George Mason University Economics 871 International
George Mason University Economics 871 International Monetary Economics Prof. Carlos D. Ramírez Enterprise 341 Tel. 703-993-1145 email: [email protected] (I check my email very frequently.) office hours: Mondays: 3:30P.M.-5:00P.M. or by appointment. This course will cover important theoretical models and recent empirical work in international monetary theory and open economy macroeconomics. Because its purpose is to bring you to the forefront of research in this area, it is very important that you are familiar with basic mathematical tools such as differentiation, integration, and introductory dynamic optimization theory. In addition, we will go over a fair amount of time series econometrics. All students (Ph.D. s and non-Ph.D. s alike) are advised that the course will require a sizable amount of effort and dedication. This course is designed for Ph.D. students in economics (as one of the components of the monetary economics field). For this reason, I strongly discourage students from enrolling in this course if they have not studied international finance before (at the undergraduate level) or did so a long time ago and are “rusty.” As a minimum, I expect students to be familiar with concepts and topics in international finance at the level of Krugman and Obstfeld, International Economics: Theory and Policy, latest edition, Harper Collins. Textbooks: There is no official textbook for this course. However, there are many good textbooks available. The following ones I would recommend for purchase: 1. Feenstra, Robert C. and Alan M. Taylor. International Macroeconomics (Paperback). Worth Publishers. Latest edition. (Copies of this textbook is available at the GMU bookstore.) (F&T) 2. Maurice Obstfeld and Kenneth Rogoff. Foundations of International Macroeconomics. MIT Press. 1996 (O&R) This book is a bit dated, but it has become a standard in graduate courses in international economics. 3. Enders, Walter. Applied Econometric Time Series, 4th Edition, 2014. (Time series analysis has become the primary tool for evaluating monetary models. We will go over the first 2 chapters, as well as the chapter in vector autoregressions.) 4. Hallwood, C. Paul and Ronald MacDonald, International Money and Finance, 3rd Edition, Blackwell Publishers. (HM) We will use some of the models discussed in Chapters 2 through 9, and 14. 5. Eichengreen, B. Golden Fetters. Oxford University Press. 6. Martin D.D. Evans, Exchange-Rate Dynamics, Princeton University Press, 2011. (An optional, but useful text examining the latest exchange-rate models.) Class Requirements: The grade for the course will be determined by: (1) midterm (40%); (2) a cumulative final exam (40%); and (3) an in-class presentation (20%). From time to time, homeworks will be distributed. They will not count for the final grade, but not doing them will affect your performance in the midterm and the final exam. Hence, you are strongly encouraged to work on them, either alone or in groups.
-Class Presentation: The last two lectures of the course will be dedicated to the presentations. You will need to select a paper from four possible sources: 1. 2. 3. 4.
This reading list (See Supplemental Readings below.) A recently completed manuscript on a topic relevant to the class that has been released by the NBER Papers in International Finance and Macroeconomics: http://www.nber.org/papersbyprog/IFM.html Subject to my approval, a paper recently published or forthcoming in a solid scholarly journal. Subject to my approval, a research paper that you have been working on, and that is relevant to one or more of the topics discussed in this course.
You will have 20 to 30 minutes to present your selected paper. More details will be provided later on during the semester. Schedule of Classes: Week
Date
Lecture
Notes
1 2
23-Jan-17
Introduction, Basic questions, Exchange Rates in SR, UIRP, some tests
Lecture notes, Chp. 1, Evans
30-Jan-17
Basic Time Series Econometrics
3
Enders, Chp. 1 and 2
6-Feb-17
PPP, Monetary approach, Overshooting, Asset Market approach
Chp. 9, O&R; Chp. 3, Evans, Chp. 7, 9 HM
4
13-Feb-17
Balance of Payments, NIA, External Wealth, Global Imbalances
F&T, Chp. 2, 5
5
20-Feb-17
Mundell-Fleming, Part I
Lecture notes
6
27-Feb-17
Mundell-Fleming, Empirical Evidence, Trilemma
Lecture notes, Enders Chp. 5 (VARs)
7
6-Mar-17
MIDTERM Exam
Bring calculator
8
13-Mar-17
Spring Break
9
20-Mar-17
Intertemporal Macroeconomics, Consumption Smoothing
Chp. 1, O&R Chp. 1, Evans
10
27-Mar-17
Exchange Rate Regime Choice: Options and Alternatives
Lecture notes
11
3-Apr-17
Exchange Rates in Historical Perspective
Readings
12
10-Apr-17
Currency Crises and Speculative Attacks
Readings, Lec notes.
13
17-Apr-17
China's Economy: Exchange Rates, Political and Economic Perspectives
Readings, Lec notes.
14
24-Apr-17
Student presentations, Part I
15
1-May-17
Student presentations, Part II
15-May-17
Final Exam
7:30 to 10:15 P.M.
