The Economics of Money, Banking and Financial Markets Global Edition (10e)

The Economics of Money, Banking, and Financial Markets set the standard for money and banking courses when it published in its first edition, and it continues to be the worldwide market leader.  By applying a unified analytical framework to the models, Mishkin makes theory intuitive for students, and the rich array of current, real-world events keeps students motivated. Authoritative, comprehensive, and flexible, the text is easy to integrate into a wide variety of syllabi, and its ancillaries provide complete support when teaching the course.

This Global Edition has been edited to include enhancements making it more relevant to students outside the United States. The editorial team at Pearson has worked closely with educators around the globe to include:

This edition continues to expand on the discussion of the current financial crisis.  

PART 1 I ntroduction 43

1 Why Study Money, Banking, and Financial Markets?........................................ 44

2 An Overview of the Financial System................................................................ 67

3 What Is Money?................................................................................................. 94

PART 2 Financial Markets 107

4 Understanding Interest Rates........................................................................... 108

5 The Behavior of Interest Rates.......................................................................... 130

6 The Risk and Term Structure of Interest Rates................................................. 160

7 The Stock Market, the Theory of Rational Expectations,

and the Efficient Market Hypothesis.................................................................183

PART 3 Financial Institutions 203

8 An Economic Analysis of Financial Structure.................................................. 204

9 Financial Crises in Advanced Economies ........................................................227

10 Financial Crises in Emerging Market Economies ............................................245

11 Banking and the Management of Financial Institutions ..................................265

12 Economic Analysis of Financial Regulation .....................................................294

13 Banking Industry: Structure and Competition................................................. 321

PART 4 C entral Banking and the Conduct of Moneta ry Policy 353

14 Central Banks: A Global Perspective ................................................................354

15 The Money Supply Process ..............................................................................379

16 The Tools of Monetary Policy........................................................................... 409

17 The Conduct of Monetary Policy: Strategy and Tactics .................................. 434

PART 5 I nternat ional Finance and Moneta ry Policy 475

18 The Foreign Exchange Market .........................................................................476

19 The International Financial System................................................................. 500

PART 6 Moneta ry Theory 533

20 Quantity Theory, Inflation, and the Demand for Money...................................534

21 The IS Curve.....................................................................................................551

22 The Monetary Policy and Aggregate Demand Curves.......................................569

23 Aggregate Demand and Supply Analysis...........................................................582

24 Monetary Policy Theory....................................................................................624

25 The Role of Expectations in Monetary Policy...................................................643

26 Transmission Mechanisms of Monetary Policy.................................................662

This edition continues to expand on the discussion of the current financial crisis.  

Updated and Revised Chapter 9: Financial Crises. The previous edition of this textbook contained a new chapter on financial crises, including the most recent one. It was written, however, before the global financial crisis was over. Now with the perspective of a couple of years after the crisis, this content has been substantially improved, including a reorganization of the chapter to tell a more coherent story and new sections, such as the run on the shadow banking system.

New Chapter 10: Financial Crises in Emerging Market Economies

This new chapter expands upon the analysis of economic fluctuations in economies that have recently opened up their markets to the outside world. The first example discussed in the chapter is the crisis in South Korea in 1997–1998. This example illustrates the first path toward a financial crisis operating through mismanagement of the financial liberalization/globalization. In the second example, we look at the Argentine crisis of 2001–2002, which was triggered through the second path of severe fiscal imbalances.

Compelling New Material on the Global Financial Crisis Throughout the Text. The aftermath of the global financial crisis of 2007-2009 has led to ongoing changes in the structure of the financial system and the way central banks operate. This has required the addition of many timely new sections, applications, and boxes throughout the rest of the book, including:

• A new box on Ireland and the 2007-2009 financial crisis (Chapter 9)
• A new Inside the Fed box on whether the Fed was to blame for the housing price bubble (Chapter 9)
• A new section on the Dodd-Frank bill and future regulation (Chapter 11)
• A new box on where the Basel Accord is heading after the global financial crisis (Chapter 11)
• A new box on the money supply during the 2007-2009 financial crisis (Chapter 14)
• A new section on nonconventional monetary policy tools (Chapter 15)
• A new section on quantitative versus credit easing (Chapter 15)
• A new Inside the Fed box on Federal Reserve lending facilities during the global financial crisis (Chapter 15)
• A new section on lessons for monetary policy strategy from the global financial crisis (Chapter 16)
• A new application on the fiscal stimulus package of 2009 (Chapter 20)
• A new application on autonomous monetary policy easing at the onset of the global financial crisis (Chapter 21)
• A new application on negative supply and demand shocks and the 2007–2009 financial crisis (Chapter 22)
• A new application on the United Kingdom and the 2007-2009 financial crisis (Chapter 22)
• A new application on China and the 2007-2009 financial crisis (Chapter 22)
• A new application on quantitative (credit) easing in response to the global financial crisis (Chapter 23)
• A new box on the activist/nonactivist debate over the Obama fiscal stimulus package (Chapter 23)

