Syllabus
Economics 70
Seminar in International Monetary Economics
Wednesdays: 2:00 to 4:30 p.m.
Room: Red Room, Converse
Edwin M. Truman
Visiting Lecturer
Office Hours: Wednesday 12:00 to 2:00 p.m.
Converse 309: 542-5446
E-mail: , , or
(When in doubt use more than one e-mail address!)
Organization
The seminar is designed to explore various aspects of the international economic policy coordination process.
Students are expected to do the required reading and to participate actively in the seminar discussions.
Each student will make a presentation on his/her paper topic and prepare a final paper on that topic.
Grades will be based 50 percent on the final paper, 25 percent on the seminar presentation, and 25 percent on seminar participation.
The first few sessions of the seminar will be based on general discussion and reading. I generally will circulate about a week in advance of each session some questions to motivate your reading and our subsequent discussion. When no student presentation is scheduled during the first part of the semester, I will assign students in advance to lead the discussion based on these questions, for example, one question each out of a set of four or five questions. The remaining sessions will focus on student presentations. I will assign a student in advance to lead the discussion of each student presentation; the discussion leader will be required to circulate his/her topics for discussion at least 24 hours in advance of the class.
On March 31, we will have a guest Steven R. Weisman, editorial director and public policy fellow at the Peterson Institute for International Economics and former chief international economics correspondent of the New York Times, who will discuss with us the global economic and financial crisis of 2007-09.
Presentations and Papers
Each student will be required to make a presentation and write a paper on one of 18 episodes in international economic policy coordination listed below.
Each student should select the episode that she/he will address by February 10 and inform me, preferably by e-mail. Assuming there will be at least 18 students in the class, two students will have to make presentations on February 17. I expect that earlier presentations will be less complete and will make allowance for that fact. These students will have more time available to produce the final paper in light of my comments reactions. Therefore, it pays to make your choice early! This is an exercise in responding to tradeoffs and incentives!
If absolutely necessary, because there are more than 18 students in the seminar, more than one student may choose a particular episode; in that case, I will endeavor to suggest different orientations. There will be a maximum of two topics per session. I will rigorously enforce this requirement in order to ensure that there is some time for discussion.
Except for the presentations on February 17 and 24, students should distribute electronically to me and to others in the seminar at least an outline of their presentations one week in advance. For example, outlines of presentations on March 3 (the first such session) should be circulated by February 24. For February 17 and 24 sessions, the outlines should be distributed by Monday morning February 15th and 22nd respectively.
Structure of Presentation and Paper: With respect to each episode, the class presentation and paper should cover the following eight elements: (1) description of the “problem,” (2) diagnosis of the problem, (3) whether the analytical framework was widely agreed among authorities, (4) whether that diagnosis was right, (5) description and evaluation of any policy actions or inactions, (6) the nature of any policy coordination, (7) the lessons to be learned, and how what you learned about this episode connects with other episodes the seminar has considered. With the exception of the presentations on April 14, 21, and 28, students will be expected to use this common framework in their presentations and papers.
Final papers are due to me electronically by May 12 at the latest!
Reading
All “Required” reading is on Electronic Reserve; except as noted or where links are provided.
All “other” reading is on Regular Reserve, except as noted or where links are provided. The “other” reading is designed primarily to assist students in the research for their presentations and papers.
Items marked * are posted on Blackboard under “Course Documents.”
I may circulate/post a few other items during the semester.
The last page contains information on some useful reference sources.
Outline of the Course
January 27 – Introductory Meeting
Background Reading:
Truman, Edwin M. 2004. “A Critical Review of Coordination Efforts in the Past” in Macroeconomic Policies in the World Economy, ed. Horst Siebert. Berlin: Springer Verlag.
* Truman, Edwin M. 2006. “What Can Exchange Rates Tell Us?” in C. Fred Bergsten and the World Economy, ed. Michael Mussa. Washington: Peterson Institute for International Economics (pages 161- 213).
