Archive for March, 2009

Class News (335/402): Quiz Info

March 31, 2009

Tomorrow’s quiz in both classes will have the usual 10-15 questions — with 50% from lecture/text/WSJ Alert (AIG) and 50% from F&S.   I have posted slideshows from last Wednesday/Monday in the Exam Locker.

A technical problem corrupted the mp3 file of tonight’s F&S study session, so it will not be available.  Sorry for the inconvenience.

Posted at 8:49 pm CDT

Class News (335/402): Exam Corrections

March 30, 2009

I have received a number of emails from students confused about exam corrections.  Sorry.  Here is the information I gave out in class:

  1. Corrections are due in class, Monday April 6th.
  2. To get credit for correcting an error, you must write a self-contained “mini essay” explaining why the correct answer is correct, and your answer is incorrect.  “Self contained” means the grader will not have to look at your exam.  (Note: Please turn in a photocopy of your exam with the corrections.  Do not turn in the original.)
  3. I am still digging out, so I have not finished writing “model” answers for all essay questions.  I have linked almost complete keys for 335 and 402 (one essay question is missing from both) so you can get started.  I hope to have the rest of the key posted tomorrow (3/30).
  4. Any student doing a satisfactory job on corrections will receive a 100 on a quiz.  Any student who earned less than 70 on the exam will be curved to 70 as well.
  5. You do not need to resolve all grading concerns with TAs before submitting corrections.


Here is information about the distribution:

402-1 402-2 335
mean 80.6 82.52 88.62
median 83 84 90
max 94 98 98
min 54 46 53
st. dev 9.98 9.57 7.81

Here are the TAs to get in contact with, should you have questions about grading:

Hassan – section 2, question 2
Kyu Ho – section 1, question 2
Luiggi – section 1 and 2, question 1
Azamat – 335, question 1
Yin Chi- 335, question 2

Their contact information is available on the TA contact info page.  Please contact Luiggi about clerical errors (incorrect adding of points or marking of objective questions).  Please initiate contact with a TA by writing your concern clearly in an email.  Be sure your case is self-contained — your concern might be resolvable by email.  If the TA rules against you, you may appeal to me by forwarding your email along with the TAs decision.   The last day to initiate appeals with a TA for Exam I is April 13th.

Posted at 1:36 pm CDT

Further Study (335/402): More on AIG

March 29, 2009

A student, responding to my invitation for AIG analysis from a left-of-center perspective, sent me the following email:

Mr. Vaughan –  I normally don’t touch Daily Kos with a 10-foot pole, but this article was interesting: Daily Kos – AIG. It’s about how the CDS market is larger than the world GDP (and mostly a summary of a few other articles).

The short piece from the Daily Kos includes a link to a longer one from The Rolling Stone. Both articles were interesting and representative of much of the anti-AIG stuff in the print media and blogosphere. I took time to read them and compose a lengthy reply to show why my AIG links might appear biased (i.e., the left-of-center analysis I have read is misleading — not purposely but because reporters lack familiarity with financial markets and training in financial economics).  Here is that reply (with some editing from original email reply to provide more context): mdv-response-to-daily-kos-piece.

If you would like additional background on credit default swaps, here is another good primer: mengle_cds-overview_2007-q4.  Here is a good overview of exactly what happened at AIG: sjostrom_aig-bailout-march-2009.

Note to 335 students: I do not expect you to ready these two articles in detail (they are “further study”).  But I do expect you to flip through to gather additional information to answer the following essay question:

Why did AIG almost go under?  What steps (broadly speaking) has the Fed/Treasury taken to prop up AIG?  What is the economic rationale for those steps?  What is the economic case for paying bonuses to employees AIG-FP in March 2008?

HT to the student who sent me such great teaching vehicles!

Posted at 12:45 am (CDT)

Admin Alert (335/402): Updated Syllabi

March 29, 2009

Updated syllabi to take us through the rest of the semester now appear in the Spring 2009 Syllabi page.   Also, as announced in class, I am changing my office hours for the remainder of the semester.  They will now be:

M-W: 5:45 to 7:30 pm.

I will be usually available by appointment between 2:45 and 3:45 M-W.   Also, we will have a standing 7 pm Friedman and Schwartz review session on Tuesday nights.

Posted at 8:20 CDT

Further Study (335/402): AIG, Credit Crisis, etc.

March 27, 2009

Here is an op-ed on the AIG bonuses by Charles Kruthammer that appeared in the Washington Post two weeks ago: Bonfire of the Trivialities.

Below is a video blog entry from REASON.TV (sponsored by the Reason Foundation, which has a libertarian perspective).  For the record, I think bad government policy played a role, but I don’t think it is the “ueber” explanation.

