Money, Banking and the Financial System, 3rd Edition

R. Glenn Hubbard all

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Money, Banking and the Financial System, 3rd Edition

By R. Glenn Hubbard, Anthony Patrick O'Brien
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For courses in Economics.

Help students master the modern landscape of money, banking, and the financial system

Money, Banking, and The Financial System, 3rd Edition, gets students excited about the extremely important topics of money, banking, and financial markets. In the past 10 years, virtually every aspect of how money is borrowed and lent, how banks and financial firms operate, and how policymakers regulate the financial system has changed. This text arms students with the the most up-to-date coverage of events to grasp these changes and navigate the current monetary and financial system.


Glenn Hubbard, Professor, Researcher, and Policymaker

R. Glenn Hubbard is the dean and Russell L. Carson Professor of Finance and Economics in the Graduate School of Business at Columbia University and professor of economics in Columbia’s Faculty of Arts and Sciences. He is also a research associate of the National Bureau of Economic Research and a director of Automatic Data Processing, Black Rock Closed-End Funds, and MetLife. He received his PhD in economics from Harvard University in 1983. From 2001 to 2003, he served as chairman of the White House Council of Economic Advisers and chairman of the OECD Economy Policy Committee, and from 1991 to 1993, he was deputy assistant secretary of the US Treasury Department. He currently serves as co-chair of the nonpartisan Committee on Capital Markets Regulation. Hubbard’s fields of specialization are public economics, financial markets and institutions, corporate finance, macroeconomics, industrial organization, and public policy. He is the author of more than 100 articles in leading journals, including American Economic Review, Brookings Papers on Economic Activity, Journal of Finance, Journal of Financial Economics, Journal of Money, Credit, and Banking, Journal of Political Economy, Journal of Public Economics, Quarterly Journal of Economics, RAND Journal of Economics, and Review of Economics and Statistics. His research has been supported by grants from the National Science Foundation, the National Bureau of Economic Research, and numerous private foundations.


Tony O’Brien, Award-Winning Professor and Researcher

Anthony Patrick O’Brien is a professor of economics at Lehigh University. He received his PhD from the University of California, Berkeley, in 1987. He has taught money, banking, and financial markets courses for more than 250 years. He received the Lehigh University Award for Distinguished Teaching. He was formerly the director of the Diamond Center for Economic Education and was named a Dana Foundation Faculty Fellow and Lehigh Class of 1961 Professor of Economics. He has been a visiting professor at the University of California, Santa Barbara, and at Carnegie Mellon University. O’Brien’s research has dealt with such issues as the evolution of the US automobile industry, the sources of US economic competitiveness, the development of US trade policy, the causes of the Great Depression, and the causes of black—white income differences. His research has been published in leading journals, including American Economic Review, Quarterly Journal of Economics, Journal of Money, Credit, and Banking, Industrial Relations, Journal of Economic History, and the Journal of Policy History. His research has been supported by grants from government agencies and private foundations.





A modern, brief approach pays close attention to recent developments in policy and theory

  • This brief, up-to-date approach helps students better grasp the most relevant concepts and theories.
  • The text stresses a lesson policymakers learned the hard way: What happens in the shadow banking system is as important to the economy as what happens in the commercial banking system.
  • Presents students with the underlying economic explanations of why the financial system is organised as it is and how the financial system is connected to the broader economy.
  • Offers a framework that allows students to apply the theory that they learn in the classroom to the practice of the real world. This framework includes understanding, evaluating, and predicting; a modern approach; integration of international topics; and a focus on the Federal Reserve.


Coverage of the most important and recent topics

  • NEW! Coverage of how interest rates are determined using the money market model helps professors cover the relationship between money supply growth and interest rates (Section 4.4).
  • EXPANDED! Discussion of stocks and market indexes has been included (Section 6.1).
  • REVISED! The use of derivatives in foreign exchange markets has been moved to the end of Chapter 8 where it can be easily omitted by instructors who do not wish to cover it. The remainder of the material has been integrated into the first section. The relationship between the demand and supply approach to analysing exchange rates and the interest-rate parity approach in the final section has been rewritten and clarified.
  • NEW! Coverage of why economists believe economic performance depends on the financial system, an extremely important topic in the aftermath of the 2007-2009 financial crisis, has been added (Section 9.1).
  • NEW! Discussion of how the possible effect of The Wall Street Reform and Consumer Protection Act (Dodd-Frank) has narrowed the Federal Reserve’s ability to act as a lender of self-resort in the event of another financial crisis has been added (Section 12.4).  
  • NEW! Coverage of how the huge increase in bank reserves has affected the determination of federal funds rate traditional assumption of scarce reserves has been included (Section 15.2).
  • NEW! Information on how the Fed currently manages the federal funds rate now that reserves are no longer scarce has been included (Section 15.3).
  • REVISED! Coverage of China’s interventions in the exchange rate market that emphasises the risk facing China’s economy and financial system has been added (Section 16.4).
  • NEW! Coverage of the shadow bank lending channel, and the role of shadow banking in the 2007-2009 financial crisis and current financial system has been added (Section 18.4).
  • REVISED! and UPDATED! Chapter 11 opening cases have been replaced and retained cases have been revised.
  • NEW! 18 Making the Connections features have been added throughout the text, including several that apply to students’ lives and decisions.
  • NEW! and UPDATED! Solved Problems help students overcome difficulties in solving applied economics problems by providing worked-out answers.
  • NEW! and UPDATED! 23 Figures and 4 Tables have been added, and remaining graphs and tables have been updated with the latest available data.
  • NEW! and UPDATED! Half of the Review Questions and Problems and Applications have been replaced or revised.
  • Data Exercises help students become familiar with a key data source, learn how to locate data, and develop skills to interpret the latest data.
Table of contents
  • Part 1: Foundations
  • 1. Introducing Money and the Financial System
  • 2. Money and the Payments System
  • 3. Interest Rates and Rates of Return
  • 4. Determining Interest Rates
  • Part 2: Financial Markets
  • 5.  The Risk Structure and Term Structure of Interest Rates
  • 6. The Stock Market, Information, and Financial Market Efficiency
  • 7. Derivatives and Derivative Markets
  • 8. The Market for Foreign Exchange
  • Part 3: Financial Institutions
  • 9. Transactions Costs, Asymmetric Information, and the Structure of the Financial System
  • 10. The Economics of Banking
  • 11. Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions
  • 12. Financial Crises and Financial Regulation
  • Part 4: Monetary Policy
  • 13. The Federal Reserve and Central Banking
  • 14. The Federal Reserve’s Balance Sheet and the Money Supply Process
  • 15. Monetary Policy
  • 16. The International Financial System and Monetary Policy
  • Part 5: The Financial System and the Macroeconomy
  • 17. Monetary Theory I: The Aggregate Demand and Aggregate Supply Model
  • 18. Monetary Theory II: The IS—MP Model