International Finance SeminarClick here for a printable version Seminar ScopeInternational financial events are closely related to a country's standard of living and prospects for political stability, as well as a student's job prospects. We hope to have a better understanding of these interrelationships through our reading and discussion this semester.
TextbookThere is no required textbook purchase for this course, although there is a textbook on reserve in the library to provide backup material for several of the topics we consider. It is indicated on the syllabus as CFJ (Caves, Frankel and Jones, World Trade and Payments 9th Edition). I will pass out some supplementary chapters from a textbook that I co-author. Also, note that Section 3 in part reviews material you have covered in intermediate macroeconomics. Many of our discussions will center on applications of general principles to current events, and therefore I expect you to subscribe to a newspaper (Wall Street Journal, New York Times, or Financial Times) or some comparable source of economic news for the semester. EvaluationYour grade will be based on the following items:
Course OutlinePart I. Basic Concepts
Sam Cross, All About the Foreign Exchange Market in the United States, New York Federal Reserve Bank, 1998, Chapters 5 and 6. Eugene Brigham and Michael Ehrhardt, Financial Management, 12th edition, Chapters 6 and 7 Andre Perold, ‘The Capital Asset Pricing Model,’ Journal of Economic Perspectives, Summer 2004, pp. 3-24. Brenda Gonzalez Hermosillo, ‘Investors’ Risk Appetite and Global Financial Market Conditions,’ IMF Working Paper WP/08/85, April 2008 (pp. 1-15 especially) Roberto DeSantis and Lucio Sarno, ‘Assessing the Benefits of International Portfolio Diversification in Bonds and Stocks,’ European Central Bank Working Paper Series 883, March 2008 (skip pp. 10-15). Bill Francis, Iftekhar Hasan, and Delroy Hunter, ‘Does Hedging Tell the Full Story? Reconciling Differences in U.S. Aggregate and Industry-Level Exchange Rate Risk Premia,’ Bank of Finland Research Discussion Paper 14.2008 Cigdem Akin and Ayhan Kose, ‘Changing Nature of North-South Linkages: Stylized Facts and Explanations,’ December 2007. Homework Assignment #1 - financial market operations
Secretariat of the Basel Committee on Banking Supervision, Overview of The New Basel Capital Accord, April 2003 at http://www.bis.org/bcbs/cp3ov.pdf (for an earlier explanation see http://www.bis.org/publ/bcbsca01.pdf ) Timothy Curry and Lynn Shibut, ‘The Cost of the Savings and Loan Crisis: Truth and Consequences, FDIC Banking Review, December2000 Important Medium and Long-Run Determinants of Exchange Rates
CFJ 19.2, 19.3 Kenneth Rogoff, "The PPP Puzzle," Journal of Economic Literature, June 1996, pp. 647-654 Peter Isard, Equilibrium Exchange Rates: Assessment Methodologies, IMF Working Paper WP/07/296, December 2007. Alexander Chudik and Joannes Mongardini, ‘In Search of Equilibrium: Estimating Equilibrium Real Exchange Rates in Sub-Saharan African Countries,’ IMF Working Paper WP/07/90, April 2007 (pp. 1-8, 14-16)
B. Balance of Payments Accounting
CFJ: 15 Homework #2 - evaluation of a country's balance of payments position Part II. Current Account Adjustments
CFJ: 16, 17 Issues from the 1990s and beyond Dean Baker, “Double Bubble: The Implications of the Over-Valuation of the Stock Market and the Dollar,” June 2000 at http://www.cepr.net/documents/publications/double_bubble.htm Catherine Mann, Is the U.S. Trade Deficit Sustainable?, IIE, 1999, Ch. 10 Richard Cooper, “Is the U.S. Current Account Deficit Sustainable? Will It be Sustained?” Brookings Papers on Economic Activity 1, 2001, pp. 217-226. Ronald McKinnon, “The International Dollar Standard and the Sustainability of the U.S. Current Account Deficit,” Brookings Papers on Economic Activity 1, 2001, pp. 227-237. Homework #3 – current account adjustments Midterm Exam – October 16th Part III. Income Determination, Asset Markets and Balance of Payments Adjustments-the Outlook for a Single Country
CFJ: 22, 23 IMF Article IV consultations with member countries Homework #4 - interpreting a country’s macroeconomic policy options Part IV. Current Issues in the International Monetary System
CFJ: 26.5 Stanley Fischer, "Exchange Rate Regimes: Is the Bipolar View Correct?" Journal of Economic Perspectives, Spring 2001, pp. 3-24.
