Part 2: Fundamentals of Financial Markets

Asset prices and interest rates are among the most important variables in the economy and explaining how they are determined is an important part of financial markets and institutions courses. The readings for Part 2 provide examples for discussing inflation-indexed bonds, determinants of bond yields, the term structure of interest rates, the impact of economic news on asset prices, and asset price bubbles.

1. Chapter 3 or 4:
   "Inflation Expectations: How the Market Speaks." Simon Kwan, FRBSF Economic Letter No. 2005-25, Federal Reserve Bank of San Francisco, October 3, 2005.
2. Chapter 4 or 5:
   "Globalization’s Effect on Interest Rates and the Yield Curve." Tao Wu, Economic Letter 1(9), Federal Reserve Bank of Dallas, September 2006.
3. Chapter 5:
   " The Yield Curve as a Leading Indicator: Some Practical Issues." Arturo Estrella and Mary R. Trubin, Current Issues in Economics and Finance 12(5), Federal Reserve Bank of New York, July/August 2006.
4. Chapter 6:
   "How Economic News Moves Markets." Leonardo Bartolini, Linda Goldberg, and Adam Sacarny, Current Issues in Economics and Finance 14(6), Federal Reserve Bank of New York, August 2008.

   "Asset Price Bubbles." EKevin J. Lansing, FRBSF Economic Letter No. 2007-32, Federal Reserve Bank of San Francisco, October 26, 2007.








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