GMU Honor Code: It is understood that students who sign up for this course entirely agree and accept GMU’s Honor Code: “Student members of the George Mason University community pledge not to cheat, plagiarize, steal, or lie in matters related to academic work.” Source: http://www.gmu.edu/catalog/apolicies/#Anchor13 Students in violation of this code will be referred to the Honor Committee. Important dates for this semester: Last Day to Add (Full-Semester Course) Monday, January 30, 2017 Last Day to Drop (Full-Semester Course) Friday, February 24, 2017 Students with disabilities If you are a student with a disability and you need academic accommodations, please see me and contact the Office of Disability Resources at 703-993-2474. All academic accommodations must be arranged through that office.
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Cell Phones/Blackberries/iPhones/ etc. All of these telecommunication devices should be OFF during class, and especially during examinations. They are extremely disturbing and distracting to your fellow classmates. Useful websites/blogs International monetary economics is a very dynamic field. It is constantly evolving in response to world developments as well as new papers and ideas being disseminated in the internet almost on a daily basis. Some of the most interesting, relevant, and up to date websites and “blogs” include: 1. 2.
3.
Dani Rodrik’s website. http://rodrik.typepad.com/ Dani Rodrik is a Professor of political economy at Harvard’s JFK School of Government. Nouriel Roubini’s website. http://www.economonitor.com/nouriel/ Nouriel Roubini is a professor of international economics at NYU’s Stern School of Business. He is a very well known international macroeconomist, with frequent appearances in the media since he was one of the few economists that “predicted” the sub-prime crisis of 2007-08. For a list of the Top 100 Economics Blog, visit: http://www.currencytrading.net/2007/the-top-100economics-blogs/ (Notice that the list includes most of GMU economics faculty blogs.) Enjoy!
I encourage all of you to visit these websites frequently and familiarize yourself with the latest issues in international macroeconomics. Supplemental Readings (Besides the chapters highlighted in the “Notes” column in the Schedule of Classes, I plan to discuss most of the * readings during lectures; other readings are highly recommended): 1. Basic questions, Exchange Rates in the Short Run, UIRP *Lecture Notes. 2. PPP, Monetary Approach, Asset Market Approach Readings *Frankel, J. and A. K. Rose, “Empirical Research on Nominal Exchange Rates,” In G. M. Grossman and K. Rogoff, eds. Handbook of International Economics, Volume III, North Holland, 1995. *Taylor, Mark P. “Economics of Exchange Rates,” Journal of Economic Literature, Vol. 33, March 1995, pp. 13 – 47. Available on line through GMU library’s electronic journals database. *Meese, R. and K. Rogoff, “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?” Journal of International Economics, 1983. Available on line through GMU library’s electronic journals database. Beaugrand, Philippe (1997) “Zaire’s Hyperinflation, 1990-96,” International Monetary Fund Working Paper No. WP/97/50. (Available online. Just Google the title and the author’s name.) Cheung, Yin-Wong, Menzie D. Chinn, and Antonio Garcia Pascual, “Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?” Journal of International Money and Finance, Vol. 24, No. 7, pp. 1150-75. Engle, Charles and Kenneth D. West (2005). “Exchange Rates and Fundamentals,” Journal of Political Economy, Vol. 113, No. 3, pp. 485 – 517. Alvarez, Fernando, Andrew Atkeson, and Patrick J. Kehoe, “If Exchange Rates are Random Walks, Then Almost Everything We Say about Monetary Policy is Wrong,” Federal Reserve Bank of Minneapolis, Research Department Staff Report Number 388, March 2007. Available online.
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Rogoff, Kenneth, “The Purchasing Power Parity Puzzle,” Journal of Economic Literature 34, June 1996, 647-68. Available on line through GMU library’s electronic journals database. Frenkel, Jacob A. (1981) “Flexible Exchange Rates, Prices, and the Role of ‘News’: Lessons from the 1970s,” Journal of Political Economy, Vol.89, No. 4, pp. 665-705. Taylor, Alan M. “Potential Pitfalls for the Purchasing Power Parity Puzzle? Sampling and Specification Biases in Mean Reversion Tests,” Econometrica, March 2001, pp. 473 – 98. Available on line through GMU library’s electronic journals database. Taylor, Alan M. and Mark P. Taylor, “The Purchasing Power Parity Debate,” Journal of Economic Perspectives Fall 2004, vol. 18, no. 4, pp. 135-158; (earlier version: NBER Working Paper 10607) 3. Exchange Rate Modeling: Productivity and Real Exchange Rates in the Long-Run Yoshikawa, H. “On the Equilibrium Yen-Dollar Rate,” American Economic Review 80, June 1990. Available on line through GMU library’s electronic journals database. Hsieh, D. “The Determination of the Real Exchange Rate,” Journal of International Economics, May 1982. Available on line through GMU library’s electronic journals database. Maurice Obstfeld and Kenneth Rogoff, "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?" in Ben Bernanke and Kenneth Rogoff (eds.), NBER Macroeconomics Annual 2000 (Cambridge: MIT Press). Also NBER Working Paper 7777, July 2000. Lee, Jaewoo and Man-Keung Tang, “Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?” IMF Working Paper No. 03/154. July 2003. Available on line through: www.imf.org Enders, Walter and Bong-Soo Lee, “Accounting for real and nominal exchange rate movements in the postBretton Woods period,” Journal of International Money and Finance 1997, Vol. 16, No. 2, pp. 233-254. Available on line through GMU library’s electronic journals database. 4. Balance of Payments, National Accounts, External Wealth, Global Imbalances Readings *Feldstein, M. and C. Horioka, “Domestic Savings and International Capital Flows,” Economic Journal, 1980. Available on line through GMU library’s electronic journals database. *Frankel, J. “Measuring International Capital Mobility: A Review,” American Economic Review, Papers and Proceedings, May 1992. Available on line through GMU library’s electronic journals database. *Milesi-Ferreti, G.M. and A. Razin, “Current Account Reversals and Currency Crises: Empirical Regularities,” NBER Working Paper No. 6620, June 1998. Available on line through GMU library’s electronic journals database. Lane, Philip R. and G. M. Milesi-Ferretti, “External wealth, the trade balance, and the real exchange rate,” European Economic Review, Vol. 46, 2002, pp. 1049-1071. Available on line through GMU library’s electronic journals database. Taylor, Alan M. “International Capital in History: The Savings-Investment Relationship,” NBER Working Paper No. 5743. Available on line through GMU library’s electronic journals database. Ventura, Jaume, “Towards a Theory of Current Accounts,” The World Economy, April 2003, pp. 483 – 512. Available on line through GMU library’s electronic journals database.