Maurice Obstfeldt and Kenneth Rogoff, "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, Fall 1995, pp. 73-96, at http://www.jstor.org/stable/2138391.
Fischer, "Capital Account Liberalization and the Role of the IMF," IMF, Sept.1997 at http://www.imf.org/external/np/speeches/1997/091997.htm S. Edwards, "How Effective are Capital Controls?" Journal of Economic Perspectives, Fall 1999, 65-84 E. Kaplan and D. Rodrik, "Did Malaysian Capital Controls Work?" Feb, 2001 Jagdish Bhagwati, ‘The Capital Myth,’ Foreign Affairs, 1998, pp. 7-12 at: Peter Blair Henry and Diego Sasson, ‘Capital Account Liberalization, Real Wages, and productivity,’ Stanford Business School Research Paper No. 1988, February 2008.
K. Schuler, "Introduction to Currency Boards," at http://users.erols.com/kurrency/intro.htm and "Basics of Dollarization," at http://users.erols.com/kurrency/basicsup.htm N. Roubini, "The Case Against Currency Boards: Debunking 10 Myths about the Benefits of Currency Boards," at Carmen Reinhart and Vincent Reinhart, ‘Capital Inflows and Reserve Accumulation: the Recent Evidence,’ NBER Working Paper 13842, March 2008 B. Interpretations of the Asian Financial Crisis
Paul Blustein, The Chastening, 2001, chapters 2-5. John Williamson, "A Short History of the Washington Consensus," at John Williamson, ‘The Years of Emerging Market Crises,’ Journal of Economic Literature, September 2004, pp. 822-837 at http://www.jstor.org/stable/3217254. C. Intermediate Choice Between the Poles
CFJ: 23.3, 26.5 Philip Lane, ‘The Real Effects of European Monetary Union,’ Journal of Economic Perspectives, Fall 2006, pp. 47-66 at http://www.atypon-link.com/AEAP/doi/pdf/10.1257/jep.20.4.47. Kathryn Dominguez, ‘The European Central Bank, the Euro, and Global Financial Markets, Journal of Economic Perspectives, Fall 2006, pp. 67-88 at http://www.atypon-link.com/AEAP/doi/pdf/10.1257/jep.20.4.67 HM Treasury, ‘UK Membership of the Single Currency: An Assessment of the Five Economic Tests,’ June 2003 HM Treasury, ‘Housing, consumption and the EMU,’ Carlo Cottarelli and Julio Escolano, ‘Assessing the Assessment: A Critical Look at the June 2003 Assessment of the United Kingdom’s Five Tests for Euro Entry,’ IMF Working Paper WP/04/116, July 2004 Ansgar Belke and Daneil Gros, ‘Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms,’ IZA Discussion Paper 2547, January 2007 Mongelli, “New Views on the Optimal Currency Area Theory: What is EMU Telling Us?” European Central Bank Working Paper 138 at http://www.ecb.int/pub/pdf/scpwps/ecbwp138.pdf D. Stability in the International Financial System - What Role for the IMF
John Williamson, "A Short History of the Washington Consensus," at Paul Collier and Jan Gunning, "The IMF's Role in Structural Adjustment," Economic Journal, November 1999, pp. F634-F651 at: Morris Goldstein, IMF Structural Conditionality: How Much is Too Much? at http://www.iie.com/publications/wp/2001/01-4.pdf Meltzer Commission, "Meltzer Commission Report," and the U.S. Treasury Response at http://www.house.gov/jec/imf/meltzer.htm
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