The International Economics
Study Center


 

GWU Econ 182
International Finance Theory and Policy
Course Syllabus - Spring 2008

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 principles of Micro and Macro economics
 
Professor: Steve Suranovic

Time & Location:
        Jan 14 - Apr 30, 2008

        MW 4:45 - 6 pm, Hall of GOV 102

Office (for Office Hours only): GOV 323
Main Office: 1957 E St, Room 501M

Office Hours: Wednesdays, 2 - 4:30 pm and by appt. in GOV 323
Office Phone: 994-7579
E-mail: smsuran@gwu.edu

Evaluation
4 Quizzes
10% each
1 Midterm Exam
30%
1 Final Exam
30%

 

Exam Schedule
Quiz #1
Feb 4
Quiz #2
Feb 27
Midterm Exam
Mar 12
Quiz #3
Apr2
Quiz #4
Apr 23
Final Exam
May 7

Note: Makeup quizzes or exams will be considered only for emergencies or conflicts outside the student's control and only with prior approval.

  Course Outline

Week of

Jan 14 - 21

Introduction to International Finance Issues and the National Income Accounts

This session begins with an overview of recent and historical policy issues in international finance including exchange rate systems, FDI, the role of the IMF, currency crises and the growing importance of China. Next we'll do a brief review of national income accounts and discuss the significance of GDP.

 

Readings:

Supplementary Readings:

US National Income and Product Accounts (NIPA)
the most recent US data is available here from the US Bureau of Economic Analysis. To access the data in non-HTML formats search on this page.

 

In the News:

India likely to remain the hot pick for world: Economic Times: India, Dec 2007

The great fall of China: LA Times: US, Dec 2007

 

Google Search on:

 

Practice Problems:

Week of

Jan 28

The Balance of Payments Accounts and the Twin-Deficit Identity

This session defines the balance of payments accounts and establishes the interconnection between the current account and the financial account. We also discuss the twin-deficit identity and a country's international investment position.

Readings:

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:

Week of

Feb 4

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 nations. Key factors needed to determine the seriousness of a trade imbalance are discussed and a case study for the US is discussed.

Readings:

Supplementary Readings:

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

A Multi-Country Evaluation of Trade Imbalances: China
an article by GW-Elliott School MA students which evaluates the trade imbalance experience of the United States.

A Multi-Country Evaluation of Trade Imbalances: The United States
an article by GW-Elliott School MA students which evaluates the trade imbalance experience of the United States.

America's Maligned and Misunderstood Trade Deficit
an article by Daniel Griswold at the Cato Institute offers some reasons why the US trade deficit is not a cause for great concern. Note especially the graph showing the relationship between the US trade deficit and the unemployment rate.

Practice Problems:

Week of

Feb 11 - 18

Exchange Rates, Interest Rates and Interest 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:

Practice Problems:


Week of

Feb 25

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 and 30-3 to 30-7

Supplementary Readings:

PPP FAQ
an excellent summary from the OECD.

The Economist's Big Mac Index
this 1999 article evaluates PPP based on Big Mac price comparisons across countries. The latest index appeared in the April 29, 2000 issue of the Economist.

Comparative Price Levels for OECD countries -December 2003
these numbers are the same as the real exchange rates.

Video: Economist's Big Mac Index
this video clip explains PPP by comparing Big Mac prices around the world.

Lattenomics from the Economist
a new theory percolating through FOREX markets.

Practice Problems:

Week of

Mar 3

Monetary Policy, Interest Rates and Exchange Rates

This session presents the basic model of interest rate determination and then links it with the interst rate parity model for exchange rate determination.

Readings:

Practice Problems:

Week of

Mar 10

GDP Determination

This session presents the Keynesian demand driven model of GDP determination. It is the same model presented in introductory econ classes but with international variables explicitly included.

 

Readings:

Practice Problems:

Week of

Mar 17

 

Spring Break

Week of

Mar 24

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:

Week of

Mar 31

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:

 

Practice Problems:

Week of

Apr 7

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:


Week of

Apr 14

Policy Effects with Fixed 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:

 

Practice Problems:

Week of

Apr 21

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.

 

 

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.

 

Practice Problems:

Week of

Apr 28

Fixed vs. Floating Exchange Rates
This session presents a brief overview of the differences between fixed and floating exchange rates.

Readings:

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

Practice Problems:

 

 

 

 

Final Exam

Wednesday, May 7

5:20 - 7:20 pm

GOV 102


Last Updated on 1/31/08