ADVANCED INTERNATIONAL ECONOMICS (II): FINANCE AND MACROECONOMICS IN OPEN ECONOMY

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China Center for Economic Research (CCER), Peking University


ADVANCED
INTERNATIONAL ECONOMICS (
II
)
:

FINANCE AND MACROECONOMICS IN OPEN ECONOMY


Spring 2005









Professor

Wen Hai











TA:


Yi Chen



Objectives


This is the second part of
a

two
-
course sequence of Advanced International Economics
offered to the graduate students of CCER.
T
he first part of th
e

sequence, offered in the Fall
semester, discussed International Trade Theory and Policy. In this course, we will selectively cover
topics
in the area of International Money and Finance, and Open Economy Macroeconomics.
Through this course, students are expected to have a better understanding of the framework of
international macroeconomics, to get familiar with the original research papers i
n the field, and to
develop research skills in international finance.



References


For advanced level international money and finance:

1.

Obstfeld, Maurice
,

and Kenneth Rogoff,
Foundations of International Macroeconomics
.


MIT Press
,

1996.

2.

Frenkel, Jacob

A,

and
Assaf Razin,
Fiscal Policies and
Growth in the

World Economy

(3
rd
/Ed)
.


MIT Press
,

199
6
.

3.

Jones, Ronald W, and Peter B. Kenen,
Handbook of International Economics (Vol 2
)
.

North
-
Holland
,
1985.

4.

Grossman, Gene

M,

and Kenneth
S.
Rogoff,
Handbook of Intern
ational Economics

(
Vol

3
)
.
North Holland
,

199
5
.


For intermediate level international money and finance:

1.

Rivera
-
Batiz
, Francisco L., and Luis A. Rivera
-
Batiz,
International Finance

and Open
Economy Macroeconomics (2
nd
/Ed)
.

Macmillan
, 1994.

2.

McCallum, Benn
ett

T.
,
International M
ometary E
conomics
.

Oxford University Press, 1996.

3.

Hallwood
, C. Paul,

and Ronald M
acDonald,
International Money and Finance
(
3
rd
/
Ed)
.

Blackwell, 2000.

4.

Mark,
Nelson
C.
,
Int
ernational

Macroeconomics and Finance
:

Theory and E
conometric

Methods
. Blackwell
,

2001. (Available in my directory)


For background knowledge of undergraduate macro and international economics:

1.

Krugman, Paul
R.,
and Maurice Obstfeld,
International Economics: Theory and Policy
(
5
th
/
Ed)
.

Addison
-
Wesley Longman 2000
(Reprinted in China by Tsinghua University
Press, 2001).

2.

Caves, Richard
E., Jeffrey A Frankel
& Ronald W. Jones,
World Trade and Payments,
An
Introduction (
9
th
/
Ed)
.

Addison
-
Wesley, 2002.

3.

Daniels, Joseph P., and David D. VanHoose,
International Monetary an
d Financial
Economics
. South
-
Western College Publishing, 1999.


Reading List


TRADITIONAL OPEN ECONOMY MODEL


(1)
Mundell, Robert A.

(1960)

“The Monetary Dynamics of International Adjustment under Fixed
and Flexible Exchange Rates”,
Quarterly Journal of E
conomics
, 1960.


EXCHANGE RATE


Exchange Rate Determination: Theoretical and Empirical Studies

(2)
Dornbusch
, Rudiger (1976)

“Expectations and Exchange Rate Dynamics”,
Journal of Political
Economy
, Vol
.

84, No. 6, 1976, pp
.

1161
-
76
.

(3) Wilson, Charles (19
79)

Anticipated Shocks
and

Exchange Rate Dynamics

,
Journal of
Political Economy
, June 1979.

(4)
Krugman, Paul

(1991)

“Target Zone and Exchange Rate Dynamics”,
Quarterly Journal of
Economics
, Vol
.

106, pp
.

669
-
682.

(5) Frankel, Jeffrey (1979)

On the Mark
: A Theory of Floating Exchange Rates Based on Real
Interest Differentials

,
American Economic Review
, 69, pp. 610
-
22.

