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Frank Warnock |
| Advanced Global Financial Markets (GBUS 8491) Instructor: Frank Warnock 2014-15 Schedule: 2:45-4:10pm Early Week Q1 Advanced Global Financial Markets is an extension of the content of the Global Financial Markets (GFM), a pre- (or co-) requisite that can be taken either as a FY Elective or as a Q1 SY Elective. The topics change year to year based on students’ interests. But as with GFM, the course is forward-looking, with students discussing real-time issues and having an opportunity to analyze in depth current “big issues” in international financial markets. The course, appropriate for students who want to solidify their economics-based understanding of global financial markets at an advanced practitioner level, will consist primarily of student-led discussions and presentations, as well as a number of short (one-page) papers aimed to help students solidify their understanding in a concise, compelling way. There will be no final exam. Prerequisite: GBUS 7602 Global Financial Markets, either as FY Elective or Q1 SY Elective. Academic objectives · To provide students with a forum in which to solidify their understanding of global financial markets (from an economics perspective). · To debate the impact of major themes in international finance. These themes will change from year to year, but in 2014-15 likely include global imbalances, debt and deficits, quantitative easing, fiat money and gold, Bitcoin, bubbles, Keynes v. Hayek, and the eurozone’s existential crisis, among others. · To sharpen expertise in applying the tools of economics to global financial markets. Advanced GFM builds on the learning from the GEM elective Global Financial Markets, a course that helps many Darden students attain an in-depth understanding of global financial markets from an economics perspective. Advanced GFM provides students with the opportunity to bring together knowledge acquired in their summer internships and through their other courses to form a sharper understanding of major themes in global financial markets. The course’s main aim is simple: To guide students to use the skills they have obtained at Darden and in their careers to assess some of the most pressing issues in international financial markets. Relative to the prerequisite GFM course, Advanced GFM will rely not on cases but rather on students' presentation and assessment of primary information. In that sense it can be seen as blowing out GFM's country presentations into a full course (on many topics, though). The Structure of the Course · 12 groups. We will schedule 12 topics, for each topic two groups will present. Thus 24 presentations. I will randomly assign groups and topics. Each group will present twice. · Two groups per topic. I will assign one group to take one side of the issue, the other to take the other side (so we get complete coverage). · Class Meetings. Each group gets 15 minutes to present. The remaining 55 minutes is for general class discussion. Objective is that we all get up to speed on the topic. · Papers. Students will submit reflections. One written page per topic is fine. Use this as an opportunity to get your thoughts organized and down on paper. Course Grade Class engagement (50%): This comes from both your participation on days when others are presenting as well as your presentations. A series of one-page papers (50%), described above. There will be no final exam.
Class-by-Class Agenda
(subject to minor modifications)
No group presentations. Just to get back in the swing
of GFM, I’ll provide you (again) with the 2014 Outlook, and we’ll discuss
their outlook knowing what we know in late August 2014.
No group presentations. To complete your immersion
back into GFM, we’ll discuss long-term prospects for bonds and equities.
In this class we’ll get a sense for the playbook of the Yellen Fed.
Group 1: Begin with how standard Fed policy affects
the economy, then describe QE and how it works.
Group 2: Make the case that the US economy will
continue to disappoint, and the
Fed’s toolkit will yet again expand. Describe at least two non-standard
options the Fed could use—such as NGDP targeting, IOER, etc.
Group 1: Make the case that the US economy will take off. Describe the
exit strategy from its current UMPs.
Group 3:
Present the unintended consequences of the Fed’s policy – eg, the impact
on other asset classes (including commodities) of prolonged loose monetary
policy and zero nominal interest rates, the distortionary effect of the
Fed’s asset purchases, others – and make the case that these are putting
the US and global economies in a precarious spot.
Group 4: Go
through each of the unintended consequences discussed by Group 3 and tell
us exactly what we should look for to see if they are problematic. Make a
ruling…do we see evidence of problems?
Group 5: The leverage cycle will end in tears, and US finances are awful.
Group 6: Leverage increase, leverage decreases…this is all normal. And US
finances will improve naturally.
Both Groups: How does the leverage cycle explain fluctuations in the
economy? See work of John Geanakoplos, among others. On US Finances – How
do we fix the problem? Do we even need to fix it? Do we go the way of
Greece, or do we simply keep raising the debt ceiling in perpetuity?
Group 7: Define a bubble. Give examples of past bubbles, including
their impact on the economy. Briefly mention 3 current possible bubbles
and how they can be stopped.
Group 8: For the 3 current possible bubbles mentioned by Group x,
discuss how we can assess if they are truly bubbles. This is related to
“How do we predict the next bubble?”
Group 7: Make the case that bubbles are inherently unpredictable.
We should keep an eye on them, but do nothing proactively, and just be
ready to mop up afterwards.
Group 9: Currency
wars are a major problem in the world economy. Group 10: Currency
wars are benign
Group 11: Take the side of Hayek, the Gold Standard, and the
Decline of the USD as World’s Reserve Currency. Policymakers in major
economies have proven incapable of guiding the world economy. We need
Hayek’s views, not Keynes’ and a return to the gold standard (and the end
of the USD as the world’s reserve currency).
Group 12: Take the side of Keynes, that with major economies
following his prescriptions all is well. Full steam ahead.
Both groups: Given debt
issues and extremely accommodative monetary policy, there has been much
discussion about a possible return to the gold standard. Some of this is
related to a debate by Hayek and Keynes (and their disciples). In this
session we will learn more about how a new gold standard will operate.
Of course, this also relates to discussions about the future of the
dollar as the world’s reserve currency, and the implications that the
budget deficit and the debt ceiling negotiations have on it.
Group 2: Bitcoin, whether itself successful or not, is the wave of
the future.
Group 1: Bitcoin is just another bubble that pop and wither away.
Group 4: The eurozone will implode and take the rest
of the world down with it.
Group 3: The current pains are necessary. The ECB has
things under control. Remain calm. All is well.
Groups 5 and 6: Get together
to create a presentation on what stagflation is, what causes it, some
historical examples, and how policymakers dealt with it.
Group 6: Make the case that India (and Brazil?) should play hard ball and
crush inflation. Group 5: Make the case that concentrating on inflation would squash growth that both countries need very much.
Group 8: The shadow banking system is scary and will lead to the end of
the world. (That is, tell us its problems.)
Group 7: The shadow banking system is benign, necessary, and we should be
thankful it exists. (That is, tell us the wonderful thing it does.)
Group 10: China is going to implode and drag the rest of the world down
with it.
Group 9: China is the main driver of growth in the world, and despite
challenges it will continue to be so.
Group 12: Make the Kyle Bass case.
Group 11: Kuroda’s new QE policy is exactly what will bring this great,
wealthy country out of its decades-long doldrums.
Both groups must address its debt bubble (what catalysts might trigger a
collapse, are there parallels to other sovereign debt crises, what is the
likely impact on financial markets?).
We can close Advanced GFM in a way decided by the
students. We could discuss a topic that is important but didn’t get into
the agenda. Or Warnock can present research. Students’ choice. |