Econ 202: Applied International Macroeconomics

ECON 202: APPLIED INTERNATIONAL MACROECONOMICS

REVISED Syllabus

Professor Osler

Brandeis International Business School, Spring 2016

Mondays and Wednesdays, 9:30-10:50 and 11:00-12:20, Lee Hall

******************************************************************************

Office: Sachar 205 (third floor)

Office Hours: Drop by or schedule an appointment http://people.brandeis.edu/~cosler

Your Teaching Assistants

Jose Martinez Bozhanka Vitanova Shicong Wang Yuwei Ye

Jadres@ … Bozhanka@… Yye92@...

******************************************************************************OVERVIEW

In this course you will learn how to analyze economies around the world. That is, you will learn important conceptual frameworks and practice applying them: What can Europe do to rejuvenate its economy? Why worry about Europe’s deflation? Why is China allowing its exchange rate to move more flexibly and restructuring its economy? What is quantitative easing and why do countries use it? Why aren’t resource-rich economies like Nigeria better off?

The course differs from standard macroeconomics courses in at least four ways. First, it views economics as an activity, not just a set of concepts. You will practice applying economic principles to real-world situations in problem sets, exams, and in memos focused on a specific country of your choice. Everything you learn in class will be accompanied by real-world examples.

Second, you will discuss countries from every continent and at every stage of development and you’ll be thinking throughout about how they’re linked internationally. Third, you’ll learn about how macroeconomic stability is influenced by banks and financial markets and how financial regulation can promote macroeconomic stability. Fourth, you’ll learn important skills used by practicing economists for analyzing and presenting data, writing clearly, and team management.

Outline of Learning Goals (specific goals on pages 10-11)

1. Understand long-run interactions among inflation, money, exchange rates, international competitiveness, and government finances

2. Understand how financial markets influence economic health and how government regulation of financial markets can either promote or undermine financial stability

3. Understand the forces driving business cycles and how governments influence them

4. Understand how countries manage their exchange rates

5. Understand international capital flows and the balance of payments:

6. Worldwide macroeconomic history since WWII

6. Skills for analyzing and presenting data

8. Teamwork skills

******************************************************************************

EVALUATION

Grading weights

Country Analysis 20%

Of which Draft Final Peer Editing

Memo 1 4% 5% 1%

Memo 2 4% 5% 1%

Practice Problems 25%

Midterm exam 20%

Final exam 25%

Class participation 5%

Teamwork 5%

Note: Students viewed by teammates as “social loafers,” or who earn less than 50% on the final exam, will not get above a B-

1. Country Analysis: You and three other students will analyze a country of your choice. You will write 2 memos for a professional portfolio manager. You will provide editing help to a partner team. Memos are graded equally on style and substance.

2. Practice Problems: Macroeconomic concepts are often harder to apply than you’d guess from the lecture. Practice problems help bridge that gap.

Ø The weakest 2 are dropped in calculating your final grade.

Ø Problem sets are due at the beginning of class. Late arrival to class is not an excuse.

Ø You must explain it in your own words, make your own charts, and create your own tables. If not, you get a zero. You may work with others to understand the problems or to learn Excel techniques.

3. In-class midterm exam: Monday, March 7. YOU MUST BE THERE. NO EXCEPTIONS except medical emergencies. You will analyze a specific country using a chart package distributed one day in advance.

Ø You can enhance your mid-term grade by submitting a glossary of ORIGINAL definitions for 100 vocabulary words. Up to 15 extra points.

4. Final exam: Comprehensive, closed book. You will analyze a specific country using a chart package distributed one day in advance. DO NOT MAKE TRAVEL PLANS UNTIL THE TIME IS FINALIZED BY THE REGISTRAR

5. Class participation: Depends on attendance, effort to answer pre-class questions, and discussion board contributions

Ø Attendance: You may miss at most 2 classes without adverse consequences. Please explain absences in advance if possible.

Ø Pre-class questions: Take them seriously, they’re there to help you learn

Ø Contributions to class discussion: PLEASE ask for clarification, share relevant experiences, pose constructive questions, or explain why you disagree (politely).