(6)
Taylor
,

Mark (1995)
“The Economics of Exchange Rates”
,

Journal of Economic Literature
, Vol
.

33, pp. 13
-
47, 1995.

(7) Meese, Richard a
nd K. Rogoff (1983)

Empirical Exchange Rate Models of the Seventies: Do
They Fit Out of Sample?

,
Journal of International Economics
, 14(1
-
2), February 1983, pp. 3
-
24.

(8) Frankel, Jeffrey and Andrew Rose (1994)

A Survey of Empirical Research on Nominal
Exchange Rates

,
Handbook of International Economics
, G. Grossman and K. Rogoff eds., North
-
Holland, Amsterdam, 1995.


Purchasing Power Parity

(9)
Rogoff, Kenneth

(1996)


The Purchasing Power Parity Puzzle

,

Journal of Economic Literature

(June 1996), pp.
647
-
668.

(10) Obstfeld, Maurice (2002)

Exchange Rates and Adjustment: Perspectives from the New Open
-
Economy Macroeconomics

,
Monetary
and

Economic Studies
, December 2002.

(11) Engel, C. and J. Rogers (1996)

How Wide is the Border?

,
American Economic Re
view
, 86
(5), December 1996, 1112
-
1125.

(12) Parsley, D. and Shangjin Wei (2001)

Limiting Currency Volatility to Stimulate Goods
Market Integration: A Price Based Approach

,
NBER Working Paper
, No. 8468, Sep. 2001.


Choice of Exchange Rate Regime

(13) Obs
tfeld, Maurice
and K
.

Rogoff

(1995)


The Mirage of Flexible Exchange Rates

.
Journal of
Economic Perspectives
, Vol. 9, 1995, pp. 73
-
96.

(14) Reinhart, Carmen and K. Rogoff (2002)
“The

Modern History of Exchange Rate
Arrangements: A Reinterpretation

,
NBER

Working Paper
, 8963, June 2002.

(15)
Calvo, G. and C. Reinhardt

(2002)

“Fear of Floating”
,
Quarterly Journal of Economics
, 117
(2): 379
-
408, May 2002
.

(16)
Cooper, Richard “Exchange Rate Choices”, Mimeo.

(17) Williamson, John (2001)

The Case for a Basket
, Band and Crawl (BBC) Regime for East
Asia

, in David Gruen and John Simon, eds.
Future Directions for Monetary Policies in East Asia
,
Reserve Bank of Australia, July 2001, 97
-
109.

(18) Frankel, Jeffrey (2003)

Experience of and Lessons from Exchange Rate

Regimes in
Emerging Economies

,
Monetary and Financial Integration in East Asia
, Asian Development Bank
(Palgrave Macmillan) 2004, Vol. 2, 91
-
138.


Devaluation

(19) Dornbusch, Rudiger (1973)

Devaluation, Money and Non
-
traded Goods

,
American
Economic Rev
iew
, December 1973, 871
-
880.

(20) Krugman, Paul (1998)

Latin America

s Swan Song

, Mimeo.


CURRENCY CRISIS


First
-
generation
M
odel
s

of
C
urrency
C
rises

(21)
Krugman, Paul

(1979)

“A Model of Balance
-
of
-
Payments Crises”,
Journal of Money, Credit
and Banking
,

11(3),
1979, pp.
311
-
25.

(22)
Flood, Robert P. and Peter M. Garber

(1984)

“Collapsing Exchange Rate Regimes
: Some
Linear Examples
”,
Journal of International Economics
,
Vol.
17,
1984, pp.
1
-
13.


Second
-
generation
M
odel
s

of
C
urrency
C
rises

(23) Obstfeld, Ma
urice (1986)

Rational and Self
-
Fulfilling Balance of Payments Crises

.
American Economic Review
, Vol. 76, 1986, pp. 72
-
81.

(24)
Obstfeld, Maurice

(1994)

“The Logic of Currency Crises”,
Cahiers
E
conomique et Monetaire
,
Banque de France, 1994.