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Obstfeld, Maurice and Kenneth Rogoff, “The Unsustainable US Current Account Position Revealed” NBER Working Paper No. w10869, November 2004. Available on line through GMU library’s electronic journals database. Lane Philip, and Gian Maria Milesi-Ferreti, "The External Wealth of Nations," Journal of International Economics 55(2), December 2001, 263-294.* Lane Philip, and Gian Maria Milesi-Ferreti, "International Financial Integration," IMF Staff Papers, Vol. 50 Special Issue, 2003. 5. Intertemporal Model Readings Sachs, J. “The Current Account in the Macroeconomic Adjustment Process” Scandinavian Journal of Economics 84, no. 2, 1982. * Obstfeld Maurice, Mundell-Fleming Lecture: “International Macroeconomics: Beyond the MundellFleming Model,” IMF Staff Papers, Vol. 47, Special Issue, 2001. Lane, Philip “New Open Economy Macroeconomics: A Survey” Journal of International Economics, 2001. Available on line through GMU library’s electronic journals database. Philippe Bacchetta and Eric van Wincoop, "Does Exchange Rate Stability Increase Trade and Capital Flows?", American Economic Review, 90, December 2000, 1093-1109. Available on line through GMU library’s electronic journals database. *Obstfeld, M. and A.M. Taylor (2002) “Globalization and Capital Markets” NBER Working Paper No. 8846, March. Available on line through GMU library’s electronic journals database. *Agénor, Pierre-Richard. (2003) “Benefits and Costs of International Financial Integration: Theory and Facts.” The World Economy, August, pp. 1089 – 1118. Available on line through GMU library’s electronic journals database. 6. Traditional Mundell-Fleming * Basic review of Cramer’s rule. (Any math econ textbook should cover this. See for example, Alpha Chiang’s Fundamental Methods of Mathematical Economics. Ramirez, Miguel D. (1988) “The Composition of Government Spending and the Assignments of Instruments to Targets in a Small Open Economy,” Southern Economic Journal, Vol. 55, No. 2, pp.432442. Dornbusch, R. and S. Fisher, “Exchange Rates and the Current Account,” American Economic Review, December 1980. Available on line through GMU library’s electronic journals database. * Rogoff, Kenneth. “Dornbusch’s Overshooting Model After Twenty-Five Years,” IMF Staff Papers 49, Special Issue, 2002. pp. 1 – 35. Available on line: http://www.imf.org/external/pubs/ft/staffp/archive.htm Braga de Macedo, Jorge and Urho Lempinen (2013) “Exchange Rate Dynamics Revisited,” NBER Working Paper No. 19718. http://www.nber.org/papers/w19718 7. Exchange Rate Regimes: Fixed versus Floating, Currency Unions and Dollarization
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*LeBaron, Blake and Rachel McCulloch (2000). “Floating, Fixed, or Super-Fixed? Dollarization Joins the Menu of Exchange-Rate Options.” American Economic Review, May, Vol. 90, no. 2, pp. 32-37. Available on line through GMU library’s electronic journals database. Reinhart, Carmen (2000) “The Mirage of Floating Exchange Rates,” American Economic Review, May, Vol.90, No. 2, pp. 65-70. Available on line through GMU library’s electronic journals database. Chang, Roberto and Andres Velasco (2000) “Exchange-Rate policy for Developing Countries,” American Economic Review, May, Vol. 90, No. 2. pp. 71-75. Available on line through GMU library’s electronic journals database. *Mundell, R. A. (1961) “A Theory of Optimal Currency Areas”, American Economic Review 51, no. 4, pp. 657-65. Available on line through GMU library’s electronic journals database. *Rose, Andrew, “One Money, One Market: Estimating the Effects of a Common Currency on Trade,” Economic Policy, Vol. 15, Issue 30, April 2000. Available on line through GMU library’s electronic journals database. Canzoneri, M. B. and C.A. Rogers (1990) “Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies” American Economic Review, v. 80, no. 3, pp. 419-33. Available on line through GMU library’s electronic journals database. 