Ø Facebook Discussion Board: WHAT DO YOU THINK?! Tell it like it is; straighten the rest of us out. At a minimum, you should contribute 10 comments about the readings, of which 5 should be responses to other students’ comments. You may also discuss other material directly related to class.

6. Teamwork: You will be graded on your contributions to the country project team, based on evaluations from your teammates. Details below and in “Managing Team Performance.”

******************************************************************************

DUE DATES

W. Jan. 13: Resumé

Fr. Jan 15: Teamwork seminar 9:00-10:30

M. Jan 18: Team country choice

W. Jan. 20: Team performance plan,
planning grid

M. Jan. 25: PS 1

W. Jan. 27: PS 2

M. Feb. 1: PS 3

W. Feb. 3: PS 4

M. Feb. 8: Country Charts +

Memo 1 to peer editing

W. Feb. 10: PS5

M. Feb. 22: Country Charts + Memo 1 final

W. Feb. 24: PS 6

M. Feb. 29: PS 7

W. Mar. 2: Nothing due

M. Mar. 7: MID-TERM EXAM

W. Mar. 9: Nothing due

M. Mar. 14: PS 8

W. Mar. 16: PS 9

Fri Mar 18: PS 10

M. Mar. 21: PS 11

W. Mar. 23: PS 12

W. Mar. 30: No class, Nothing due

M. Apr. 4: No Class, Nothing due

W. Apr. 6: PS 13

M. Apr. 11: PS 14

W. Apr. 13: Nothing due

F. Apr. 15: PS 15

M. Apr. 18: Memo 2 to peer editing

W. Apr. 20: PS 16

Mon. May 2: PS 17 and Memo 2 final

Wed. May 4: Teammate evaluations, Team performance review

“NC” = NO CLASS. “MT” = Midterm.

Mon Wed Mon Wed Fri Mon Wed Fri Mon Wed Mon Wed

Jan. 13 NC 20 25 27

Feb. 1 3 8 10 15-NC 17-NC 22 24 29

March 2 7-MT 9 14 16 18 21 23 28-NC NC

April 4-NC 6 11 13 15 18 20 25-NC 27-NC 2

Make-up classes

Friday March 18, Lemberg 55, 2:00-3:20

Friday April 15, Lemberg 55, 2:00-3:20

Semester review

Tuesday May 3, 9:00-noon, Lee Hall

******************************************************************************

DISABILITIES: If you are a student with a documented disability on record at Brandeis and wish to have a reasonable accommodation made for you in this class, please see me immediately.

ACADEMIC INTEGRITY: You are expected to be honest in all of your academic work. Instances of alleged dishonesty will be forwarded to the Academic Review Committee. Potential sanctions include failure in the course and suspension from the University. The University’s policies on academic integrity are here: ttp://www.brandeis.edu/studentlife/sdje/ai/.

******************************************************************************

COUNTRY ANALYSIS: DETAILS

2 Memos: You will analyze a country of your choice with three other students. Details online.

1. An actively-managed mutual fund is considering investing in the country you are studying. As such, it recognizes the need to forecast your country’s exchange rate vis-à-vis the US dollar over its investment horizon of 1 to 3 years.

a. What economic factors should the investment committee consider when making these forecasts?

b. How strongly can the investment committee rely on these forecasts?

2. The university’s endowment fund takes a 10-year perspective on returns and risk. It is deciding whether to invest in the country you are studying. The investment committee needs to know

a. Is the economy well-managed and stable?

i. Are the fiscal and monetary authorities doing a good job?

ii. Is there potential for financial excess and associated macro instability over the next decade. Is this country’s banking system well-regulated?

b. Is output growth likely to be low or high, on average? What are the country’s structural advantages and structural obstacles to growth?

Peer editing: Teams will help each other edit. Your team will submit its first drafts to a partner team, which will submit its first drafts to your team. Each member of your team will evaluate one of four dimensions of the other team’s memo. These dimensions are described in “Guidelines for Country Memos” on Latte.

NOTE: EVERYTHING you submit must be your own words. No quotes are allowed in Applied International Macroeconomics. Copied text is extremely easy to identify.

Country Analysis Timeline

I. Meet your team Friday, January 15 after the Teamwork workshop. Schedule a meeting or two over the next few days and consult the country analysis description to learn what is expected and begin developing a performance plan and a detailed planning grid. See “Managing Team Performance.”