(25)
Morris,

S.
and

H. S. Shin

(1998)

“Unique Equilibrium in a Model of Self
-
Fulfilling Currency
Attacks”,
American Economic Review
, 88(3), 587
-
97.

(26) Angeletos, G. M., C. Hellwig and A. Pavan (2003)

Coordination
and

Policy Traps

, Memio.


Third
-
generation
M
odel
s

of
C
urrency
C
rises

and

Other Models of Crises

(27) Chang, Roberto, and Andres Velasco (1999)

Liquidity Crises in Emerging Markets: Theory
and Policy

,
NBER Macroeconomics Annual
, 1999.

(28) Krugman, Paul (1999)

Balance Sheets, the Transfer Problem and Fi
nancial Crises

, in P.
Isard, A. Razin and A. Rose eds.,
International Finance and Financial Crises: Essays in Honor of
Robert Flood
, Kluwer Academic Publishers, 1999: 31
-
44.

(29)
Kaminsky, G. L. and C. M. Reinhart
(1999)
“The Twin Crises: The Causes of Ba
nking and
Balance
-
of
-
Payments Crises”,
American Economic Review
, 89(3), 473
-
500.


Contagion

(30) Calvo, Guillermo (1999)

Contagion in Emerging Markets: When Wall Street is a Carrier

,
Mimeo.

(31) Gerlach, Stefan and Frank Smets (1995)

Contagious Speculat
ive Attacks

,
European Journal
of Political Economy
, 11, 1995, pp. 5
-
63.

(32) Glick, Ruben
and

A. Rose (1998)

Contagion and Trade: Why Are Currency Crises Regional

,
CEPR Discussing Paper
, No. 1947, Aug. 1998.


INTERNATIONAL CAPITAL FLOWS


(33) Feldstein,

Martin and Charles Horioka (1980)

Domestic Savings and International Capital
Flows

,
Economic Journal
, 1980, pp. 314
-
29.

(34) Tesar (1991)

Savings, Investment and International Capital Flows

,
Journal of International
Economics
, 31, 55
-
78.

(35) Calvo, G
. A., L. Leiderman and C. M. Reinhart (1993)

Capital Inflows
and

Real Exchange
Rate Appreciation in Latin America:
The

Role of External Factors

,
IMF Staff Papers
, 1993.

(36) Lucas, Robert E. (1988)

Why Doesn

t Capital Flow from Rich to Poor Countries?

,

American Economic Review
, May 1990, pp. 92
-
96.

(37) Reinhart, Carmen
and

K. Rogoff (2004)

Serial Default and the

Paradox


of Rich to Poor
Capital Flows

,
American Economic Review
, 94, May 2004.

(38) Obstfeld, Maurice (1993)

International Capital Mobili
ty in the 1990

s

,
NBER Working
Paper
, No. 4534, 1993.

(39)
Edison, Hali J., Michael W. Klein, Luca Ricci and Torsten Sloek

(2002)

“Capital Account
Liberalization and Economic Performance: Survey and Synthesis”
,

NBER working paper
, No.

9100,
2002.


FURTHER

STUDIES


(40) Obstfeld, Maurice (2000)

International Macroeconomics: Beyond the Mundell
-
Fleming
Model

, Mimeo, December 2000.

(41) Obstfeld, Maurice and Kennetth Rogoff (2000)
“The

Six Puzzles in International
Macroeconomics: Is There a Common Cause?

,
N
BER Macroeconomic Annual 2000
, MIT Press.




Class
Time and Location:

6
:
3
0
-

9
:
3
0 pm
,
Tu
es
days
,

Wanzhong Building CCER


Office:




CCER Zhifuxuan 302;


Telephone

and E
-
mail
:


wenhai@ccer.edu.cn

(Hai)






thomaschenyi@vip.sina.com

(Chen)


Grade
:




The course grade will be based on
:

(1)

One
Final E
xam
(50%);

(2)

Class
P
erformance

and Homework

(
5
0%)
. Grades of c
lass
performance

will be based on:

a.

Presentation
:
p
reparation
, understanding, expression, and
response to questions

b.

Discussion
:

questions and comments