Posted at 5:50 pm CDT

Vodpod videos no longer available.

WSJ Alert (335/402): AIG Primer

March 26, 2009

As budding economists, it is important to be able to apply your new tools to topical questions — like whether outrage over AIG bonuses is justified.   You know my view (which is fairly representative of economists).  Note, however, I made an implicit assumption — the marginal benefit of satisfying the public’s demand for social justice was less than the marginal cost.  Put another way, I assumed the increase in equity by any reasonable metric was less than the efficiency cost.  Put still another way, the reduction in the size of the economic pie likely to result from clawing back AIG bonuses was not worth the additional social justice produced by a more equal slicing of that pie.  All this said, some liberal economists could reach a different conclusion because they think the marginal benefit is larger than I do.

So you need to make up your own mind.  (I expressed my strongly held view in class not to convert you but to prod you into making up your own mind — “Oh yeah, I’ll show him.”)  Accordingly, here is a list of related articles.

  1. Washington Post story with background: Inside AIG-FP, Feeling the Public’s Wrath
  2. Dealbook column from the New York Times: The Case for Paying Out Bonuses at AIG
  3. Holman Jenkins column from the Wall Street Journal: The Real AIG Disgrace
  4. Resignation letter from AIG-FP executive, published as op-ed in the New York Times: Dear AIG – I Quit
  5. Post from Becker-Posner blog on pay caps for bankers: Against the Pay Caps–Posner
  6. Another post from Becker-Poster on pay caps for bankers: Pay Controls Do Not Work at Any Level-Becker

DISCLAIMER: I could not find articles/posts by mainstream economists making the case for clawbacks.  (I invite you to dig and send me anything persuasive you find.)  I offer a disclaimer so you won’t think — “Hey, this guy wants us to make up our own minds but then stacks the deck with readings from one side.”   As you read #1-6, you might want to outline an answer to the following essay question:  What is the economic case against clawing back AIG bonuses?  Such a question could loom in your future (hint hint).

Finally, here is an ABC News story (not required – “further reading” stuff) on political contributions made by AIG: Will Obama, McCain, Dodd Return Contributions From AIG Employees?

Posted at 12:30 CDT


March 26, 2009

I am introducing a new category to the blog — Tidbits.  These entries will contain random things I find interesting that do not quite rise to the level of “Further Study” — either because they don’t really have to do with 335/402 or because they aren’t really substantive (just interesting).

Think you are having a bad week?  Could be worse.  You might have suffered through 2 A-bomb drops in a three-day span: Survivor of Both A-Bombs Certified.

Testing the explanatory power of equilibrium and New Keynesian models by looking at the cyclical properties of consumption, investment, real wages, etc. may not prove dispositive.  So let’s look at candy — the ultimate countercyclical nondurable good: When Economy Sours, Tootsie Rolls Soothe Souls.

Posted at 10:00 am (CDT)

Friedman and Schwartz Aid (335/402)

March 24, 2009

Here is a link to the webpage containing a podcast of tonight’s F&S review session: Mediafire – F&S Podcasts

My comments include critical analysis of Federal Reserve policy, so I want to make two points explicitly.

  1. Because I am proud of my long association with the Fed and have the highest respect for my current/former colleagues there, intellectual honesty demands “going the extra mile” to critically evaluate its performance in the 1930s (as well as to raise skeptical questions about its performance in the 2000s).  “Going the extra mile” is necessary to counter innate bias.
  2. My remarks do not reflect official positions of the Federal Reserve Bank of Richmond.

Posted at 6:14 CDT

Class News (335/402): Quiz Info

March 24, 2009

There will be a quiz tomorrow in 335 and 402.   “Fair game” material for 402 includes chapter 6 Barro (and related lecture material) and chapter 8 Friedman and Schwartz (F&S).  “Fair game” material for 335 includes chapter  7 Mishkin (and related lecture material) and chapter 8 F&S.  Quiz in each class will include 10 T/F questions, roughly split between lecture/textbook and F&S.  I will hold an F&S study session tonight at 7 pm in the usual place.

I will be posting more information about exam corrections, syllabi for the remainder of the course, additional extra credit opportunities, procedures for appealing grades in the coming hours.

Posted at 4:00 pm (CDT)

Class News (334/402): No Class- 3/16

March 15, 2009

I am under the weather and do not expect to feel much better tomorrow, so I will not hold class.   There will be no quiz on Wednesday (and hence no F&S study session Tuesday night).  Later in the semester, I will provide an opportunity to earn a quiz grade to replace the missing quiz.

Sorry for the inconvenience.

Posted at 6:05 pm