LECTURE PLAN

If we fall behind or run ahead, the schedule will be updated.  However, the order of material covered and the readings will not be altered. Readings with (*) are required.  Please read ahead!  Some readings may be added as the class proceeds, I will make changes here and a special announcement in class and on the course main page.

I. Introduction

I.1. Balance of Payments and Open economy macroeconomics (L1. 1/11)
            * KO ch.12
            Please review National Income accounts from your Macro course

I.2. Assets, exchange rates and global financial markets

    I.2.a. Exchange rates, relative prices and asset prices (L2. 1/13 Problem set 1 out)
            * KO ch.13 pp.324-341 and ch.21 pp. 636-647

    I.2.b. Equilibrium exchange rate, interest parity, efficiency of global capital markets (L3. 1/18 )
            * KO ch.13 pp.341-356, ch.21 pp.655-662
            Frankel, J. (1992) "Measuring International Capital Mobility: A Review", The American Economic Review, 82(2), pp.197-202. Discusses real interest partity by decomposing it into country risk premium and currency risk premium. (Available through JStor - Yale IP required).

II. Open economy macroeconomics                                                                         

II.1. Money, Interest rate and Exchange rate - a model set-up (KO ch.14)

    II.1.a. Money market equilibrium and exchange rates with fixed prices (L4. 1/20 P.s.1 due. P.s. 2 out)
           * KO ch.14 pp.357-373

    II.1.b. Money and exchange rates with flexible prices and overshooting (L5. 1/25 )
           * KO ch.14 pp.373-384
            Dornbusch (1976) "Expectations and Exchange Rate Dynamics", Journal of Political Economy 84(6), pp.1161-1176. A famous "overshooting" paper. You will need to be familiar with basic differential equations and phase diagrams. (Available through JStor - Yale IP required).

    II.1.c. Inflation and exchange rates: empirical evidence (L6. 1/27  P.s. 2 due)
           * KO ch.14 pp.375-379

II.2. Open economy equilibrium in a long run (KO ch.15)                                                                      TOP

    II.2.a. Purchasing Power Parity and Exchange rates (L7. 2/1  Quiz 1 on I, II.1)
            * KO ch.15 pp.388-399, 430-432

    II.2.b. Empirics and problems of PPP, nominal and real exchange rates (L8. 2/3  P.s. 3 out)
            * KO ch.15 pp.400-415
            * The Economist, April 24, 2003 "McCurrencies" (photocopy available in class during L7)

    II.2.c. Beyond PPP: general model and real interest rate parity (L9. 2/8)
            * KO ch.15 pp.411-424

II.3. Open economy equilibrium in a short run (KO ch.16)

    II.3.a. Current account and aggregate demand in an open economy (L10. 2/10 P.s.3 due. P.s. 4 out)
            * KO ch.16 pp.433-445, 475-476
               KO ch.16 Appendix III pp.477-480 (very useful if you are familiar with international trade theory)

    II.3.b. Asset market and open economy equilibrium (L11. 2/15)
            * KO ch.16 pp.445-454
               Cespedes, L.F., R.Chang and A. Velasco (2002) "IS-LM-BP in the Pampas", NBER WP 9337.
               Obstfeld, M (2000) "International Macroeconomics: Beyond the Mundell-Fleming Model" (a survey of the development of international economics in the past 50 years: what we do and do not know). 
               KO ch.16 Appendix I pp.470-474 (very useful if you are familiar with IS-LM model)

    II.3.c. Macroeconomic policy in an open economy (L12. 2/17 P.s. 4 due.)
            * KO ch.16 pp.455-466

2/22  Review of the material up to now

2/24  Midterm exam (covers I and II)                                                                                                                  TOP

III.  Exchange rate regimes and exchange rate policy debate

III.1. Exchange rate regimes and foreign exchange intervention (L13. 3/1 P.s. 5 out.)
            * KO ch.17 pp.481-493, 505-511,522-524
            Obstfeld, M. "Exchange Rates and Adjustment: Perspectives from the Open Economy Macroeconomics", NBER WP 9118.