8. Exchange Rate Regimes: Historical Perspectives *Eichengreen, B. “The Classical Gold Standard in Interwar Perspective,” Chapter 2 in Golden Fetters. *Eichengreen, B. and J. Sachs “Exchange Rate and Economic Recovery in the 1930s,” Journal of Economic History, 45, 1985. Available on line through GMU library’s electronic journals database. *Bordo, M.D. and H. Rockoff, “The Gold Standard as a ‘Good Housekeeping Seal of Approval’,” Journal of Economic History, Vol. 56, No. 2, pp.389-428. Available on line through GMU library’s electronic journals database. *Meissner, Christopher M. (2002) “A New World Order: Explaining the Emergence of the Classical Gold Standard,” NBER Working Paper No. 9233. Available on line through GMU library’s electronic journals database. *Bordo, M.D. and M. Flandreau (2001). “Core, Periphery, Exchange Rate Regimes and Globalization,” NBER WP No. 8584. Available on line through GMU library’s electronic journals database. Baum, L. Frank. The Wizard of Oz. Any Edition. Rockoff, H. “The Wizard of Oz as a Monetary Allegory,” Journal of Political Economy, 1991. Available on line through GMU library’s electronic journals database. Flandreau, M. (1996). “The French Crime of 1873: An Essay in the Emergence of the International Gold Standard, 1870-1880.” Journal of Economic History, Vol. 56, No.4, pp. 862-897. Available on line through GMU library’s electronic journals database. Obstfeld, Maurice, Jay Shambaugh and Alan M. Taylor, “Monetary Sovereignty, Exchange Rates, and Capital Controls: The Trilemma in the Interwar Period,” IMF Staff Papers, Vol. 51 Special Issue, 2004. 9. Balance of Payment Crises and Speculative Attacks: a. First generation models
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* Flood, R. and P. Garber, “Collapsing Exchange-Rate Regimes: Some Linear Examples,” Journal of International Economics 17, 1984. Available on line through GMU library’s electronic journals database. *Garber, P. and L.O. Svensson, “The Operation and Collapse of Fixed Exchange Rate Regimes,” Chapter 36 in HIE, Volume III, 1995. Krugman, P. “A Model of Balance of Payment Crises,” Journal of Money, Credit and Banking, August 1979. Available on line through GMU library’s electronic journals database. b. Second generation models *Obstfeld, M. “Models of Currency Crises with Self-Fulfilling Features,” European Economic Review, 1996. Available on line through GMU library’s electronic journals database. Krugman, P. “Are Currency Crises Self-Fulfilling?” NBER Macroeconomics Annual, Vol. 11, 1996. Obstfeld, M. “Rational and Self-Fulfilling Balance of Payments Crises,” American Economic Review 76, 1986, pp. 72-81. Available on line through GMU library’s electronic journals database. Sachs, J., A. Tornell and A. Velasco “Financial Crises in Emerging Markets: The Lessons from 1995,” Brookings Papers on Economic Activity, No. 16, pp. 147-215. Available on line through GMU library’s electronic journals database. c. Extensions *Kaminsky, Graciela and Carmen Reinhardt, “The Twin Crises: The Causes of Banking and Balance of Payments Problems,” American Economic Review, June 1999. Available on line through GMU library’s electronic journals database. Aghion, Phillippe, Phillippe Bacchetta, and Abhjit Banerjee, “A Simple Model of Monetary Policy and Currency Crises,” European Economic Review, 44 (4-6), pp. 728-38, 2000. Available on line through GMU library’s electronic journals database. Chang, Roberto and Andres Velasco, “A Model of Financial Crises in Emerging Markets,” Federal Reserve Bank of Atlanta, January 2000. *Morris, Stephen and Hyun Song Shin, “Unique Equilibrium in a Model of Self-fulfilling Currency Attacks,” American Economic Review, Vol. 88, no. 3, June 1998. Available on line through GMU library’s electronic journals database. Frank Heinemann, "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review 90 (March 2000), 316-18. Available on line through GMU library’s electronic journals database. *Pesenti, Paolo and Cedric Tille, “The Economics of Currency Crises and Contagion: An Introduction,” Federal Reserve Bank of New York Economic Policy Review, September 2000. Available at http://www.ny.frb.org/rmaghome/econ_pol/900pese.pdf d. Further extensions: The 2007-2009 Financial Crisis Reinhart, Carmen and Kenneth Rogoff, “Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison,” American Economic Review 98 (May 2008): 339-344. Reinhart, Carmen and Kenneth Rogoff, “The Aftermath of Financial Crises,” American Economic Review 99 (May 2009): 466-472.