February 3 – Economic Policy Coordination: Instruments
Reading:
Required:
* Woglom, Geoffrey. Notes on Open Economy, based on Mankiw textbook on Macroeconomics; see below
REVIEW (on Regular Reserve in Frost if students do not have a copy)
Mankiw, N. Gregory. 2003. “Aggregate Demand in the Open Economy,” including appendix. Chapter 12 in Macroeconomics. New York: Worth Publishers.
OR
Yarbrough, Beth V., and Robert M. Yarbrough. 2006. “Prices and Output in an Open Economy.” Chapter 15, in particular pages 498-507 in The World Economy: Trade and Finance. Mason, OH: Thomson South-Western.
Other:
Edison, Hali J. 1993. The Effectiveness of Central Bank Intervention: A Survey of the Literature after 1982. Special Papers in International Economics 18 (July). Princeton: Princeton University, International Finance Section.
* Dominquez, Kathryn M. 2003. “Foreign Exchange Market Intervention: Did it Work in the 1990s?” In Dollar Overvaluation and the World Economy, eds. C. Fred Bergsten and John Williamson. Washington, DC: Institute for International Economics (pages 217-245).
Henderson, Dale W. and Stephanie Sampson. 1983. “Intervention in Foreign Exchange Markets: A Summary of Ten Staff Studies.” Federal Reserve Bulletin 69 (November): pages 830-836.
Kenen, Peter B. 1988. “Coordinating National Economic Policies.” In Managing Exchange Rates. New York: Council on Foreign Relations (pages 74-93).
Obstfeld, Maurice. 1995. “International Currency Experience: New Lessons and Lessons Relearned.” Brookings Papers on Economic Activity: 1 (pages 119-196).
* Truman, Edwin M. 2003. “The Limits of Foreign Exchange Market Intervention.” In Dollar Overvaluation and the World Economy, eds. C. Fred Bergsten and John Williamson. Washington: Institute for International Economics (pages 247-265).
* Williamson, John. 2007. “The Reference Rate Proposal” (Chapter 2, pages 5-12) and “Hypothetical History” (Chapter 7, pages 39-51). In Reference Rates and The International Monetary System. Washington: Peterson Institute for International Economics.
February 10 – Economic Policy Coordination: Theory and Institutions
Reading:
Required:
Bryant, Ralph C. 1995. “Preface” (pages xiii-xxv) and “Alternative Forms of Cooperation” (pages 6-34). International Coordination of National Stabilization Policies. Washington: Brookings Institution.
Meyer, Laurence H., Brian M. Doyle, Joseph E. Gagnon, and Dale W. Henderson. 2002. International Coordination of Macroeconomic Policies: Still Alive in the New Millennium? International Finance Discussion Papers 723. Washington, DC: Board of Governors of the Federal Reserve System.
Sobel, Mark, and Louellen Stedman. 2006 The Evolution of the G-7 and Economic Policy Coordination. Department of the Treasury, Office of International Affairs, Occasional Paper No. 3 (July).
Other:
Bryant, Ralph C. 1987. “Intergovernmental Coordination of Economic Policies: An Interim Stocktaking.” In Paul A. Volcker, Ralph C. Bryant, Leonard Gleske, Gottfried Haberler, Alexandre Lamfalussy, Shijuro Ogata, Jesus Silva-Herzog, Ross M. Starr, James Tobin and Robert Triffin. International Monetary Policy Cooperation: Essays in Honor of Henry C. Wallich. Essays in International Finance 169. Princeton University: International Finance Section (December) (pages 4-15).
Branson, William H., Richard N. Cooper, Michael Emerson, and Louka T. Katseli. 1985. “Panel Discussion: The Prospects for International Economic Policy Coordination.” In International Economic Policy Coordination, eds. Willem H. Buiter and Richard C. Marston. Cambridge: Cambridge University Press (pages 366-83).
