The International Economics
Study Center


 

Econ 6284
International Monetary Theory and Policy
Course Syllabus

Fall 2014 (Last Update: October 13)

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:
        Aug 27 - Dec 3, 2014

        Wednesdays, 5:10-7pm

Main Office: 1957 E St, Room 502B
Office Hours: Wednesdays 3-4:45pm
Office Phone: 994-7579
E-mail: smsuran@gwu.edu

Readings

TEXTBOOK: This course will use my International Economics text available in several distinct formats from Flat World Knowledge.

You may access the text at https://students.flatworldknowledge.com/course/1709079.

You must register at the website first and you will be given several purchase options including, a Study Pass for $24 or an All Access Pass for $42.

Practice Problems

To prepare for the quizzes and exams it is advised that you work through the practice problems located at the end of each assigned reading section. An answer key will be provided.

Evaluation

6 Quizzes (20 min. each)
5 Quizzes Count (Drop the Lowest score)

10% each
1 Final Exam 50%

 

Exam Schedule

Quiz #1 Sept 10, 2014
Quiz #2 Sept 24, 2014
Quiz #3 Oct 8, 2014
Quiz #4 Oct 22, 2014
Quiz #5 Nov 12, 2014
Quiz #6 Dec 2, 2014
Final Exam Dec 10, 2014 (tentative)

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

Aug 27

Introduction to International Economics, Financial History, Law, and Institutions

 
This first session provides an overview of the real world with respect to international finance. It explains not only how things look now but also where we have been and why things changed along the way. It describes current economic conditions and past trends with respect to the most critical international macroeconomic indicators. In particular, it compares the most recent worldwide economic recession with past business cycle activity to put our current situation into perspective. The chapter also discusses important institutions and explains why they have been created.

 

Readings:

 

Supplementary Readings:

US Annual GDP Data 1929-2014-II
an excel spreadsheet with GDP data for the US during the past 84 years.

The Latest International Data
The Economist publishes the more recent economic data for a wide range of countries every week. This is a good place for a quick overview of the current economic state of the world.
Check especially, Output, Prices and Jobs and Trade, Exchange Rates etc. in the second column.

Problems with GDP as an Economic Barometer
a You-Tube video in which Nobel Prize-winning economist Joseph Stiglitz proposes alternatives to Gross Domestic Product (GDP) as a measurement of national economic success. (not the most exciting video, but a little informative!)

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 click on the Interactive Tables link or click here for direct access.

 

 

Sept 3

National Income Accounts & the Balance of Payments

This session presents the national income identity, which defines the GDP. It also presents several other important national accounts, including the balance of payments, the twin-deficit identity, and the international investment position. These are the variables of prime concern in an international finance course.

 

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.

Sept 10

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 3 - The Whole Truth about Trade Imbalances
Read all sections.

US Trade Deficits and Unemployment
An excel file showing the relationships between US trade deficits and the unemployment rate.

Sept 17

Exchange Rates, Interest Rates and Interest Parity

This session introduces the foreign exchange market for currency trades. It highlights some of the more obvious, although sometimes confusing, features and then turns attention to the motivations of foreign investors. One of the prime motivations for investing in another country is because one hopes to make more money on an investment abroad. How an investor calculates and compares those rates of returns are explored in this session.

 

Readings:

Sept 24

Interest Rate Parity

This session introduces the interest rate parity theory of exchange rate determination. It shows how changes in the determinants of the rate of return on assets affect investor behavior on the foreign exchange market, which in turn affects the value of the exchange rate.

 

Readings:

Oct 1

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 6 - Purchasing Power Parity
Read all sections.

Big Mac Data Set
provides data on Big Mac prices and exchange rates in numerous countries from April 2000 - July 2014. Source: The Economist.

 

Supplementary Readings:

The Economist's Big Mac Index
this article evaluates PPP based on Big Mac price comparisons across countries. It provides a useful interactive tool with a graphical interface. The data used in the display is provided in an Excel spreadsheet above.

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

 

Oct 8

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:

 

Oct 15

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:

 

Oct 22

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 9 - The AA-DD Model
Read all sections.

 

Oct 29

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:

 

 

Nov 5

 

No Class Today

Nov 12

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:

Nov 19

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:

 

Tuesday, Dec 2 - Makeup Class

Gold Standard, Bretton-Woods, and Current Issues

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

 

Readings:

Chapter 12 - Policy Effects with Fixed Exchange Ratesbalances
Read sections 6 - 7.

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.

Dec 3

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.

 

 

 

 

Final Exam: Wednesday, Dec 10, 5:20-7:20pm