Todd A. Knoop is Associate Professor of Economics and Chair of the Economics and Business department at Cornell College. He is author of Recessions and Depressions: Understanding Business Cycles (2004). He earned his PhD. in Economics from Purdue University.

"This is a good book and one that would be suitable for undergraduate courses on this topic." (CHOICE)

• List of Figures ixList of Tables xList of Case Studies xiPreface xiiiIntroduction 1Part I An Introduction to Finance and Macroeconomics 111 The Basics of Financial Markets and Financial Institutions 13Introduction 13What is Financial Intermediation and Why is It Different from Other Economic Transactions? 14What is Money? 16The Importance of Financial Systems in Stimulating Long-Run Growth 17The Empirical Evidence on Financial Development and Growth 21The Four Primary Forms of Financial Intermediation 25Conclusions 332 A Brief History of Financial Development 35Introduction 35A Brief History of Banking, Financial Markets, and Central Banking 36Modern Central Banking 40A Brief History of International Capital Flows 42Globalization and Financial Development in the 1990s 44Conclusions 55Part II Macroeconomic Theory and The Role Of Finance 573 Business Cycles and Early Macroeconomic Theories of Finance 59Introduction 59Business Cycle Definitions 60Financial Indicators of Business Cycles 64The Sunspot Theory 66Early Monetary Theories 67The Classical Model 69The Debt-Deflation Theory 72Conclusions 744 Keynesian, Monetarist, and Neoclassical Theories 75Introduction 75Keynes’ General Theory 76Keynesian Economics and the IS–LM Model 82The Financial Instability Hypothesis 84The Monetarist Model 86Principles of the Monetarist model 86Neoclassical Theories 91Conclusions 1005 New Institutional Theories of Finance: Models of Risk and the Costs of Credit Intermediation 102Introduction 102What is Meant by “New Institutional” Theories of Finance? 103The Financial Accelerator Model and the Role of Credit in Business Cycles 106The Financial Accelerator and Monetary Policy 111The Empirical Evidence on the Financial Accelerator Model 112Conclusions 1206 New Institutional Theories of Finance: Models of Credit Rationing 123Introduction 123Two Models of Credit Rationing 125Equity Rationing 129Empirical Evidence on Models of Credit Rationing 131Conclusions 137Part III Financial Volatility and Economic [In]Stability 1397 The Role of Financial Systems in Monetary and Stabilization Policy 141Introduction 141Why Does Money Matter? Traditional Theories of the Monetary Transmission Mechanism 142Balance Sheet Channels and the Monetary Transmission Mechanism 145Empirical Studies of the Balance Sheet Channels of Monetary Transmission 147Is Monetary Policy Still Powerful? A Look at the Empirical Evidence 148Old Debates over the Effectiveness of Stabilization Policy 152New Debates over the Effectiveness of Stabilization Policy 154Conclusions 1618 Banking Crises and Asset Bubbles 163Introduction 163The Causes and Prevention of Banking Crises 165Empirical Evidence on Banking Crises 169The Causes and Prevention of Asset Bubbles 173Empirical Evidence on Asset Bubbles 178Conclusions 188Part IV International Finance and Financial Crises 1919 Capital Flight and the Causes of International Financial Crises 193Introduction 193The Causes of Capital Flight and Currency Crises 195Contagion 198Empirical Evidence on Capital Flows, Currency Crises, and Contagion 200The Causes and Costs of Twin Crises 202The Currency and Banking Crises in East Asia 205Conclusions 21310 International Financial Crises: Policies and Prevention 215Introduction 215The Benefits and Costs of Financial Liberalization 216Guidelines for Domestic Financial Regulation 219The Pros and Cons of Capital Controls 222International Financial Regulation 224The IMF, Its Policies, and Its Critics 225Reforming the IMF 233Conclusions 234Part V Conclusions 23711 What We have Learned, What We Still Need to Learn about Financial Macroeconomics 239A Brief Review 239What We Have Learned about Financial Macroeconomics 241What We Do Not Know 247Concluding Conclusions 254Bibliography 255Index 265

Todd A. Knoop is Associate Professor of Economics and Chair of the Economics and Business department at Cornell College. He is author of Recessions and Depressions: Understanding Business Cycles (2004). He earned his PhD. in Economics from Purdue University.