Frenkel, Jacob A., Morris Goldstein, and Paul R. Masson. 1996. “International Coordination of Economic Policies.” In Functioning of the International Monetary System, eds. Jacob A. Frenkel and Morris Goldstein. Washington: International Monetary Fund (pages 17-59).
Fischer, Stanley. 1988. “International Macroeconomic Policy Coordination.” In International Economic Cooperation, ed. Martin Feldstein. Chicago: Chicago University Press (pages 11-43).
Horne, Jocelyn and Paul R. Masson. 1988. “Scope and Limits of International Economic Cooperation.” International Monetary Fund Staff Papers 15, no. 2: 259-296.
Boughton, James M. 2001. “Policy Cooperation: The Fund and the Group of Seven” Chapter 4 in The Silent Revolution: The International Monetary Fund 1979-89. Washington: International Monetary Fund.
NOTE: This and other histories of the IMF are very useful reference volumes. The chapters of this volume are available online.
* Truman, Edwin M. 2006. “The Agenda for IMF Reform.” In A Strategy for IMF Reform. Washington: Institute for International Economics (pages 1-21).
* Truman, Edwin M. 2006. “Role in the International Monetary System.” In A Strategy for IMF Reform. Washington: Institute for International Economics (pages 45-59).
* C. Fred Bergsten. 2006. “A New Steering Committee for the World Economy.” In Reforming the IMF for the 21st Century. Washington: Institute for International Economics (pages 279-292).
* C. Fred Bergsten and C. Randall Henning. 1996. “Introduction” and “The Role and Record of the G-7.” In Global Economic Leadership and the Group of Seven by C. Fred Bergsten and C. Randall Henning. Washington: Institute for International Economics (pages 1- 25).
Bryant, Ralph C. 2004. Crisis Prevention and Prosperity Management for the World Economy. Washington: Brookings Institution.
Crockett, Andrew. 1989. “The Role of International Institutions in Surveillance and Policy Coordination.” In Macroeconomic Policies in an Interdependent World eds. Ralph C. Bryant, David A. Currie, Jacob A. Frenkel, Paul R. Masson, and Richard Portes. Washington: International Monetary Fund (pages 343-80).
Dobson, Wendy. 1991. Economic Policy Coordination: Requiem or Prologue? Policy Analyses in International Economics 30. Washington: Institute for International Economics.
February 17 –The Late 1960s and Mid 1970s
Episodes:
1. Breakdown of the Bretton Woods System: 1969-73
2. Oil Crisis and Global Recession: 1973-75
Reading:
Required:
Solomon, Robert. 1982. “The Road to Camp David” and “From Camp David to the Smithsonian.” In Robert Solomon The International Monetary System: 1945-1981. New York: Harper & Row (pages 176-215).
Solomon, Robert. 1982. “Inflation, Recession, and Stagflation in the 1970’s.” In Robert Solomon The International Monetary System: 1945-1981. New York: Harper & Row (pages 298-315).
Review as appropriate relevant portions of Truman readings from January 27.
Other:
Garber, Peter M. “The Collapse of the Bretton Woods Fixed Exchange Rate System.” In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, eds. Michael D. Bordo and Barry Eichengreen (pages 461-93).
Obstfeld, Maurice. 1993. “The Adjustment Mechanism.” In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, eds. Michael D. Bordo and Barry Eichengreen (pages 201-264).
Solomon, Robert. 1982. The International Monetary System: 1945-1981. New York: Harper & Row (Chapters VI to XIV).
Volcker, Paul A., and Toyoo Gyohten. 1992. “Breakdown.” In Paul A. Volcker and Toyoo Gyohten Changing Fortunes: The World’s Money and the Threat to American Leadership. New York: Times Books (pages 59-100).
February 24 –The Late 1970s
Episodes:
3. Locomotives: 1976-77
4. The Bonn Summit: 1976-78
Reading:
Required:
Holtham, Gerald. 1989. “German Macroeconomic Policy and the 1978 Bonn Economic Summit.” In Richard N. Cooper, Barry Eichengreen, C. Randall Henning, Gerald Holtham, and Robert D. Putnam Can Nations Agree: Issues in International Economic Cooperation. Washington, DC: Brookings Institution (pages 141-177).
