Economics 642 International Finance Syllabus

Transcription

1 Economics 642 International Finance Syllabus Winter 2011 Linda Tesar, Jing Zhang Lecture: Monday and Wednesday 2:30-4:00 pm in Dennison 120 Office hour: by This is a doctoral level course in international finance and macroeconomics. Topics covered in the course include small open economy models, two-country general equilibrium models, international business cycles, puzzles in international economics, models of exchange rate determination, global capital flows, sovereign debts and defaults and financial crises. Reference Books for this course: Foundations of International Macroeconomics, by Maurice Obstfeld and Kenneth Rogoff, Cambridge, MA, MIT Press, (Denoted by FIM in the readings below.) The Handbook of International Economics, ed. by Gene Grossman and Kenneth Rogoff, North Holland - Elsevier Press, 1996 (denoted HIE.) Recursive Macroeconomic Theory, by Lars Ljungqvist and Thomas J. Sargent, Cambridge, MA MIT Press, International Macroeconomics and Finance, by Nelson C. Mark, Blackwell Publishers, Articles can be downloaded from journal websites (link from the Economics Department homepage to Foster Library to the journals collection), from JSTORE, Science Direct, ProQuest or from the NBER Working papers site ( If you have trouble locating a particular article, please let me know and I will make copies available. Requirements: 1. Class Participation (10% of final grade). You are expected to attend the class regularly, read papers before class, and participate actively in class discussion. 2. Problem sets (60% of final grade). There are three problem sets, which require some programming. Students are permitted to discuss answers to problem sets with each other. Copying from another student s answers is not allowed. No late homework is accepted. 3. Referee Reports and In-Class Presentation (30%). You will give a 40-minute in-class presentation and a referee report of the research paper that we agree on. We need to discuss and select the research paper that you work on before mid March.

2 Course Outline and Readings: 1. Small Open Economy Models FIM, chapters 1 3. * Mendoza, E., Real Business Cycles in a Small Open Economy: The Canadian Case, AER Obstfeld, M. and K. Rogoff, The Intertemporal Approach to the Current Account, HIE Ch. 1, Sections * Schmitt-Grohe, S. and M. Uribe, Closing Small Open Economy Models JIE Two-Country Models * Backus, D., P. Kehoe and F. Kydland, International Real Business Cycles, JPE, Backus, D., P. Kehoe and F. Kydland, Dynamics of the Trade Balance and the Terms of Trade: the J-Curve?, AER, * Stockman, A., and L. Tesar, Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Co-Movements, AER Puzzles in International Macroeconomics Obstfeld, M. and K. Rogoff, The Six Major Puzzles in International Macroeconomics: Is There a Common Cause? NBER Macro Annual, a Consumption and Home Bias French, K. and J. Poterba, Investor Diversification and International Equity Markets, AER * Kehoe, P. and F. Perri, International Business Cycles with Endogenous Incomplete Markets, Econometrica, Tesar, L. and I. Werner, Home Bias and High Turnover, Journal of International Money and Finance, b Feldstein-Horioka Puzzle * Bai, Y. and J. Zhang, Can Financial Frictions Account for the Cross-Section Feldstein-Horioka Puzzle? Econometrica, forthcoming. * Feldstein, M. and C. Horioka, Domestic Saving and International Capital Flows, Economic Journal, Tesar, L., Savings, Investment and International Capital Flows, JIE, c Business cycles in emerging markets * Aguiar, M. and G. Gopinath, Emerging Market Business Cycles: The Cycle is the Trend, NBER WP 10734, 2005.