III.2. Currency crises (L14. 3/3)
            * KO ch.17 pp.502-505,527-530
            * Krugman, P.(1998?), "Currency Crises", mimeo

III.3. How to choose Exchange rate regime?

    III.3.a. Policy goals and limitations: external/internal balances and policy trilemma (L15. 3/22 P.s. 5 due, P.s. 6 out)
            * KO ch.18, ch.21 p.643, ch.22 pp.699-701
               Edwards, Sebastian (1990) "How Effective Are Capital Controls?" NBER Working Paper 7413   
            * Fischer, Stanley (2001) "Exchange Rate Regimes: Is the Bipolar View Correct?" January, 2001 
            * Obstfeld, Maurice, Jay C. Shambaugh and Alan M. Taylor (2003) "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility" NBER Working Paper 10396

    III.3.b. Exchange rate regimes: options, pros and cons (L16. 2/24)
            * KO ch.17 pp.494-501, 511-517 ch.19 pp.568-577
            * Obstfeld, Maurice and Rogoff, Kenneth. (1995) "The Mirage of Fixed Exchange Rates," NBER WP 5191
            * Frankel, J. (2003) "Experience of and Lessons from Exchange Rate Regime in Emerging Economies" NBER WP 10032
               Alesina, A. and A. Wagner (2003), "Choosing (and Reneging on) Exchange Rate Regimes", NBER WP 9809.
               Frankel, Jeffrey. (2003) "A Proposed Monetary Regime for Small Commodity-Exporters": Peg the Export Price".            

III.4. Optimum currency areas and the Euro (L17. 3/29 P.s.6 due)                            
            * KO ch.20
            * Edwards, Sebastian and Igal Magendzo (2003) "A currency of one's own? An empirical investigation on dollarization and independent currency unions", NBER WP 9514. Only introduction is required.

IV. International financial architecture and globalization debate                              TOP

IV.1. International financial crises

    IV.1.a. International financial crises: currency, debt and banking - empirics (L18. 3/31 Quiz 2 on III.)
            * KO ch.22 pp.665-698
            * Dornbusch, Rudiger (2001) "A Primer on Emerging Market Crises," NBER Working Paper 8326

    IV.1.b. International financial crises: currency, debt and banking - analysis (L19. 4/5 P.s. 7 out.)
            * Krugman, P. (1999), "Analytical Afterthoughts on the Asian Crisis," mimeo.
            * Krugman, P. (1998), "What Happened to Asia?" mimeo, January 1998.  (Photocopy available in class during L18).
             * Handout (Romer, Advanced Macro, 2nd edition, pp.576-582) - available in class during L18.

    IV.1.c. Origins of the crises: credibility and "original sin" (L20. 4/7)
            * Calvo, G. and C. Reinhart "Fear of Floating", NBER WP 7993
            * Eichengeen, B. and R. Haussman (1999) "Exchange Rates and Financial Fragility" NBER WP 7418.
               World  Bank page on Contagion

IV.2. Global capital markets: problems and solutions

    IV.2.a. International coordination and domestic policies (L21. 4/12 P.s. 7 due, P.s. 8 out.)
            * KO ch.19 pp. 582-597, 601-603, ch.22 pp.698-702

    IV.2.b. International financial institutions and sovereign debt problems (L22. 4/14.)
            * KO ch.18 pp. 546-551, 556-564
            * Krueger, Anne (2002) "Preventing and Resolving Financial Crises: The Role of Sovereign Debt Restructuring"

IV.3. International bank regulations and banking around the world (L23. 4/19 P.s. 8 due.)
            *KO ch.21 pp.643-654

L24. 4/21 Catch-up and review - prepare your questions!                                                          TOP

5/9  9-10:15am.  Final (covers III and IV)