“The Bonn Summit Conference Declaration.” In Richard N. Cooper, Barry Eichengreen, C. Randall Henning, Gerald Holtham, and Robert D. Putnam Can Nations Agree: Issues in International Economic Cooperation. Washington, DC: Brookings Institution (pages 118-126).
Review as appropriate relevant portions of Truman readings from January 27.
Other:
Putnam, Robert D. and C. Randall Henning. 1989. “The Bonn Summit of 1978: A Case Study in Coordination.” In Richard N. Cooper, Barry Eichengreen, C. Randall Henning, Gerald Holtham, and Robert D. Putnam Can Nations Agree: Issues in International Economic Cooperation (pages 12-140). Washington, DC: Brookings Institution.
Romer, Christina D., and David H. Romer. 2002. “The Evolution of Economic Understanding and Postwar Stabilization Policy.” In Rethinking Stabilization Policy. Federal Reserve Bank of Kansas City: pages 11-78.
March 3 – Global Debt Crises
Episodes:
5. The Global Debt Crisis: 1982-83
6. The Asian Financial Crisis: 1997-98
Reading:
Required:
* Cline, William R. 1983. “Origins of the Problem” and “Systemic Vulnerability and Emergency Response.” In International Debt and the Stability of the World Economy. Washington: Institute for International Economics (pages 13-44).
* Roubini, Nouriel, and Brad Setser. 2004. “New Nature of Emerging-Market Crises” chapter 2 in Bailouts or Bailins? Responding to Financial Crises in Emerging Markets. Washington: Peterson Institute for International Economics (pages 25-72).
Other:
Kindleberger, Charles P., and Robert Z.Aliber. 2005. Manias, Panics, and Crashes: A History of Financial Crises. New York: Wiley.
Reinhart, Carmen M., and Kenneth S. Rogoff. 2008. This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. NBER Working Paper 13882 (March).
Reinhart, Carmen M. and Kenneth S. Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Presss.
Cline, William R. 1995. International Debt Reexamined. Washington: Institute for International Economics.
Krugman, Paul. 1994. “U.S. Policy on Developing-Country Debt.” In American Economic Policy in the 1980s, ed. Martin Feldstein. Chicago: Chicago University Press (pages 691-722).
Sachs, Jeffrey D. 1988. “International Policy Coordination: The Case of the Developing Country Debt Crisis.” In International Economic Cooperation, ed. Martin Feldstein. Chicago: Chicago University Press (pages 233-78).
Blustein, Paul. 2003. The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF. See in particular “The Committee to Save the World” pages 1-18. New York: Public Affairs.
DeLong, J. Bradford, and Barry Eichengreen. 2002. “Between Meltdown and Moral Hazard: The International Monetary and Financial Policies of the Clinton Administration.” In American Economic Policy in the 1990s, eds. Jeffrey A. Frankel and Peter R. Orszag. Cambridge: MIT Press (pages 191-254).
Geithner, Timothy. 2007. “Reflections on the Asian Financial Crisis.” Remarks at the Federal Reserve Bank of San Francisco, June 20, 2007.
Ghosh, Atish, Timothy Lane, Marianne Schulze-Ghattas, Ales Bulir, Javier Hamann, and Alex Mourmouras. 2002. IMF-Supported Programs in Capital Account Crises. Washington: International Monetary Fund.
Glick, Reuven and Michael Hutchinson. 1999. Banking and Currency Crises: How Common Are Twins? Federal Reserve Bank of San Francisco Pacific Basin Conference.
U.S. Council of Economic Advisors. 1999. “Capital Flows in the Global Economy” and “The Evolution and Reform of the International Financial System.” Economic Report of the President, Chapters 6-7 (pages 219-303).
