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GWU - Econ 182
International Finance Theory and Policy
Course Syllabus

by Steven Suranovic ©2005

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Spring 2005

This course will be an overview of international macroeconomic theory and policy. The course will present economic theories to foster understanding of the interrelationships of economic aggregates such as GDP, unemployment, inflation, exchange rates and trade balances. The course will apply these models to understand the effects of fiscal, monetary and exchange rate policies. Students should have a working knowledge of basic algebra, graphical techniques and the basics of Micro and Macro economics.
 
  Professor: Steve Suranovic
 

Time & Location:
        Jan 18 - May 5, 2005

        TR 12:45 - 2:00pm, Funger 103

  Office: 1957 E St. N.W., Room 501M
  Office Hours: Tues 4pm - 7pm
  Office Phone: 994-7579
  E-mail: smsuran@gwu.edu
   
  Teaching Assistant: Dong Soo Kim
  Office: Old Main - Room 217
  Office Hours: TTh 10:30-12
  E-mail: dskim@gwu.edu

Evaluation
2 Quizzes 10% each
1 Midterm Exam 35% each
1 Final Exam 45%

Textbooks

Steven Suranovic
    International Economics: Theory and Policy
    Online Lecture Notes at
    http://internationalecon.com/v1.0/Finance/index.html


Assignment Schedule
Quiz #1 Feb 15, 2005
Midterm Exam March 10, 2005
Quiz #2 April 12, 2005
Final Exam Tuesday, May 17th

Note: Any student who feels s/he may need an accommodation based on the impact of a disability should contact Disability Support Services, Marvin Center 242, 994-8250, to have the disability documented and reasonable accommodations coordinated.

 


  Course Outline
Week of Jan 17

No Class Thurs Jan 20 - Inauguration Day

Intoduction to Course

This session introduces students to the course content over the semester.

Readings:

Chapter 5 - National Income and the Balance of Payments Accounts
Sections 5-1 to 5-4

 

Week of Jan 24

National Income Accounts

This session introduces students to the national income accounts. Students are shown how aggregate data are recorded and interpreted.

Readings:

Chapter 5 - National Income and the Balance of Payments Accounts
Sections 5-1 to 5-4

Supplementary Readings:

In the News:

Global economy remains unbalanced: Absa : Sunday Times: South Africa, Jan 2005

U.S. 4th-Qtr GDP Grew at Less-Than-Expected 3.1% Rate: Bloomberg, Jan 2005

Google Search on:

GDP Growth
National Income Accounts

 

Week of Jan 31

The Balance of Payments

This session introduces students to the balance of payments accounts. Students are shown how specific international transactions are recorded and are shown the interrelationship between the current and capital account balances.

Readings:

Chapter 5 - Balance of Payments Accounts
Sections 5-5 to 5-8

Twin-Deficit Identity Statistics: US and China

Supplementary Readings:

  • US International Accounts Data
    the most recent US data from the US balance of payments accounts including the US international investment position available here from the US Bureau of Economic Analysis.
Practice Problems:

Jeopardy Answers 5-1
Problem Set 5-1
Problem Set 5-2
Problem Set 5-3

In the News:

Thrift is a foreign concept: Economist: UK, Jan 2005

Greenspan tries to reassure on rising US deficit : Times Online: UK, Feb 2005

Google Search on:

Balance of Payments
Twin Deficits

 

Week of Feb 7

Evaluation of Trade Imbalances

This session dispels the popular notion that trade deficits are "bad" and trade surpluses are "good". The material highlights the intertemporal borrowing and lending associated with trade imbalances and notes situations in which each of these could be appropriate (or inappropriate) for both individuals and for nations. Key factors needed to determine the seriousness of a trade imbalance are discussed and a case study for the US is presented.

Readings:

Chapter 5 - Balance of Payments Accounts
Sections 5-9 to 5-10

Chapter 6 - The Whole Truth about Trade Imbalances
Sections 6-0 to 6-3

How to Evaluate Trade Imbalances
article that identifies conditions when trade imbalances may be problematic or non-problematic.

Supplementary Readings:

Practice Problems:

Problem Set 6-1
Problem Set 6-2
Problem Set 6-3

Google Search on:

Trade Deficits
Trade Surpluses

 

Week of Feb 14 The Foreign Exchange Market
This session introduces students to the foreign exchange market. It includes an overview of market participants, and exchange market terminology. Histories of some curriencies fluctuiations are presented.

Readings:

Chapter 10 - Foreign Exchange Markets
Sections 10-1 to 10-5

Economist Economic Data: From Feb 12, 2005

In the News:

Dollar Down, Look Around : Hartford Courant: from LA Times, Jan 2005

U.S. powerless to dollar's plunge?: CNN International: Jan 2005

Practice Problems:

  Problem Set 10-1
  Problem Set 10-2
  Problem Set 10-3a
  Problem Set 10-3b

 

Week of Feb 21 Interest Rate Parity
This session highlights the linkage between the exchange rate, and interest rates through the interest rate parity condition. It is shown how changes in economic variables can affect differential rates of returns which in turn can affect the value of the exchange rate.