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Gorton, Gary B. and Andrew Metrick. 2012. Getting up to speed on the financial crisis: A one-weekendreader’s guide,” NBER Working Paper Number 17778. (January 2012). Available online: http://www.nber.org/papers/w17778 10. China’s Economy and Exchange Rate Policy: Political and Economic Perspectives Bai, Chong-En and Zhang, Qiong (2011). “Do Chinese Really Save Too Much? Aspects from Total Factor Productivity Growth in China since 1952,” Asia Health Policy Program Working Paper No. 25, Stanford University, Walter H. Shorenstein Asia-Pacific Research Center. (Available online. Just Google the title.) Borensztein, E., Ostry, D. J. 1996. “Accounting for China’s Growth Performance,” American Economic Review Vol. 86, No. 2, pp. 224– 228. Cao, Yuanzheng, Qian, Yingyi, Weingast, Barry, 1999. “From Federalism, Chinese Style to Privatization, Chinese Style” Economics of Transition Vol. 7, pp. 103-131. Chow, Gregory. 1993. “Capital Formation and Economic Growth in China,” Quarterly Journal of Economics, Vol. 108, No. 3, pp. 809– 842. Fleisher, Belton, Haizheng Li, and Min Qiang Zhao. 2010. “Human capital, economic growth, and regional inequality in China,” Journal of Development Economics, Volume 92, Issue 2, pp. 215-231.
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-Class Presentation: The last two lectures of the course will be dedicated to the presentations. You will need to select a paper from four possible sources: 1. 2. 3. 4.
This reading list (See Supplemental Readings below.) A recently completed manuscript on a topic relevant to the class that has been released by the NBER Papers in International Finance and Macroeconomics: http://www.nber.org/papersbyprog/IFM.html Subject to my approval, a paper recently published or forthcoming in a solid scholarly journal. Subject to my approval, a research paper that you have been working on, and that is relevant to one or more of the topics discussed in this course.
You will have 20 to 30 minutes to present your selected paper. More details will be provided later on during the semester. Schedule of Classes: Week
Date
Lecture
Notes
1 2
23-Jan-17
Introduction, Basic questions, Exchange Rates in SR, UIRP, some tests
Lecture notes, Chp. 1, Evans
30-Jan-17
Basic Time Series Econometrics
3
Enders, Chp. 1 and 2
6-Feb-17
PPP, Monetary approach, Overshooting, Asset Market approach
Chp. 9, O&R; Chp. 3, Evans, Chp. 7, 9 HM
4
13-Feb-17
Balance of Payments, NIA, External Wealth, Global Imbalances
F&T, Chp. 2, 5
5
20-Feb-17
Mundell-Fleming, Part I
Lecture notes
6
27-Feb-17
Mundell-Fleming, Empirical Evidence, Trilemma
Lecture notes, Enders Chp. 5 (VARs)
7
6-Mar-17
MIDTERM Exam
Bring calculator
8
13-Mar-17
Spring Break
9
20-Mar-17
Intertemporal Macroeconomics, Consumption Smoothing
Chp. 1, O&R Chp. 1, Evans
10
27-Mar-17
Exchange Rate Regime Choice: Options and Alternatives
Lecture notes
11
3-Apr-17
Exchange Rates in Historical Perspective
Readings
12
10-Apr-17
Currency Crises and Speculative Attacks
Readings, Lec notes.
13
17-Apr-17
China's Economy: Exchange Rates, Political and Economic Perspectives
Readings, Lec notes.
14
24-Apr-17
Student presentations, Part I
15
1-May-17
Student presentations, Part II
15-May-17
Final Exam
7:30 to 10:15 P.M.
GMU Honor Code: It is understood that students who sign up for this course entirely agree and accept GMU’s Honor Code: “Student members of the George Mason University community pledge not to cheat, plagiarize, steal, or lie in matters related to academic work.” Source: http://www.gmu.edu/catalog/apolicies/#Anchor13 Students in violation of this code will be referred to the Honor Committee. Important dates for this semester: Last Day to Add (Full-Semester Course) Monday, January 30, 2017 Last Day to Drop (Full-Semester Course) Friday, February 24, 2017 Students with disabilities If you are a student with a disability and you need academic accommodations, please see me and contact the Office of Disability Resources at 703-993-2474. All academic accommodations must be arranged through that office.
2
Cell Phones/Blackberries/iPhones/ etc. All of these telecommunication devices should be OFF during class, and especially during examinations. They are extremely disturbing and distracting to your fellow classmates. Useful websites/blogs International monetary economics is a very dynamic field. It is constantly evolving in response to world developments as well as new papers and ideas being disseminated in the internet almost on a daily basis. Some of the most interesting, relevant, and up to date websites and “blogs” include: 1. 2.
3.
Dani Rodrik’s website. http://rodrik.typepad.com/ Dani Rodrik is a Professor of political economy at Harvard’s JFK School of Government. Nouriel Roubini’s website. http://www.economonitor.com/nouriel/ Nouriel Roubini is a professor of international economics at NYU’s Stern School of Business. He is a very well known international macroeconomist, with frequent appearances in the media since he was one of the few economists that “predicted” the sub-prime crisis of 2007-08. For a list of the Top 100 Economics Blog, visit: http://www.currencytrading.net/2007/the-top-100economics-blogs/ (Notice that the list includes most of GMU economics faculty blogs.) Enjoy!