March 10 – The Strong-Weak Dollar, Global Adjustment and Recession
Episodes:
7. The Plaza, the Louvre, and Bringing Down the Dollar: 1985-89
8. Global Adjustment and U.S. Recession: 1989-92
Reading:
Required:
Frankel, Jeffrey A. 1994. “The Making of Exchange Rate Policy in the 1980s.” In American Economic Policy in the 1980s, ed. Martin Feldstein. Chicago: Chicago University Press (pages 293-341).
* Krugman, Paul. 1991. “Has the Adjustment Process Worked?” (pp. 277-93 and 309-14). In C. Fred Bergsten editor, International Adjustment and Financing: The Lessons of 1985-91. Washington: Institute for International Economics
* Henning, C. Randall. 1994. “The Bush Administration.” In C. Randall Henning, Currencies and Politics in the United States, Germany, and Japan. Washington: Institute for International Economics (pages 290-303).
Review as appropriate relevant portions of Truman readings from January 27.
Other:
Destler, I. M. and C. Randall Henning. 1989. Dollar Politics: Exchange Rate Policymaking in the United States. Washington: Institute for International Economics.
Fratzscher, Marcel. 2008. How Successful is the G7 in Managing Exchange Rates? European Central Bank Working Paper 952 (October).
Funabashi, Yoichi. 1988. Managing the Dollar: From the Plaza to the Louvre. Washington: Institute for International Economics.
Marris, Stephen. 1985. Deficits and the Dollar: The World Economy at Risk. Washington: Institute for International Economics.
Obstfeld, Maurice. 1996. “Effectiveness of Foreign Exchange Intervention, 1985-88. In Functioning of the International Monetary System, eds. Jacob A. Frenkel and Morris Goldstein. Washington: International Monetary Fund (pages 743-88).
Volcker, Paul A. 1995. “The Quest for Exchange Rate Stability: Realistic or Quxotic.” Stamp Lecture. Senate House. University of London. November 29.
* Williamson, John. 1994. “Introduction.” In Estimating Equilibrium Exchange Rates, ed. John Williamson. Washington: Institute for International Economics (pages 1-17).
* Black, Stanley. 1994. “On the Concept and Usefulness of the Equilibrium Exchange Rate.” In Estimating Equilibrium Exchange Rates, ed. John Williamson. Washington: Institute for International Economics (pages 279-292).
U.S. Council of Economic Advisors. 1992. “Recent Developments and Economic Outlook” Economic Report of the President, Chapters 2 (pages 35-80).
March 24 – Bubbles, Booms and Busts in the 1990s
Episodes:
9. The Japanese Bubble: 1989-2002[1]
10. The U.S. Boom and Bust: 1995-2001
Reading:
Required:
Ahearne, Alan, Joseph Gagnon, Jane Haltmaier, and Steve Kamin. 2002. Preventing Deflation: Lessons from the Japanese Experience in the 1990s. International Finance Discussion Papers 729. Washington, DC: Board of Governors of the Federal Reserve System.
IMF (International Monetary Fund). 1999. “Growth Divergences in the United States, Europe, and Japan: Trend or Cyclical?” In World Economic Outlook. October (pages 72-91).
Review as appropriate relevant portions of Truman readings from January 27.
Other:
Mikitani, Ryoichi, and Adam S. Posen editors. 2000. Japan’s Financial Crisis and Its Parallels to U.S. Experience. Washington: Institute for International Economics.
* Posen, Adam S. 1998. “Diagnosis: Macroeconomic Mistake, Not Structural Stagnation.” In Adam Posen. Restoring Japan’s Economic Growth. Washington: Institute for International Economics (pages 13-28).
Hoshi, Takeo, and Anil K. Kashyap. 2004. “Japan’s Financial Crisis and Economic Stagnation. Journal of Economic Perspectives, Winter, pages 3-26.
IMF (International Monetary Fund). 2000. “Asset Prices and the Business Cycle.” In World Economic Outlook. May (pages 72-91).
IMF (International Monetary Fund). 2003. Japan: 2003 Article IV Consultation. (September)