International Macroeconomics I

Minterm III, 2006/ 2007 academic year

 

Instructor: Oleksandr Shepotylo

Office #213

Telephone +38 (044) 492 8011 Ext 121

E-mail oshepotylo@eerc.kiev.ua

Course webpage: http://www.eerc.kiev.ua/~oshepotylo/IntlMacro/index.htm

Office Hours: there are no scheduled office hours, you can stop by anytime conditional on I am in my office and the door is open. However, you can email or call me to ensure that I am available.

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Course Objective:

 

International Economics is a very broad topic that attracts attention of many researchers and generates substantial amount of research every year. Traditionally, International Economics is divided into two parts that are studied separately: international trade (micro approach) and international macroeconomics (surely, macro approach). This course concentrates on international macroeconomics but I plan to spend some time to discuss recent developments in international trade literature as well.

In this course I hope to cover a small fraction of theoretical and empirical models generated over the last two decades that study macroeconomic aspects of a small open economy and recent patterns in international financial and trade flows. In the theoretical part of the course, I will cover models of current account determination, international risk sharing, real and nominal exchange rates. In the empirical part of the course, I will discuss so-called “puzzles” in international macro – e.g. empirical regularities that contradict to theoretical models – and some recent topics that are extensively studied by researchers – globalization and financial market integration, current account imbalances, FDI and trade flows.

References:

 

Lecture Notes (L): Schmitt-Grohe, Stephanie  and  Martın Uribe, 2006, International Macroeconomics

Main reference book (OR): Obstfeld, Maurice and Kenneth Rogoff, 1996, Foundations of International Macroeconomics, Cambridge, Massachusetts: The MIT Press.

 

 

Course Outline

Part I Foundations of International Macroeconomics: selected theoretical topics

  1. Current account determination (L Chapters 1-4, OR Chapter 1)
    • Simple current account arithmetic
    • Small two-period endowment economy
    • Introducing production
    • Two-region world economy

 

  1. Dynamics of Small Open Economy (OR Chapter 2)
    • A small economy with many periods
    • Dynamics of the current account

 

 

  1. Asset Markets and Risk Sharing (OR Chapter 5)
    • Introduction to a complete market general equilibrium theory
    • International portfolio diversification
    • Asset pricing

 

 

  1. International capital market integration (L Chapter 6)
    • Measuring capital mobility
    • Interest rate differential

 

  1. The real exchange rate and the terms of trade (L Chapter 7, OR Chapter 4)
    • Determinants of real exchange rate
    • International price levels and real exchange rate
    • Terms of trade (if time allows)

 

  1. Money and Exchange Rates (L Chapters 10, OR Chapter 8)
    • Nominal exchange rate regimes
    • Balance of payments crises

 

Part II International financial flows: empirical topics

 

  1. Puzzles in international macroeconomics
    • Home bias in trade and financial market
    • Covered and uncovered interest rate puzzle
    • Saving-investment (Feldstein-Horioka) puzzle
    • Exchange rate disconnect puzzle
    • Consumption correlation puzzle
    • Purchasing power parity puzzle
  1. Globalization
    • Measurement of globalization: is it different today?
    • Emerging markets: Does it hurt or help?
    • Capital controls
  1. Current financial imbalances
    • US current account deficit: is it sustainable?
    • Global financial imbalances
  1. Multinational corporations: FDI and Trade flows
    • Why do firms choose to go abroad?
    • How heterogeneous firms choose to serve local markets, to trade internationally, or to invest abroad?

Lectures:

 

Classes will meet two times a week on Wednesdays and Fridays in the following sequence:

Wednesday   9-10:20, room 301
Fridays   10:30-11:50, room 301

Problem Sets (PS):

 

I will assign two problem sets during the semester. Each PS will be worth 10 points. Problem sets should be turned in at the beginning of the Monday’s lecture when it is due. Late problem sets will not be graded. It is your responsibility to ensure that problem sets turned in outside the class reach me.

 

Midterm Exam:

 

We will have a midterm exam after we finish the first part of the course. Exam questions in this course require an ability to apply the course material to solve problems using graphical and mathematical analysis. The exam will be based on:

 

(1) Material covered in the lectures

(2) Assigned material in the Problem Sets

 

Term paper

 

You will be asked to write a term paper by the end of the miniterm. The term paper should be 8-10 pages, one and a half spaced between lines. I do not want to be very restrictive on the choice of the research question so there are only three rules:

 

  1. Topic should be related to international macroeconomics! Please go through the list of empirical and theoretical topics in the syllabus and find the one that sounds interesting to you. You can also suggest a research question outside of the syllabus but we have to discuss whether the topic of your choice fits into the international macro field.
  2. Paper should explain how your research topic is connected to the existing literature on the subject (i.e. have a literature review section, critical analysis of a particular paper etc)
  3. You should extend the analysis by suggesting an interesting innovation or use alternative data sources, explain your research strategy, and discuss what you expect to find or how your innovation moves the research further.

 

  • Ideally, it would be very nice if you generate some results with existing data but it is not required

 

Grading:

 

Your grade for the course is based on the sum of point for problem sets, a mid-term exam, and a term paper. The maximum number of points for each component is:

 

Mid-term 40 points

Problem Sets 20 points

Term Paper: 40 points

Total 100 points

 

I will post grades on the problem sets and exams at the course webpage from time to time. If you believe that you have not received credit for a problem set you should talk to me immediately. I can not consider claims that you did not received credit for a problem set more than two weeks after grades are posted.

 

 

Finally…

 

This syllabus is not meant to be exhaustive. It is just a set of guidelines to give you an idea of how we would like the course to proceed, and address some commonly asked questions. Any changes in this syllabus, if made, will be announced in class reasonably in advance.