ECONOMICS 86200: Last offered Spring 2018 INTERNATIONAL MACROECONOMICS CUNY Graduate Center AND FINANCE Th: 2:00 PM- 4:00 PM Room: 5212 Prof. Merih Uctum Office: 5313.01; Phone: 212-817-8256 Email: [email protected], Course Website: Blackboard This course will cover recent topics in international finance, and international macroeconomics, including international imbalances, intertemporal models, exchange rates, currency crises and international integration. We will review the empirical evidence, the methodologies adopted to conduct the analyses in the literature and discuss the most recent discoveries. The reading list is intended to give a general overview of possible empirical issues in the field and encompasses more topics than can be covered in a single semester. The lectures will go through selective recent papers or book chapters, which are mostly provided below or will be added to the list as we go along. Readings and lecture notes will be posted on Black Board. Learning Goals and Assessment The learning objectives of this course are to: a. have a thorough understanding of the recent topics in the field; b. develop a good knowledge of the quantitative and empirical methods that have proven to be useful analyzing the impact of real and financial linkages in international macro research; c. demonstrate the ability to use empirical data and econometrics with a statistical software to generate empirical results common in the literature d. demonstrate the ability to design and conduct original research in the field e. develop writing skills consistent with the requirement of professional publication f. develop the ability to present the work clearly consistent with the requirement of the profession Assessment The grade for the course will be determined by • class assignments (30%) • exam (35%) • term project consisting of oral presentation and written paper (30%); further details are provided below. 1 Class assignments will assess learning goal (c); the exam will measure learning goals (a) and (b); the term paper will evaluate learning goals (d), (e) and (f). Field Requirement: This course can be combined with Econ 81100 (Monetary Theory and Policy) or Econ 81500 (Topics in Macroeconomics) or Econ 86100 (International Trade) or Econ 84100 (Economic Development I) to make a field. Prerequisites: First year courses in macro, micro and econometrics. Knowledge of applied macroeconometrics is strongly desirable. Good references are J. Cochrane’s time series lecture notes https://faculty.chicagobooth.edu/john.cochrane/research/papers/time_series_book.pdf , and Applied Econometric Time Series by W. Enders, which is also available as pdf online. Among the time series methods frequently used in the lecture will be unrestricted vector autoregression, structural vector autoregression, unit roots, vector-error-correction models, cointegration,panel unit-root tests, dynamic panel models (GMM). REFERENCE BOOKS (E) Evans, Martin, Exchange Rate Dynamics, Princeton and Oxford, 2011 (US) Uribe, Martin and Stephanie Schmitt-Grohe, Open Economy Macroeconomics, 2015 http://www.columbia.edu/~mu2166/book/oem.pdf (NM) Mark, Nelson, International Macroeconomics and Finance: Theory and Econometric Methods, Blackwell Publishers, Oxford, 2001 (OR) Obstfeld, Maurice, and Kenneth Rogoff , Foundations of International Macroeconomics, the MIT Press, 1996. (ST) Sarno, Lucio and Mark Taylor, The Economics of Exchange Rates, Cambridge, 2003 Handbooks (JK) Jones, R. and P. Kenen (eds.), Handbook of International Economics, Vol. II, North Holland, 1985. (GR) Grossman, Gene and Kenneth Rogoff (eds.), Handbook of International Economics, Vol. III, Amsterdam, North Holland, 1995. (FH) Friedman, B.M. and FH. Hahn (eds), Handbook of Monetary Economics, Volume II, North Holland, 1990. (VP) Van Der Ploeg (ed.), The Handbook of International Macroeconomics, Basil Blackwell, 1994. Others: (D) Dornbusch, Rudiger., Open Economy Macroeconomics, NY, Basic Books, 1989. (BF) Blanchard, O. and S. Fischer, Lectures on Macroeconomics, MIT Press, 1989. (M) Mundell, Robert, International Economics, New York: Macmillan, 1968 http://www.columbia.edu/~ram15/ie/ietoc.html 2 COURSE OUTLINE I. INTRODUCTION: INTERNATIONAL FINANCIAL MARKETS, PARITY CONDITIONS AND NATIONAL ACCOUNTING IDENTITIES Basic Relations Lecture Notes Dornbusch, Rudiger (D), “Some Basic Relations,” Chapter 2. *Krugman-Obstfeld (KO), “National Income Accounting and the Balance of Payments”, Ch. 12. Eichengreen, B. (1994) “History of the International Monetary System: implications for research in international macroeconomics and finance”, van der Ploeg (VP) Chapter 6. Overview papers: Pavlova, A. R. Rigobon (2010) “International Macro-Finance”, NBER WP 16630. Kose, A., Prasad, Rogoff, Wei (2006) “Financial