• Mishkin’s unique viewpoint. Having just finished his term as Governor of the Federal Reserve, Mishkin brings a fresh perspective to today’s major policy questions. Insights into the monetary policy process, the regulation and supervision of the financial system, and internationalization of financial markets are integrated throughout.
• Financial Crises in Emerging Market Economies: This new chapter expands upon the analysis of economic fluctuations in economies that have recently opened up their markets to the outside world. The first example discussed in the chapter is the crisis in South Korea in 1997–1998. This example illustrates the first path toward a financial crisis operating through mismanagement of the financial liberalization/globalization. In the second example, we look at the Argentine crisis of 2001–2002, which was triggered through the second path of severe fiscal imbalances.
• Flexibility. A core set of chapters provides a basic framework for learning and analysis to fit a wide variety of syllabi, and a unifying, analytic framework uses a few basic economic principles to organize students' thinking. Careful, step-by-step model development makes the level appropriate for all students who take the course.
• Chapter pedagogy keeps students focused and motivated.
  • Applications are integrated within the main text, and provide students the opportunity to see theory at work.
  • Inside the Fed boxes reflect Mishkin's experience at the Federal Reserve and give students insight into the operation and structure of the Federal Reserve System. Additional box features include Following the Financial News boxes, Global boxes, FYI boxes, and Wall Street Journal Applications.
  • Review and study support are included in the form of chapter previews, summary tables, key statements, graphs, summaries, key terms, and a glossary.
  • Practice opportunities appear in the end-of-chapter problems as well as online in MyEconLab® with its auto-graded exercises with personalized feedback and targeted tutorial help
• Coverage of the latest data, questions, and theory are woven throughout, including:
  •  Revised Chapter 14: Central Banks: A Global Perspective Monal Abdel-Baki at the American University in Cairo has contributed a revised chapter with expanded coverage of the role and structure of the ECB, and coverage of central banks in transition and emerging economies.Late-breaking financial events and issues. Mishkin is committed to bringing in the latest data and events so that students understand the underlying economic implications.
  • Coverage of China. China’s expanding role in the world economy is reflected through several discussions throughout the text. Topics include whether China is an argument against the importance of financial development (Chapter 8), problems in the Chinese banking industry (Chapter 12), and how China has become one of the largest holders of U.S. Treasury securities (Chapter 18).
    
  • Material on monetary theory and policy. Drawing on his continued involvement with central banks, Mishkin integrates monetary theory and policy discussions, including:
    • A section on whether price stability should be the primary goal of monetary policy and whether hierarchical or dual mandates are better for central banks in Chapter 13.
    • An examination of the declining importance of reserve requirements in the money supply process in Chapter 14.
    • An application of the impact of negative demand shocks on the U.S. economy from 2001 to 2004 in Chapter 22.
• MyEconLab–an online tutorial and assessment system that is available with Mishkin’s text–leads students to spend more time doing economics, and instructors to spend less time grading. View a demo of MyEconLab. For more information or to request access, visit MyEconLab. Features include:
• Complete integration between the book and MyEconLab. New to this edition, all end-of-chapter questions are available within MyEconLab so students can make the most of their study time.
• Learning through practice. For each chapter, students can self-study using the preloaded sample tests and tutorial resources, or they can complete instructor-assigned problems. MyEconLab automatically grades exercises–even graphing problems–so students get instant feedback and personalized Study Plans with links to additional learning tools.
• Graphing help for students. In MyEconLab, students have access to animated graphs and three types of online graphing exercises that offer unlimited, supported practice. Time spent with model-based, data, and draw graphs helps students become more comfortable in this essential skill, and MyEconLab grades every graph—even the ones they draw.
• Weekly news, provided by James W. Eaton of Bridgewater College, are uploaded to make it easy to keep your course current. New to this edition, assignable questions will be added periodically to MyEconLab’s assessment manager so that instructors can assign auto-graded problems based on the weekly news.
• Online instructor tools. Within MyEconLab, instructors can assign preloaded or customized multiple-choice, graphing, algorithmic, and free-response questions. Exercises are auto-graded, and MyEconLab records the results in an online gradebook to effortlessly track student progress.