The Economics of Money, Banking and Financial Markets, Global Edition 13th Edition

Book Preface

There has never been a more exciting time to teach money and banking. The recent worldwide financial crisis and the coronavirus pandemic cast a spotlight on the importance of banks, financial markets, and monetary policy to the health of our economy. I experienced this firsthand when I served as a Governor of the Federal Reserve System from 2006 to 2008, and in this book, I emphasize the rich tapestry of recent economic events to enliven the study of money, banking, and financial markets.

NEW TO THIS EDITION

This text has undergone a major revision with new material in every part of the book, including updating of all data through 2020 whenever possible. However, it continues to retain the basic hallmarks that have made it the best-selling textbook on money and banking over the past twelve editions. As with past editions, this thirteenth edition uses basic economic principles to explain financial markets, financial institutions, and monetary policy with rigor and clarity. With each edition, I update content and features based on market feedback from economics professors and students using the book as well as the latest world financial episodes. For the past several editions, the digital assets for this book, which are available on MyLab Economics, have evolved and expanded.
Compelling New Material on the Coronavirus Pandemic
The coronavirus pandemic that spread throughout the world in 2020 is one of the signature events of the twenty-first century. This has required the addition of many timely new sections, applications, and boxes throughout the book.

• A new application which uses the analysis of the risk structure of interest rates to explain the effect of the coronavirus pandemic on the Baa-Treasury spread (Chapter 6).
• A new application on the coronavirus stock market crash of 2020 (Chapter 7), which illustrates how stock market prices are set.
• A new application on whether the coronavirus pandemic could have led to a finan-cial crisis (Chapter 12) shows how to apply the analysis of the dynamics of finan-cial crises to explain when financial crises might occur in the future.
• A new application on the effects of quantitative easing on the money supply during the coronavirus crisis (Chapter 15), which shows how to apply the model of the money supply process to recent data.
• An update to the section on nonconventional monetary policy tools and quantita-tive easing (Chapter 16) to discuss how they were used during the coronavirus pandemic.
• An updated Inside the Fed box on Fed lending facilities during the coronavirus crisis (Chapter 16).
• An update on the application discussing shifts in the MP curve (Chapter 22) to explain why the actions taken at the onset of the coronavirus pandemic were an autonomous monetary easing.
• A new application that shows how AD/AS analysis can explain what happened dur-ing the Coronavirus Recession (Chapter 23).

A More Real-World Approach to Monetary Theory
Part 6 of the text, Monetary Theory, has been substantially revised to make the analysis more real world by using actual data when conducting AD/AS analysis of business cycle episodes. Chapter 23 has been revised in two major ways. It now starts with an entirely new section, Business Cycles, that discusses what aggregate demand and supply analysis is trying to explain, that is, cyclical fluctuations in output, unemployment, and inflation. The AD/AS analysis is then developed using an aggregate output index (where 100 is potential GDP), which replaces aggregate output on the horizontal axis of the AD/AS diagram. This approach has two important advantages over the analysis in previous editions. First, it enables AD/AS diagrams to be a little simpler because the long-run aggregate supply curve does not have to be shown in the diagram because its position is always the same at an aggregate output index of 100. Second, and far more important, doing the analysis with an aggregate output index enables the AD/AS diagram to use actual data when it is used to describe what happened during particular business cycle episodes, such as the Great Recession and the Covid-19 recession. This change makes AD/AS analysis far more relevant to students because they now see that it can explain actual data and is not just a theoretical construct. This new approach is then used throughout the rest of the chapters in the monetary policy part of the book.
Additional New Material on Financial Markets and Money
Other new developments in the money and banking field have prompted me to add the following new boxes and applications that keep the text current.

• A revision of the application on whether bitcoin or other cryptocurrencies will become the money of the future (Chapter 3) enables students to better understand the attributes of money.
• A new application on the effects of the Trump tax cuts on bond interest rates (Chapter 6), which shows how supply and demand analysis of the bond market can be used to explain the effect of taxes on different interest rates.
• A new FYI box on Modern Monetary Theory (Chapter 20), which discusses this new theory that argues that the Green New Deal can be easily paid for by having the Federal Reserve buy government bonds to fund the resulting large budget deficits.
• An addition of another rationale for explaining why the monetary policy curve slopes upward (Chapter 22).

SOLVING TEACHING AND LEARNING CHALLENGES

It’s important for students to understand the models, key terms, and equations in any economics textbook. However, students can get bogged down in this detail and miss the bigger picture. The content, structure, and features of this book were designed based on market feedback and many years of teaching experience to build students’ skill in applying these elements––models, terms, and equations––to real-world events.

Students also learn to apply what they learn to decisions that are directly relevant to their lives, such as what might happen to interest rates on car loans or mortgages, and why events might affect the unemployment rate, which can have a major impact on how easy it is for them to get a job.
Hallmark Learning Features
Here is an overview of the hallmark features of the book that solve teaching problems and facilitate student learning.

• A unifying, analytic framework uses a few basic economic principles that enable students to develop a disciplined, logical way of analyzing the structure of financial markets and understanding foreign exchange changes, financial institution man-agement, and the role of monetary policy in the economy.
• A careful, step-by-step development of economic models (the approach used in the best principles of economics textbooks), which makes it easier for students to learn.
• Graphs and Mini-Lecture Videos with detailed captions help students clearly understand the interrelationships among the plotted variables and the principles of analysis. For analytic figures, these mini-lectures build up each graph step-by-step and explain the intuition necessary to fully understand the theory behind the graph. The mini-lectures are an invaluable study tool for students who typically learn better when they see and hear economic analysis rather than read it.