globalization: a reappraisal”, IMF WP/06/189 Obstfeld, M. and K. Rogoff (2006) “The six major puzzles in international finance: is there a common cause?”, Open Economy Macroeconomics, 2, 185-236. Obstfeld, M. and Rogoff, K. (2005) “”The unsustainable US current account position revisited” in Clarida (ed), G7 Current Account Imbalances: Sustainability and Adjustment, NBER, University of Chicago Press. International Imbalances Hausmann, R. and F. Sturzenegger (2006) “Global imbalances or bad accounting? The missing dark matter in the wealth of nations”, Center for International Development at Harvard University WP #124, http://www.cid.harvard.edu/cidwp/124.htm *Gourinchas, P. and H. Rey (2006) “From world banker to world venture capitalist:US external adjustment and the exorbitant privilege,” in R. Clarida (ed), G7 Current Account Imbalances:Sustainability and Adjustment, the University of Chicago Press. --------------------------------- (2007). “International financial adjustment”, Journal of Political Economy, 115, 4, 665-703. *Lane, P. and G.-M. Milesi-Ferretti (2006) “A global perspective on external positions,: in R. Clarida (ed), G7 Current Account Imbalances:Sustainability and Adjustment, the University of Chicago Press. Also in http://www.imf.org/external/pubs/ft/wp/2005/wp05161.pdf II. INTERTEMPORAL APPROACH TO THE CURRENT ACCOUNT A. One good models: the role of output and government spending shocks. *Obstfeld and Rogoff (OR), Chapter 1; Sachs, J. (1982) “The current account in the macroeconomic adjustment process”, Scandinavian Journal of Economics, vol. 84, pp.147-159. http://library.gc.cuny.edu/ 3 B. Capital Accumulation, Investment and the Current Account *Obstfeld and Rogoff (OR), Chapter 2; Obstfeld, M.; K. Rogoff (2000) “New Directions for Stochastic Open Economy Models”, Journal of International Economics. Vol. 50 (1). p 117-53. Blanchard, O., F. Giavazzi, F. Sa (2005) « International investors, the US current account and the dollar », Brookings Papers on Economic Activity, 1, 1-49. Assignment 1 Two-period model III. EMPIRICAL EVIDENCE ON INTERTEMPORAL CURRENT ACCOUNT MODELS *Business cycles facts and measurement: Chapter 1 (US). A. Empirical approaches to tests of intertemporal models * Uribe and Schmidt (US), Chapter 2 and 3 *Obstfeld and Rogoff (OR), Chapters 1-3; Grossman and Rogoff (GR), Chapter 34; Arezki, R., L. Sheng and V. Ramey (2017) “News shocks in open economies: evidence from giant oil discoveries”, Quarterly Journal of Economics, 132(1). *Bergin, P. and S.M. Sheffrin (2000), “Interest rates, exchange rates and the present value models of the current account”, Economic Journal, 110(463), 535-58. *Campbell, J. Y., R. Shiller (1987), “Cointegration tests of present value models”, Journal of Political Economy, 95, 5, 1062-88. http://library.gc.cuny.edu/ Corsetti, G. and P.T. Konstantinou (2005) “Current account theory and the dynamics of US net foreign liabilities”, CEPR DP#4920. *Glick, R. and K. Rogoff (1995) “Global vs. country-specific productivity shocks and the current account”, Journal of Monetary Economics; *Ghosh, A. (1995) “International capital mobility amongst the major industrialized countries: too little too much?”, The Economic Journal, 105, 428, 107-128. *Campa, Jose Manuel; Gavilan, Angel (2011) “Current accounts in the euro area: an intertemporal approach” Journal of International Money and Finance, v. 30, iss. 1, pp. 205-28 Camarero, M., Carrion-i-Silvestre, J. and Tamarit, C. (2013) “Global imbalances and the intertemporal external budget constraint: a multicointegration approach”, Journal of Banking and Finance, 37, 12, 5357-72. *Sheffrin, S.M. and W.T. Woo (1990), “Present value tests of an intertemporal model of the current account”, Journal of International Economics. Wickens, M.R. and M. Uctum (1993), “The sustainability of current account deficits: a test of the U.S. intertemporal budget constraint”, Journal of Economic Dynamics and Control, 17, 423-441. Assignment 2: Optimal Intertemporal Current Account 4 B. The Feldstein-Horioka Puzzle: why are savings and investment highly correlated in open economies? *Obstfeld and Rogoff (Ch.3) *Feldstein, M. and C. Horioka (1980), “Domestic Savings and international capital flows”, Economic Journal. http://library.gc.cuny.edu/ *Coakley, Jerry; Kulasi, Farida; Smith, Ron (1998) “The Feldstein-Horioka puzzle and capital mobility: a review”, International Journal of Finance & Economics, Vol. 3 (2). p 169- 88. http://www3.interscience.wiley.com/cgi-bin/fulltext/10006872/PDFSTART Bai, Y. and J. Zhang (2010), “Solving the Feldstein-Horioka puzzle with financial frictions”, Econometrica, 78, 2, 603-32. *Giannone, D. and M. Lenza (2010) “The Feldstein-Horioka fact”, NBER International Seminar on Macroeconomics, University