I encourage all of you to visit these websites frequently and familiarize yourself with the latest issues in international macroeconomics. Supplemental Readings (Besides the chapters highlighted in the “Notes” column in the Schedule of Classes, I plan to discuss most of the * readings during lectures; other readings are highly recommended): 1. Basic questions, Exchange Rates in the Short Run, UIRP *Lecture Notes. 2. PPP, Monetary Approach, Asset Market Approach Readings *Frankel, J. and A. K. Rose, “Empirical Research on Nominal Exchange Rates,” In G. M. Grossman and K. Rogoff, eds. Handbook of International Economics, Volume III, North Holland, 1995. *Taylor, Mark P. “Economics of Exchange Rates,” Journal of Economic Literature, Vol. 33, March 1995, pp. 13 – 47. Available on line through GMU library’s electronic journals database. *Meese, R. and K. Rogoff, “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?” Journal of International Economics, 1983. Available on line through GMU library’s electronic journals database. Beaugrand, Philippe (1997) “Zaire’s Hyperinflation, 1990-96,” International Monetary Fund Working Paper No. WP/97/50. (Available online. Just Google the title and the author’s name.) Cheung, Yin-Wong, Menzie D. Chinn, and Antonio Garcia Pascual, “Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?” Journal of International Money and Finance, Vol. 24, No. 7, pp. 1150-75. Engle, Charles and Kenneth D. West (2005). “Exchange Rates and Fundamentals,” Journal of Political Economy, Vol. 113, No. 3, pp. 485 – 517. Alvarez, Fernando, Andrew Atkeson, and Patrick J. Kehoe, “If Exchange Rates are Random Walks, Then Almost Everything We Say about Monetary Policy is Wrong,” Federal Reserve Bank of Minneapolis, Research Department Staff Report Number 388, March 2007. Available online.
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Rogoff, Kenneth, “The Purchasing Power Parity Puzzle,” Journal of Economic Literature 34, June 1996, 647-68. Available on line through GMU library’s electronic journals database. Frenkel, Jacob A. (1981) “Flexible Exchange Rates, Prices, and the Role of ‘News’: Lessons from the 1970s,” Journal of Political Economy, Vol.89, No. 4, pp. 665-705. Taylor, Alan M. “Potential Pitfalls for the Purchasing Power Parity Puzzle? Sampling and Specification Biases in Mean Reversion Tests,” Econometrica, March 2001, pp. 473 – 98. Available on line through GMU library’s electronic journals database. Taylor, Alan M. and Mark P. Taylor, “The Purchasing Power Parity Debate,” Journal of Economic Perspectives Fall 2004, vol. 18, no. 4, pp. 135-158; (earlier version: NBER Working Paper 10607) 3. Exchange Rate Modeling: Productivity and Real Exchange Rates in the Long-Run Yoshikawa, H. “On the Equilibrium Yen-Dollar Rate,” American Economic Review 80, June 1990. Available on line through GMU library’s electronic journals database. Hsieh, D. “The Determination of the Real Exchange Rate,” Journal of International Economics, May 1982. Available on line through GMU library’s electronic journals database. Maurice Obstfeld and Kenneth Rogoff, "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?" in Ben Bernanke and Kenneth Rogoff (eds.), NBER Macroeconomics Annual 2000 (Cambridge: MIT Press). Also NBER Working Paper 7777, July 2000. Lee, Jaewoo and Man-Keung Tang, “Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?” IMF Working Paper No. 03/154. July 2003. Available on line through: www.imf.org Enders, Walter and Bong-Soo Lee, “Accounting for real and nominal exchange rate movements in the postBretton Woods period,” Journal of International Money and Finance 1997, Vol. 16, No. 2, pp. 233-254. Available on line through GMU library’s electronic journals database. 4. Balance of Payments, National Accounts, External Wealth, Global Imbalances Readings *Feldstein, M. and C. Horioka, “Domestic Savings and International Capital Flows,” Economic Journal, 1980. Available on line through GMU library’s electronic journals database. *Frankel, J. “Measuring International Capital Mobility: A Review,” American Economic Review, Papers and Proceedings, May 1992. Available on line through GMU library’s electronic journals database. *Milesi-Ferreti, G.M. and A. Razin, “Current Account Reversals and Currency Crises: Empirical Regularities,” NBER Working Paper No. 6620, June 1998. Available on line through GMU library’s electronic journals database. Lane, Philip R. and G. M. Milesi-Ferretti, “External wealth, the trade balance, and the real exchange rate,” European Economic Review, Vol. 46, 2002, pp. 1049-1071. Available on line through GMU library’s electronic journals database. Taylor, Alan M. “International Capital in History: The Savings-Investment Relationship,” NBER Working Paper No. 5743. Available on line through GMU library’s electronic journals database. Ventura, Jaume, “Towards a Theory of Current Accounts,” The World Economy, April 2003, pp. 483 – 512. Available on line through GMU library’s electronic journals database.