II. Tell Professor Osler your country choice by Monday, January 18.. More than one group can study the same country, but these countries are NOT available in 2016:

Australia

Brazil

China

Colombia

Denmark

Guatemala

Germany

Greece

Iceland

India

Israel

Mexico

Poland

South Africa

South Korea

Spain

United Kingdom

U.S.

III. Submit detailed performance plan and planning grid by Wednesday, January 20.

IV. Memo 1

Monday February 8: Exchange draft of Memo 1 and complete set of professional-quality country charts with peer-editing partner. See “Guidelines for Country Memos” on Latte.

Monday February 22: Submit final version of Memo 1 to Professor Osler.

V. Memo 2

Monday, April 13: Exchange draft of Memo 2 with peer-editing partner.

Wednesday, May 2: Submit final Memo 2 to Professor Osler.

VII. Monday, May 2: Evaluate teammates and submit “Process Review Sheet” (p. 20)

******************************************************************************

TEAMWORK

When you leave IBS, you will work in teams. This course helps you develop essential teamwork skills. It also teaches norms of professional behavior.

Your team will participate in a structured program of meetings and team activities. Managing Team Performance gives step-by-step instructions and advice for each critical teamwork skill.

Equity is often a concern in teamwork. You must make substantial direct contributions to the memos; you must also contribute substantially to team activities like the performance plan.

If you do not contribute equitably, the rest of your team can dismiss you, in which case you become your own team.

Your grade depends on your performance as a teammate, which your teammates will evaluate using criteria listed in Managing Team Performance. If your teammates agree that you have not contributed equitably, your grade for the course cannot exceed “B-.”

******************************************************************************

COURSE OUTLINE AND OPTIONAL READINGS

The course lecture notes are your primary readings: There is no textbook

These lecture notes are available on Latte. Last year’s notes are available from the beginning of the semester. BUT: They are almost always revised before class.

Excellent resources are listed below for concepts you might find challenging (“Reference”) or concepts you might want to investigate a greater depth (“Depth”).

“FD” refers to Finance and Development, a glossy magazine with short articles from the IMF / World Bank.

******************************************************************************

******************************************************************************I. Sustained Inflation

A. Origins of sustained inflation and why it sometimes goes wild

Depth

Dugger, “In Zimbabwe, Survival Lies in Scavenging,” December 22, 2008

http://www.nytimes.com/2008/12/22/world/africa/22iht-22zimbabwe.18857774.html

Dugger, “Life in Zimbabwe: Waiting for Useless Money,” NYT October 2, 2008

http://www.nytimes.com/2008/10/02/world/africa/02zimbabwe.html?pagewanted=all

Wines, “How Bad is Inflation in Zimbabwe?” NYTimes, May 2, 2006.

http://www.nytimes.com/2006/05/02/world/africa/02zimbabwe.html

Gupta, “Price controls and scarcity for Venezuelans to turn to the black market for milk
and toilet paper,” The Guardian April 15, 2015

http://www.theguardian.com/global-development-professionals-network/2015/apr/16/venezuela-
economy-black-market-milk-and-toilet-paper

The nature of money: Large stones under water?

http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money?act=0

Reference

Osler: Inflation

B. Inflation and the government: Wild inflation always involves central banks and government deficits

Depth

IMF, “Fiscal Rules,” pages 1-14. On Latte.

Haman and Prati, "Beating Inflation: The Importance of Luck, Timing, and Political

Institutions," FD June 2003: http://www.imf.org/external/pubs/ft/fandd/2003/06/pdf/hamann.pdf

What DOES it take to bring inflation down from high levels?

Central Bank of Turkey, “Disinflation Program 2000 short” Latte

Turkey explains why less is sometimes more in government spending

Indonesia - Sabirin supported by Indonesia Central Bank 02, Latte

Bruce Bartlett, “Supply Side Economics to Go,” NYT 4/6/07. On Latte.

An arch-conservative identifies fatal flaws in tax-cut logic.

