price index, for example. See how it interacts with the investment-to-GDP ratio.


Take a look at the interview with Lars Hansen, below. Especially the part in which he talks about asset prices and the macroeconomy, and about uncertainty and market returns.

Sep 21

This is a great graph of asset prices over time: bigpicture.

Fama is very related to CRSP, the center that produced the graph above. If you haven’t done so, this is a good time to read his interview, available below.

Sep 20

Take a look at this graph. It shows the yield curve for each day together with the stock market.

Wages over time, from FRED. Interesting information, and an interesting use of the FRED tools.

Sep 19

The Atlanta Fed is searching for a new president. The presidents of the Regional Feds participate in the FOMC meetings, as we will be discussin soon. Take a look at the announcement of the search made by chair of the board of directors of the Atlanta Fed: link.

Sep 16

Take a look at these articles: Protectionism, REIT.

Sep 13

Some students asked me more information about the reports. I will talk more about this in class. In any case, here are some important points:

1. The audience of your reports are investors that need to decide were to invest. How would an investor use the information of your report on current investiment decisions? Be concrete.

2. Although you should follow the general topic of the report (such as a country report for Report 1), you have a lot of freedom. You can decide if you will focus on stocks, bonds or a different aspect of the country. The important point is that your report must be useful for an investor.

3. Please see the PDF with additional guidelines for the reports below, in the section Reports. On Moodle, you will find examples of real reports prepared by different firms.

Sep 9

Interest rate caps, from the Economist. The price system misguided. Can you think about the consequences of this kind of measure? Also: Interest rate caps in Kenya, Mathematics in Finance.

Sep 8

Here is an article on the supply of tin from the Economist. The article also points out the hurdles to business in some parts of the world and the tradeoffs between risk and return. The articles from the press are also available in PDF on Moodle.

Sep 6

The first class will be on September 7, 14:30, room A223. 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 22, Thursday

Country Report

Report 2

Oct 6, Thursday

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

Report 3

Oct 13, Thursday

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.


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.)

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

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