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Obstfeld, Maurice and Kenneth Rogoff, “The Unsustainable US Current Account Position Revealed” NBER Working Paper No. w10869, November 2004. Available on line through GMU library’s electronic journals database. Lane Philip, and Gian Maria Milesi-Ferreti, "The External Wealth of Nations," Journal of International Economics 55(2), December 2001, 263-294.* Lane Philip, and Gian Maria Milesi-Ferreti, "International Financial Integration," IMF Staff Papers, Vol. 50 Special Issue, 2003. 5. Intertemporal Model Readings Sachs, J. “The Current Account in the Macroeconomic Adjustment Process” Scandinavian Journal of Economics 84, no. 2, 1982. * Obstfeld Maurice, Mundell-Fleming Lecture: “International Macroeconomics: Beyond the MundellFleming Model,” IMF Staff Papers, Vol. 47, Special Issue, 2001. Lane, Philip “New Open Economy Macroeconomics: A Survey” Journal of International Economics, 2001. Available on line through GMU library’s electronic journals database. Philippe Bacchetta and Eric van Wincoop, "Does Exchange Rate Stability Increase Trade and Capital Flows?", American Economic Review, 90, December 2000, 1093-1109. Available on line through GMU library’s electronic journals database. *Obstfeld, M. and A.M. Taylor (2002) “Globalization and Capital Markets” NBER Working Paper No. 8846, March. Available on line through GMU library’s electronic journals database. *Agénor, Pierre-Richard. (2003) “Benefits and Costs of International Financial Integration: Theory and Facts.” The World Economy, August, pp. 1089 – 1118. Available on line through GMU library’s electronic journals database. 6. Traditional Mundell-Fleming * Basic review of Cramer’s rule. (Any math econ textbook should cover this. See for example, Alpha Chiang’s Fundamental Methods of Mathematical Economics. Ramirez, Miguel D. (1988) “The Composition of Government Spending and the Assignments of Instruments to Targets in a Small Open Economy,” Southern Economic Journal, Vol. 55, No. 2, pp.432442. Dornbusch, R. and S. Fisher, “Exchange Rates and the Current Account,” American Economic Review, December 1980. Available on line through GMU library’s electronic journals database. * Rogoff, Kenneth. “Dornbusch’s Overshooting Model After Twenty-Five Years,” IMF Staff Papers 49, Special Issue, 2002. pp. 1 – 35. Available on line: http://www.imf.org/external/pubs/ft/staffp/archive.htm Braga de Macedo, Jorge and Urho Lempinen (2013) “Exchange Rate Dynamics Revisited,” NBER Working Paper No. 19718. http://www.nber.org/papers/w19718 7. Exchange Rate Regimes: Fixed versus Floating, Currency Unions and Dollarization
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*LeBaron, Blake and Rachel McCulloch (2000). “Floating, Fixed, or Super-Fixed? Dollarization Joins the Menu of Exchange-Rate Options.” American Economic Review, May, Vol. 90, no. 2, pp. 32-37. Available on line through GMU library’s electronic journals database. Reinhart, Carmen (2000) “The Mirage of Floating Exchange Rates,” American Economic Review, May, Vol.90, No. 2, pp. 65-70. Available on line through GMU library’s electronic journals database. Chang, Roberto and Andres Velasco (2000) “Exchange-Rate policy for Developing Countries,” American Economic Review, May, Vol. 90, No. 2. pp. 71-75. Available on line through GMU library’s electronic journals database. *Mundell, R. A. (1961) “A Theory of Optimal Currency Areas”, American Economic Review 51, no. 4, pp. 657-65. Available on line through GMU library’s electronic journals database. *Rose, Andrew, “One Money, One Market: Estimating the Effects of a Common Currency on Trade,” Economic Policy, Vol. 15, Issue 30, April 2000. Available on line through GMU library’s electronic journals database. Canzoneri, M. B. and C.A. Rogers (1990) “Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies” American Economic Review, v. 80, no. 3, pp. 419-33. Available on line through GMU library’s electronic journals database. 8. Exchange Rate Regimes: Historical Perspectives *Eichengreen, B. “The Classical Gold Standard in Interwar Perspective,” Chapter 2 in Golden Fetters. *Eichengreen, B. and J. Sachs “Exchange Rate and Economic Recovery in the 1930s,” Journal of Economic History, 45, 1985. Available on line through GMU library’s electronic journals database. *Bordo, M.D. and H. Rockoff, “The Gold Standard as a ‘Good Housekeeping Seal of Approval’,” Journal of Economic History, Vol. 56, No. 2, pp.389-428. Available on line through GMU library’s electronic journals database. *Meissner, Christopher M. (2002) “A New World Order: Explaining the Emergence of the Classical Gold Standard,” NBER Working Paper No. 9233. Available on line through GMU library’s electronic journals database. *Bordo, M.D. and M. Flandreau (2001). “Core, Periphery, Exchange Rate Regimes and Globalization,” NBER WP No. 8584. Available on line through GMU library’s electronic journals database. Baum, L. Frank. The Wizard of Oz. Any Edition. Rockoff, H. “The Wizard of Oz as a Monetary Allegory,” Journal of Political Economy, 1991. Available on line through GMU library’s electronic journals database. Flandreau, M. (1996). “The French Crime of 1873: An Essay in the Emergence of the International Gold Standard, 1870-1880.” Journal of Economic History, Vol. 56, No.4, pp. 862-897. Available on line through GMU library’s electronic journals database. Obstfeld, Maurice, Jay Shambaugh and Alan M. Taylor, “Monetary Sovereignty, Exchange Rates, and Capital Controls: The Trilemma in the Interwar Period,” IMF Staff Papers, Vol. 51 Special Issue, 2004. 