3 * Neumeyer, P.A. and F. Perri, Business Cycles in Emerging Markets: The Role of Interest Rates, JME, Capital Flows Chuhan, P. and F. Sturzenegger, Default Episodes in the 1990s: What Have We Learned?, Manuscript, the World Bank and Universidad Torcuato Di Tella, Lane, P. R. and G. M. Milesi-Ferretti, The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries, JIE, * Reinhart, C., K. Rogoff and M A. Savastano, Debt Intolerance, NBER Working Paper 9908, Rose, Andrew K., One Reason Country Pay Their Debts: Renegotiation and International Trade, Manuscript, Sovereign debt a Classical theory * Atkeson, A., International Lending with Moral Hazard and Risk of Repudiation, Econometrica, * Bulow, J. and K. Rogoff, Sovereign Debt: Is to Forgive to Forget?, AER, Cole, H. and P. Kehoe, Models of Sovereign Debt: Partial v.s. General Reputations, IER, Cole, H. and T. Kehoe (1996), A Self-Fulfilling Model of Mexico s Debt Crisis, JIE, Eaton, J. and R. Fernandez, Sovereign Debt, In Handbook of International Economics, edited by Gene M. Grossman and Kenneth Rogoff, Amsterdam: Elsevier, * Eaton, J. and M. Gersovitz, Debt with Potential Repudiation: Theoretical and Empirical Analysis, REStud, b Sovereign debt: Recent extensions * Aguiar, M. and G. Gopinath, Defaultable Debt, Interest Rates and the Current Account, JIE * Arelleno, C., Default Risk, Income Fluctuations and Real Exchange Rates, AER, * Bai, Y. and J. Zhang, Financial Integration and International Risk Sharing, mimeo, Arizona State University and University of Michigan, * Bai, Y. and J. Zhang, Duration of Sovereign Debt Renegotiation, mimeo, Arizona State University and University of Michigan, Kletzer, K. and B. D. Wright, Sovereign Debt as Intertemporal Barter, American Economic Review, (90): , June Yue, V., Sovereign Default and Debt Renegotiation, JIE, forthcoming.

4 Wright, M. L. J., Reputations and Sovereign Debt, mimeo, Stanford University, September Financial Crisis a Empirical facts Calvo, G. and E. Mendoza, Reflections on Mexico s Balance of Payments Crisis: A Chronicle of a Death Foretold, JIE, Frankel, J.A. and A.K. Rose, Currency Crashes in Emerging Markets: An Empirical Treatment, JIE, Kaminsky, G. and C.M. Reinhart, The Twin Crises: The Cause of Banking and Balance- of- Payments Problems, AER, Milesi-Ferretti, G.M. and A. Razin, Current Account Reversals and Currency Crises: Empirical Regularities, NBER Working paper No. 6620, b Theoretical models * Angeletos, M., A. Pavan and C. Hellwig, Coordination and Policy Traps, Mimeo, MIT, Calvo, G., Balance of Payments Crises in a Cash-in-Advance Economy, JMCB, * Cole, H. L. and T. Kehoe, Self-Fulfilling Debt Crises, REStud, Craig, B., M. Eichenbaum and S. Rebelo, Prospective Deficits and the Asian Currency Crisis, JPE, Krugman, P., A Model of Balance of Payment Crises, JMCB, * Morris, S. and Shin, H., Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks, AER, Uribe, M., A Fiscal Theory of Sovereign Risk, JME, Sudden Stops Allen, F. and D. Gale, Optimal Currency Crises, Carnegie-Rochester Conference Series on Public Policy, Arellano, C. and E. Mendoza, Credit Frictions and Sudden Stops in Small Open Economies: An Equilibrium Business Cycle Framework for Emerging Markets Crises, NBER WP 8880, * Chari, V.V., Patrick Kehoe and Ellen McGrattan, 2005, Sudden Stops and Output Drops, American Economic Review, forthcoming. Gopinath, Gita, 2004, Lending Booms, Sharp Reversals and Real Exchange Rate Dynamics, Journal of International Economics, Mendoza, E. and K. Smith, Margin Calls, Trading Costs and Asset Prices in Emerging Markets: The Financial Mechanics of the Sudden Stop Phenomenon, JIE 2006

5 Oviedo, P. Marcelo, 2003, Macroeconomic Risk and Banking Crises in Emerging Countries, Manuscript, Iowa State University. 8. Nominal Exchange Rates a. Nominal exchange rates: Facts * Meese, R. and K. Rogoff, Empirical Exchange Rate Models of the Seventies: Are Any Fit to Survive?, JIE, * Mark, N., Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability, AER, b. Nominal exchange rates: Theory Mark, N. chapter 9. Alvarez, F., A. Atkeson, and P. Kehoe, Money, Interest Rates, and Exchange Rates with Endogenously Segmented Asset Markets, JPE, * Betts, C. and M. Devereux, Exchange Rate Dynamics in a Model of Pricing-To-Market, JIE * Chari, V.V., P. Kehoe and E. McGrattan, Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles, REStud, 2002.