Readings:

Chapter 20 - Exchange Rates, Interest Rates and Interest Parity
Sections 20-1 to 20-11

Practice Problems:

Problem Set 20-1
Problem Set 20-2
Problem Set 20-3

 

Week of Feb 28

Monetary Policy, Interest Rates and Exchange Rates

Readings:

Chapter 40 - Interest Rate Determination
Sections 40-1 to 40-14

Practice Problems:

Jeopardy Answers 40-1
Problem Set 40-1

Week of Mar 7 GDP Determination

Readings:

Chapter 50 - National Output Determination
Sections 50-1 to 50-11

Practice Problems:

Problem Set 50-1

 

Week of Mar 7

Midterm Exam
Thursday, March 10 in class.

Week of Mar 14

No Class - Spring Break

Mar 21

The AA-DD Model

This session uses the AA-DD model to asses the effects of fiscal and monetary policy in a system of floating exchange rates. Both short-run and long-run impacts are considered. We'll also look at the predictions of the model for a sterilized monetary intervention.

Readings:

Chapter 60 - The AA-DD Model
Sections 60-0 to 60-8

Practice Problems:

Problem Set 60-1

 

Mar 28

Fiscal and Monetary Policy with Floating Exchange Rates

This session uses the AA-DD model to asses the effects of fiscal and monetary policy in a system of floating exchange rates. Both short-run and long-run impacts are considered. We'll also look at the predictions of the model for a sterilized monetary intervention.

Readings:

Chapter 70 - Policy Effects with Floating Exchange Rates
Sections 70-0 to 70-2

Practice Problems:

Problem Set 70-1
Problem Set 70-2
Problem Set 70-3

 

Week of Apr 4

Purchasing Power Parity

This session presents the theory of purchasing power parity. The logic of the theory as an explanation for exchange rate movements is provided. More importantly, the supplemental readings help teach the way PPP exchange rates are used to make international comparisons of economic data.

Readings:

Chapter 30 - Purchasing Power Parity
Sections 30-1 to 30-4

The Economist Big Mac Index

Supplementary Readings:

Practice Problems:

Problem Set 30-3
Problem Set 30-4

 

Week of Apr 11

Long-Run Effects of Monetary Policy; Central Bank FOREX Interventions; Fixed Exchange Rates

This session introduces discusses long-run effects of monetary policy and central bank interventions in a floating suystem. Next fixed exchange rate systems are introduced and it is shown how central bank intervention is necessary to make them credible.

Readings:

Chapter 70 - Policy Effects with Floating Exchange Rates
Sections 70-3 to 70-4

Chapter 80 - Fixed Exchange Rates
Sections 80-0 to 80-9

Classification of Exchange Rate Arrangements and Monetary Policy Frameworks
IMF's June 2004 description of different types of exchange rate regimes and a listing of countries applying each regime.

 

Practice Problems:

Problem Set 70-4

Week of Apr 18

Policy Effects with Fixed Exchange Rates

Readings:

Chapter 90 - Policy Effects with Fixed Exchange Rates
Sections 90-0 to 90-5

Practice Problems:

Problem Set 90-1
Problem Set 90-2

 

Week of Apr 25

Gold Standard, Bretton-Woods, and Current Issues.

This session looks at historical fixed exchange rate systems and discusses their workings and failures

Readings:

Chapter 80 - Fixed Exchange Rates
Section 80-2

The Gold Standard
A description of the Gold Standard by Michael Bordo in the Concise Encyclopedia of Economics.

The Monetary Breakdown of the West
A 1980 article by Murray Rothbard that briefly traces the International Monetary system from its Gold Standard days in the 1800s to the collapse of the Bretton-Woods system in the 1970s. As an Austrian economist, Rothbard advocates a return to a gold standard. However, this view predates the success of the US FED to control inflation since 1982.

Practice Problems:

Problem Set 100-1

Supplementary Readings:

Lessons from the Asian Crisis
Keynote address by Anne Kreuger,First Deputy Managing Director, IMF, SEACEN Meeting Sri Lanka, February 12, 2004.

The Pre-World War I Gold Standard
An article by Brad deLong provides an overview of the plusses and minuses of the gold standard.

Fixed vs. Floating Exchange Rates
An article by Peter Kenen that provides a few of the arguments for and against fixed exchange rates.

In the News:

China's exchange rate: Economist Feb 2005

.

Week of May 2

We only meet Thurs this week

Fixed vs Floating Exchange Rates

Readings:

Fixed or Flexible? Getting the Exchange Rate Right in the 1990s
A 1998 article by Francesco Caramazza and Jahangir Aziz from the IMF describing the differences between fixed and floating exchange rates.

Supplementary Readings:

The Unsustainability of U.S. Trade Deficits
An article by John Quiggin that provides an overview of the problematic US trade deficit.

Week of May 2

We only meet Thurs this week

Fixed vs Floating Exchange Rates

Practice Problems:

Problem Set Review 1

 

 

Final Exam

 

Tuesday May 17, 2005
    12:40 - 2:40pm, Funger 103

 


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©1998-2005 Steven M. Suranovic, ALL RIGHTS RESERVED
Last Updated on April 15, 2005