"This is a good book and one that would be suitable for undergraduate courses on this topic." (CHOICE)

• List of Figures ixList of Tables xList of Case Studies xiPreface xiiiIntroduction 1Part I An Introduction to Finance and Macroeconomics 111 The Basics of Financial Markets and Financial Institutions 13Introduction 13What is Financial Intermediation and Why is It Different from Other Economic Transactions? 14What is Money? 16The Importance of Financial Systems in Stimulating Long-Run Growth 17The Empirical Evidence on Financial Development and Growth 21The Four Primary Forms of Financial Intermediation 25Conclusions 332 A Brief History of Financial Development 35Introduction 35A Brief History of Banking, Financial Markets, and Central Banking 36Modern Central Banking 40A Brief History of International Capital Flows 42Globalization and Financial Development in the 1990s 44Conclusions 55Part II Macroeconomic Theory and The Role Of Finance 573 Business Cycles and Early Macroeconomic Theories of Finance 59Introduction 59Business Cycle Definitions 60Financial Indicators of Business Cycles 64The Sunspot Theory 66Early Monetary Theories 67The Classical Model 69The Debt-Deflation Theory 72Conclusions 744 Keynesian, Monetarist, and Neoclassical Theories 75Introduction 75Keynes’ General Theory 76Keynesian Economics and the IS–LM Model 82The Financial Instability Hypothesis 84The Monetarist Model 86Principles of the Monetarist model 86Neoclassical Theories 91Conclusions 1005 New Institutional Theories of Finance: Models of Risk and the Costs of Credit Intermediation 102Introduction 102What is Meant by “New Institutional” Theories of Finance? 103The Financial Accelerator Model and the Role of Credit in Business Cycles 106The Financial Accelerator and Monetary Policy 111The Empirical Evidence on the Financial Accelerator Model 112Conclusions 1206 New Institutional Theories of Finance: Models of Credit Rationing 123Introduction 123Two Models of Credit Rationing 125Equity Rationing 129Empirical Evidence on Models of Credit Rationing 131Conclusions 137Part III Financial Volatility and Economic [In]Stability 1397 The Role of Financial Systems in Monetary and Stabilization Policy 141Introduction 141Why Does Money Matter? Traditional Theories of the Monetary Transmission Mechanism 142Balance Sheet Channels and the Monetary Transmission Mechanism 145Empirical Studies of the Balance Sheet Channels of Monetary Transmission 147Is Monetary Policy Still Powerful? A Look at the Empirical Evidence 148Old Debates over the Effectiveness of Stabilization Policy 152New Debates over the Effectiveness of Stabilization Policy 154Conclusions 1618 Banking Crises and Asset Bubbles 163Introduction 163The Causes and Prevention of Banking Crises 165Empirical Evidence on Banking Crises 169The Causes and Prevention of Asset Bubbles 173Empirical Evidence on Asset Bubbles 178Conclusions 188Part IV International Finance and Financial Crises 1919 Capital Flight and the Causes of International Financial Crises 193Introduction 193The Causes of Capital Flight and Currency Crises 195Contagion 198Empirical Evidence on Capital Flows, Currency Crises, and Contagion 200The Causes and Costs of Twin Crises 202The Currency and Banking Crises in East Asia 205Conclusions 21310 International Financial Crises: Policies and Prevention 215Introduction 215The Benefits and Costs of Financial Liberalization 216Guidelines for Domestic Financial Regulation 219The Pros and Cons of Capital Controls 222International Financial Regulation 224The IMF, Its Policies, and Its Critics 225Reforming the IMF 233Conclusions 234Part V Conclusions 23711 What We have Learned, What We Still Need to Learn about Financial Macroeconomics 239A Brief Review 239What We Have Learned about Financial Macroeconomics 241What We Do Not Know 247Concluding Conclusions 254Bibliography 255Index 265

Todd A. Knoop is Associate Professor of Economics and Chair of the Economics and Business department at Cornell College. He is author of Recessions and Depressions: Understanding Business Cycles (2004). He earned his PhD. in Economics from Purdue University.

