Econ 448: Open Economy Macroeconomics
Whitman College
Spring 2006
Denise Hazlett
Office: Maxey 214
Phone: 527-5155
email: hazlett
homepage: http://people.whitman.edu/~hazlett/index.htm
class listserv:
Office hours are listed below. If these times don’t work for you, please make an appointment.
Monday 2:30-3:30
Tuesday 3:30-4:15
Wednesday 10:30-11:30, 2:30-3:30
Thursday 3:30-4:15
Friday 10:00-11:30
Office hours will be modified the week of January 23 because of major exams.
The objective of this course is to provide a framework with which to ask and answer interesting questions in international macroeconomics and finance. The course textbook is Multinational Financial Management, Eighth Edition, by Alan C. Shapiro. Two copies of the textbook are on 3-hour reserve at Penrose library. The topics we will cover and the associated pages in the textbook are marked on the attached reading list. Additional required readings (given to you as hand-outs or available on-line) are also noted on the attached reading list in the order we will cover them.
Problem sets (handed out in class) are worth 100 points total. You may work together on the problem sets, but must write up your answers individually and legibly. There will be a mid-term exam (100 points) on Wednesday, March 8, and an in-class final exam (200 points) on Monday, May 8. Please arrange your schedule now so that you do not have conflicts with the mid-term or final exam schedule. I will not offer alternative exam times. To help you in your studying, past exams are available at http://people.whitman.edu/~hazlett/tests/. However, this semester’s readings are significantly different from those in the past, so the style of exam questions will likely change also.
To see how the theory and policies we discuss in class play out in the real world, you will read articles on international finance and macroeconomics in the Wall Street Journal. When you find a WSJ article on one of these open-economy topics of particular interest to you, you’ll alert the class via the listserv () that you will be providing an in-class commentary on that article. In your email alert, give the title of the article, the date and page number where it appears in the WSJ, and a summary of the article. Send your alert by 8pm the night before class meets (earlier if possible). Class will start with your comments about the economic significance of the events described in the article. Your commentary will take about one to three minutes, depending on the length of the article and the amount of material you find interesting. Each student must provide at least two article commentaries over the course of the semester. If you choose to provide a third, your grade will depend on your two best commentaries. This assignment is worth 10 points.
You will give two class presentations. For the first presentation, you will pick a European country that is participating in monetary union, and make an eight-minute presentation on that country’s macroeconomy, emphasizing the economic effects (past, current, and your prediction for the future) of monetary union. Your second presentation will be on a country that has suffered a financial crisis with international repercussions within the past twelve years. You may pick an East Asian country (Indonesia, South Korea, Malaysia, Thailand), a Latin American country (Mexico, Argentina, Brazil, Ecuador), Russia or Turkey. You will make an eight-minute presentation on the causes of the crisis in this country, the domestic and international response to the crisis, and developments in the post-crisis period. To start preparing for your presentations, you should regularly read about your countries in the WSJ. You may also find it helpful to regularly read the Economist magazine. It has a searchable on-line index (http://www.economist.com/) of its past articles, some of which you can read on-line free of charge. Once you have chosen a country for a presentation, please email the class listserv with your choice, so that only one person researches any particular country. The two presentations, including your attendance at the presentations given by other students, are worth 25 points each.
Your contributions to class discussion count 20 points. The grading scale for the course is as follows. Note that there is no disadvantage to studying with others, as your grade does not depend on anyone else's performance.
Total Points
/ (% of 480) /Grade
/Total Points
/ (% of 480) /Grade
470 / 98 / A+ / 355 / 74 / C+451 / 94 / A / 336 / 70 / C
432 / 90 / A- / 317 / 66 / C-
413 / 86 / B+ / 298 / 62 / D+
394 / 82 / B / 278 / 58 / D
374 / 78 / B- / 259 / 54 / D-
Topics and Reading Assignments
The International Gold Standard, the Bretton Woods System and the International Monetary Fund
“International Monetary System: History and Controversies” pp. 615-37 of Rivera-Batiz International Finance and Open-Economy Macroeconomics
“What is the IMF?” (updated July 2004) available from the IMF’s home page at http://www.imf.org/ (from the home page, click on “About the IMF”)
The foreign exchange market Shapiro, chp 7
Currency futures and options markets Shapiro, chp 8
Exchange rate determination Shapiro chp 2, and
“Dollarization: What’s in It for US?” by David Altig in FRB of Cleveland’s
Economic Commentary October 15, 2002
Alternative exchange rate regimes Shapiro chp 3, and
“The Mirage of Exchange Rate Regimes for Emerging Market Countries”
by Guillermo Calvo and Frederic Mishkin in Journal of Economic Perspectives Fall 2003
“Coping with Terms-of-Trade Shocks in Developing Countries” by Christian Broda
and Cedric Tille in FRBNY’s Current Issues in Economics and Finance, November 2003
“How much does Monetary Union Stimulate Trade?” By Andrew Rose in
Macroeconomic Determinants of International Trade, NBER Reporter Fall 2004, pp. 14-15
“Does Europe’s Path to Monetary Union Provide Lessons for East Asia?” by Reuven Glick in FRB of San Francisco’s Economic Letter, August 12, 2005
“Foreign Exchange Policy and Banking Reform in China” by Dong Fu in the
FRB of Dallas’s Southwest Economy July/August 2005
“Is Official Foreign Exchange Intervention Effective?” by Michael Hutchison in
FRB of San Francisco’s Economic Letter, July 18, 2003
Inflation, interest rates and exchange rates Shapiro chp 4, and
“The Growing Significance of Purchasing Power Parity” by Ben Craig in
FRB of Cleveland’s Economic Commentary, April 1, 2005
Presentations on European Monetary Union economies
Balance of payments and international economic linkages Shapiro chp 5, and
“Spendthrift Nation” by Kevin Lansing in FRB of San Francisco’s
Economic Letter, November 10, 2005
“Exchange Rate Movements and the U.S. International Balance Sheet” by Michele Cavalo in FRB of San Francisco’s Economic Letter, September 10, 2004
“A Hitchhiker’s Guide to the U.S. Current Account Problem” by Owen Humpage
in FRB of Cleveland’s Economic Commentary, October 1, 2004
“Reserve Accumulation: Implications for Global Capital Flows and Financial Markets”
by Matthew Higgins and Thomas Klitgaard in FRB of New York’s
Current Issues in Economics and Finance September/October 2004
“The Bretton Woods System: Are We Experiencing a Revival?” by Reuven Glick
and Mark Spiegel in FRB of San Francisco’s Economic Letter November 25, 2005
Country risk analysis Shapiro chp 6, and
“Corporate Governance and Financial Globalization” by Rene Stulz in
NBER Reporter Fall 2005
“After the Asian Financial Crisis: Can Rapid Credit Expansion Sustain Growth?”
by Diego Valderrama in FRB of San Francisco’s Economic Letter, December 24, 2004
Currency Crises
“Contractionary Currency Crashes in Developing Countries” by Jeffrey Frankel,
The Mundell Fleming Lecture Nov. 5, 2004. Available from Frankel’s web site at
http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm
“Managing Macroeconomic Crises: Policy Lessons” by Jeffrey Frankel and Shang-Jin Wei NBER Working Paper no. 10907. Forthcoming, Chapter 7, in Managing Economic Volatility and Crises: A Practitioner’s Guide, edited by Joshua Aizenman and Brian Pinto (Cambridge University Press) 2005. Available from Frankel’s web site at
http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm
Presentations on global financial crisis
2