Congressional Budget Office: “Long-term Budget Outlook in 26 Slides.”

http://www.cbo.gov/publication/45527?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm

_content=812526&utm_campaign=Hourly_2014-07-16%2014%3a00

Lastrapes, “Explainer: What’s the debt ceiling and why it’s an obsolete way to
control spending.” The Conversation, October 27, 2015.

http://theconversation.com/explainer-whats-the-debt-ceiling-and-why-its-an-obsolete-way-to-control-
spending-49633

Osler, “Greece illustrates the importance of staying within limits“

http://blogs.lse.ac.uk/europpblog/2015/09/01/greece-illustrates-the-importance-of-staying-within-
economic-limits/

Reference

Osler, Chapter 3: The Money Supply

The Fed's interpretation: “Fedpoints: Reserve Requirements” (Latte)

C. Inflation and the rest of the world: Exchange rate crises and more

Depth

Feldstein, Martin, “Avoiding Currency Crises,” http://www.nber.org/feldstein/kcfed99.2.pdf

Economist, “Gas discoveries in east Africa: Making the most of a good situation.” Feb 7, 2013. http://www.economist.com/blogs/baobab/2013/02/gas-discoveries-east-africa

Nier, Sedik, Mondino, “Gross Private Capital Flows to Emerging Markets: Can the Global Financial Cycle Be Tamed?” IMF working paper October 2014. ONLY introduction and conclusion! https://www.imf.org/external/pubs/ft/wp/2014/wp14196.pdf

“Latvia’s Internal Devaluation: Success?” Weisbrot & Ray, OECD, 12/2011. Latte.

Reference

About.com: “A Beginner’s Guide to Purchasing Power Parity,” Parts 1 and 2.

http://economics.about.com/cs/money/a/purchasingpower.htm

Husted/Melvin International Economics Chapter 15 (PPP)

Husted/Melvin International Economics Chapter 11 (Balance of Payments Accounting)

Reem Heakal, “What is the balance of payments?”

http://www.investopedia.com/articles/03/060403.asp

Kahn Academy on the balance of payments (Note: Uses “capital account” instead of “financial account”)

https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/current-capital-account/v/balance-of-payments-current-account

https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/current-capital-account/v/balance-of-payments-capital-account

https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/current-capital-account/v/why-current-and-capital-accounts-net-out

III. FINANCIAL CRISES

Depth

Vinals, “A marriage made in heaven or in hell: Monetary and financial stability,”

Latte. 2 pages.

Old-style crisis: Iceland, Chapter 2: “Summary of the Report’s Main Conclusions”

regarding the causes of the collapse of the Icelandic banks.” (18 pages)

New-style crisis: UK. Gorton: “Question and Answers about the Financial Crisis,” Latte.

Husock, “Housing Goals We Can’t Afford,” NYT, December 11, 2008.

http://www.nytimes.com/2008/12/11/opinion/11husock.html

Reinhardt, “An Economist’s Mea Culpa,” NYT January 9, 2009.

http://economix.blogs.nytimes.com/2009/01/09/an-economists-mea-culpa/

Reference

Kindleberger-Aliber, Manias, Panics, Crises: Chapters 1, 2, & 3 (beginning at “Speculation often develops in two stages”).

IV. Recessions, Unemployment, and Deflation

A. What happens to business, employment, and inflation in recessions?

Depth

Social, psychological, and health costs of unemployment:

http://www.theatlantic.com/magazine/archive/2010/03/how-a-new-jobless-era-will-

transform-america/7919/

“Deflation: Why Europe’s Problem is Everyone’s Problem” Knowledge@Wharton 2/4/15 knowledge.wharton.upenn.edu/article/europes-deflation-problem-is-everyones-problem/

Bartlett, “The Harsh Impact On Consumption Of Lost Home Equity.” Forbes, 2/6/09

http://www.forbes.com/2009/02/05/spending-housing-equity-opinions-

columnists_0206_bruce_bartlett.html?partner=daily_newsletter

Economist: “Statistics in Argentina: Fishy Figures” Sept. 17, 2014

http://www.economist.com/blogs/americasview/2014/09/statistics-argentina

B. Strategies to address unemployment: Structural reform

Depth

“What Structural Reform Is and Why It Is Important,” Economist Magazine Dec. 9, 2014