"This is a good book and one that would be suitable for undergraduate courses on this topic." (CHOICE)

• List of Figures ixList of Tables xList of Case Studies xiPreface xiiiIntroduction 1Part I An Introduction to Finance and Macroeconomics 111 The Basics of Financial Markets and Financial Institutions 13Introduction 13What is Financial Intermediation and Why is It Different from Other Economic Transactions? 14What is Money? 16The Importance of Financial Systems in Stimulating Long-Run Growth 17The Empirical Evidence on Financial Development and Growth 21The Four Primary Forms of Financial Intermediation 25Conclusions 332 A Brief History of Financial Development 35Introduction 35A Brief History of Banking, Financial Markets, and Central Banking 36Modern Central Banking 40A Brief History of International Capital Flows 42Globalization and Financial Development in the 1990s 44Conclusions 55Part II Macroeconomic Theory and The Role Of Finance 573 Business Cycles and Early Macroeconomic Theories of Finance 59Introduction 59Business Cycle Definitions 60Financial Indicators of Business Cycles 64The Sunspot Theory 66Early Monetary Theories 67The Classical Model 69The Debt-Deflation Theory 72Conclusions 744 Keynesian, Monetarist, and Neoclassical Theories 75Introduction 75Keynes’ General Theory 76Keynesian Economics and the IS–LM Model 82The Financial Instability Hypothesis 84The Monetarist Model 86Principles of the Monetarist model 86Neoclassical Theories 91Conclusions 1005 New Institutional Theories of Finance: Models of Risk and the Costs of Credit Intermediation 102Introduction 102What is Meant by “New Institutional” Theories of Finance? 103The Financial Accelerator Model and the Role of Credit in Business Cycles 106The Financial Accelerator and Monetary Policy 111The Empirical Evidence on the Financial Accelerator Model 112Conclusions 1206 New Institutional Theories of Finance: Models of Credit Rationing 123Introduction 123Two Models of Credit Rationing 125Equity Rationing 129Empirical Evidence on Models of Credit Rationing 131Conclusions 137Part III Financial Volatility and Economic [In]Stability 1397 The Role of Financial Systems in Monetary and Stabilization Policy 141Introduction 141Why Does Money Matter? Traditional Theories of the Monetary Transmission Mechanism 142Balance Sheet Channels and the Monetary Transmission Mechanism 145Empirical Studies of the Balance Sheet Channels of Monetary Transmission 147Is Monetary Policy Still Powerful? A Look at the Empirical Evidence 148Old Debates over the Effectiveness of Stabilization Policy 152New Debates over the Effectiveness of Stabilization Policy 154Conclusions 1618 Banking Crises and Asset Bubbles 163Introduction 163The Causes and Prevention of Banking Crises 165Empirical Evidence on Banking Crises 169The Causes and Prevention of Asset Bubbles 173Empirical Evidence on Asset Bubbles 178Conclusions 188Part IV International Finance and Financial Crises 1919 Capital Flight and the Causes of International Financial Crises 193Introduction 193The Causes of Capital Flight and Currency Crises 195Contagion 198Empirical Evidence on Capital Flows, Currency Crises, and Contagion 200The Causes and Costs of Twin Crises 202The Currency and Banking Crises in East Asia 205Conclusions 21310 International Financial Crises: Policies and Prevention 215Introduction 215The Benefits and Costs of Financial Liberalization 216Guidelines for Domestic Financial Regulation 219The Pros and Cons of Capital Controls 222International Financial Regulation 224The IMF, Its Policies, and Its Critics 225Reforming the IMF 233Conclusions 234Part V Conclusions 23711 What We have Learned, What We Still Need to Learn about Financial Macroeconomics 239A Brief Review 239What We Have Learned about Financial Macroeconomics 241What We Do Not Know 247Concluding Conclusions 254Bibliography 255Index 265