9. Balance of Payment Crises and Speculative Attacks: a. First generation models
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* Flood, R. and P. Garber, “Collapsing Exchange-Rate Regimes: Some Linear Examples,” Journal of International Economics 17, 1984. Available on line through GMU library’s electronic journals database. *Garber, P. and L.O. Svensson, “The Operation and Collapse of Fixed Exchange Rate Regimes,” Chapter 36 in HIE, Volume III, 1995. Krugman, P. “A Model of Balance of Payment Crises,” Journal of Money, Credit and Banking, August 1979. Available on line through GMU library’s electronic journals database. b. Second generation models *Obstfeld, M. “Models of Currency Crises with Self-Fulfilling Features,” European Economic Review, 1996. Available on line through GMU library’s electronic journals database. Krugman, P. “Are Currency Crises Self-Fulfilling?” NBER Macroeconomics Annual, Vol. 11, 1996. Obstfeld, M. “Rational and Self-Fulfilling Balance of Payments Crises,” American Economic Review 76, 1986, pp. 72-81. Available on line through GMU library’s electronic journals database. Sachs, J., A. Tornell and A. Velasco “Financial Crises in Emerging Markets: The Lessons from 1995,” Brookings Papers on Economic Activity, No. 16, pp. 147-215. Available on line through GMU library’s electronic journals database. c. Extensions *Kaminsky, Graciela and Carmen Reinhardt, “The Twin Crises: The Causes of Banking and Balance of Payments Problems,” American Economic Review, June 1999. Available on line through GMU library’s electronic journals database. Aghion, Phillippe, Phillippe Bacchetta, and Abhjit Banerjee, “A Simple Model of Monetary Policy and Currency Crises,” European Economic Review, 44 (4-6), pp. 728-38, 2000. Available on line through GMU library’s electronic journals database. Chang, Roberto and Andres Velasco, “A Model of Financial Crises in Emerging Markets,” Federal Reserve Bank of Atlanta, January 2000. *Morris, Stephen and Hyun Song Shin, “Unique Equilibrium in a Model of Self-fulfilling Currency Attacks,” American Economic Review, Vol. 88, no. 3, June 1998. Available on line through GMU library’s electronic journals database. Frank Heinemann, "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review 90 (March 2000), 316-18. Available on line through GMU library’s electronic journals database. *Pesenti, Paolo and Cedric Tille, “The Economics of Currency Crises and Contagion: An Introduction,” Federal Reserve Bank of New York Economic Policy Review, September 2000. Available at http://www.ny.frb.org/rmaghome/econ_pol/900pese.pdf d. Further extensions: The 2007-2009 Financial Crisis Reinhart, Carmen and Kenneth Rogoff, “Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison,” American Economic Review 98 (May 2008): 339-344. Reinhart, Carmen and Kenneth Rogoff, “The Aftermath of Financial Crises,” American Economic Review 99 (May 2009): 466-472.
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Gorton, Gary B. and Andrew Metrick. 2012. Getting up to speed on the financial crisis: A one-weekendreader’s guide,” NBER Working Paper Number 17778. (January 2012). Available online: http://www.nber.org/papers/w17778 10. China’s Economy and Exchange Rate Policy: Political and Economic Perspectives Bai, Chong-En and Zhang, Qiong (2011). “Do Chinese Really Save Too Much? Aspects from Total Factor Productivity Growth in China since 1952,” Asia Health Policy Program Working Paper No. 25, Stanford University, Walter H. Shorenstein Asia-Pacific Research Center. (Available online. Just Google the title.) Borensztein, E., Ostry, D. J. 1996. “Accounting for China’s Growth Performance,” American Economic Review Vol. 86, No. 2, pp. 224– 228. Cao, Yuanzheng, Qian, Yingyi, Weingast, Barry, 1999. “From Federalism, Chinese Style to Privatization, Chinese Style” Economics of Transition Vol. 7, pp. 103-131. Chow, Gregory. 1993. “Capital Formation and Economic Growth in China,” Quarterly Journal of Economics, Vol. 108, No. 3, pp. 809– 842. Fleisher, Belton, Haizheng Li, and Min Qiang Zhao. 2010. “Human capital, economic growth, and regional inequality in China,” Journal of Development Economics, Volume 92, Issue 2, pp. 215-231.
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