Module Directory

Topics covered include intertemporal current account and balance of payments; uncertainty and international financial markets; imperfections in financial markets, capital account liberalization, direction of capital flows, global imbalances and sovereign risk, global imbalances; speculative attacks and currency crisis; contagion; nominal rigidities; exchange rate regimes.

The aim of this module is:

• To familiarise students with the analytical tools used in the field of international macroeconomics and finance.

By the end of this module, students will be expected to be able to:

1. Demonstrate a comprehensive understanding of how analytical tools can be used to understand the Current Account, the Trade Balance, and other important concepts in international macroeconomics and finance.


2. Demonstrate a solid understanding of the concept of Real Exchange Rates and how they affect the Terms of Trade at which Economies engage with each other.


3. Have acquired a critical appreciation of the role of International Financial Markets and of the imperfections which may prevent them from functioning efficiently.


4. Critically understand the role of currencies and monetary policy in the context of international macroeconomics and finance.

Syllabus:

Topic 1: Theories of the Current Account / Trade Balance 

• Current account and trade balance


• Intertemporal trade and gains from trade


• Two-country endowment models


• Endowment models with many periods


• Models with investment


• Effect of government spending


• Demographics and the life cycle

Reading: Obstfeld/Rogoff chapters 1-3

Topic 2: The Real Exchange Rate and the Terms of Trade 

• Purchasing power parity and law of one price


• Models with tradeable and non-tradeable goods


• Balassa-Samuelson effect

Reading: Obstfeld/Rogoff chapter 4

Topic 3: Uncertainty and International Financial Markets

• Arrow-Debreu securities


• International consumption and output correlations


• International portfolio diversification

Reading: Obstfeld/Rogoff chapter 5

Topic 4: Imperfections in International Capital Markets

• Models of currency crises


• Models of sovereign debt crises

Reading: Obstfeld/Rogoff chapter 6

Topic 5: Money and Exchange Rates Under Flexible Prices

• The Cagan model


• Nominal exchange rate regimes

Reading: Obstfeld/Rogoff chapter 8

Topic 6: Money and Exchange Rates with Nominal Rigidities

• The Dornbusch model


• Exchange rate overshooting

Reading: Obstfeld/Rogoff chapter 9

This module will be delivered via:

• One 2-hour lecture per week.
• One 1-hour class per week.

Feedback for this module will occur through class meetings where we will go over the answers to problem sets and where you will be able to ask questions about your own method of solution; answers that will be posted on the website for the module that will give you written guidance on the appropriate method to approach the problems, assignments, and tests; and office hours where any additional questions can be addressed. You should be sure that you use these methods to understand how to improve your own performance.