Instructor: Yu-chin Chen
Time/Location: W 3:00-5:50pm/Condon Hall 311 (Small Conf.
Rm)
Office Hours: by appointment
* Syllabus
* Link to solution manual for OR.
(* indicates required readings)
The following outline gives a guide to the material that will be covered in the course. Again, please check the course website for up-to-date reading schedules and class notes. ( A “*” indicates required readings, while those with a “–“ are recommended.)
* Obstfeld, Maurice, Mundell-Fleming Lecture: "International Macroeconomics: Beyond the Mundell-Fleming Model", IMF Staff Papers, Vol. 47 Special Issue, 2001.
* Obstfeld, Mauriece and Kenneth Rogoff, “Six Major Puzzles in International Finance: Is There a Common Cause?" NBER Macro Annual 2000.
1. Intertemporal Approach to Current Account Determination* OR Ch. 2.1-2.3, 2.5
* Rogoff, K. and M. Obstfeld, "The Intertemporal Approach to the Current Account," in Handbook of International Economics vol. 3, Gene Grossman and Kenneth Rogoff (eds.), (Amsterdam: Elsevier Science Publishers B.V., 1995)
* Blanchard, O., and Giavazzi (2002), "Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?" Brookings Papers on Economic Activities.
- Feldstein, M., and C. Horioka (1980) “Domestic Savings and International Capital Flows,” Economic Journal 90 (358) June, 314-329.
- Baxter, Marianne and Mario Crucini (1993) “Explaining Saving-Investment Correlations,” American Economic Review, 83 (3) June, 416-36.
- Backus, David K., Patrick Kehoe and Finn Kydland (1992), “International Real Business Cycles,” Journal of Political Economy, 100 (4) August, 745-775.
-Nason, James M. and John H. Rogers (2000) “Investment and the Current Account in the Short Run and the Long Run,” Journal of Money Credit and Banking, 34, 967-86
- 2005 NBER Current Account Imbalances Conference: http://www.nber.org/~confer/2005/cas05/cas05prg.html
- Backus D. and F. Lambert, “Current Account: Fact and Fiction”,
Working Paper. (http://pages.stern.nyu.edu/~dbackus/CA/BL%20latest.pdf)
2. International Capital Flows and Risk Sharing
* OR, Chapter 5.1-5.5
* Lewis, K., "Puzzles in International Financial Markets," Handbook of International Economics Chapter 37
* Baxter, M., and U. Jermann (1997), “The international diversification puzzle is worse than you think,” American Economic Review 87, pp 170-180
* Tesar, L., and I. M. Werner (1995), “Home Bias and High Turnover, “ Journal International Money and Finance, 14 (4), 467-492.
- Lucas, Robert (1982), “Interest rates and currency prices in a two-country world,” Journal of Monetary Economics 10 (November) pp. 335-360
- Lewis, Karen (1996), “What Can Explain the Apparent Lack of Consumption Risk Sharing?” Journal of Political Economy 104 pp 267-297
- Lewis, Karen (1999), “Trying to Explain Home Bias in Equities and Consumption,” Journal of Economic Literature 37 pp 571-608
- Obstfeld, Maurice (1994), “Risk-Taking, Global Diversification and Growth,” American Economic Review, December
- Kalemli-Ozcan, S., B. Sorensen, and O. Yosha (2003), “Risk-Sharing
and Industrial Specialization: Regional and International Evidence,”
American Economic Review
3. Purchasing Power Parity and the Real Exchange
Rate
* OR, Chapter 4.1-4.4
* Mark, Chapter 7.
* Engel, C., "Accouting for US Real Exchange Rate Changes," Journal of Political Economy 107, June 1999, 507-538.
* Froot, K., and K. Rogoff, "Perspectives on PPP and Long-Run Real Exchange Rates," in Handbook of International Economics vol. 3, Gene Grossman and Kenneth Rogoff (eds.): 1647-88. NBER Working Paper 4952.
* Rogoff, K., "The Purchasing Power Parity Puzzle," Journal of Economic Literature 34, June 1996, 647-68.
* Engel, C., and J. Rogers, "How Wide Is the Border," American Economic Review, 86, December 1996, 1112-1125.
- Taylor, A., "Potential Pitfalls for the Purchasing-Power Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica 69 (March 2001): 473-98; also NBER Working Paper No. 7577, February 2000.
- Imbs, J., H. Mumtaz, M. Ravn, and H. Rey, "PPP Strikes Back: Aggregation and the Real Exchange Rate," NBER WP9372 December 2002.
- Chen, S., and C. Engel, "Does `Aggregation Bias’ Explain the PPP Puzzle?" , manuscript, February 2004, University of Wisconsin, Madison.
4. Nominal Exchange Rate Determination
* Mark, Ch. 3, Ch. 8
* OR, Ch. 8.1-8.3, 8.7; Ch. 9.1-9.4
* Frankel, Jeffrey and Andrew Rose, 1994, "A Survey of Empirical Research on Nominal Exchange Rates." In Gene Grossman and Kenneth Rogoff (editors) Handbook of International Economics, Volume 3 (North-Holland, 1995).
* Engel, C., 1996, "The Forward Discount Anomaly and the Risk Premium: A Survey of the Recent Experience," Journal of Empirical Finance 3: 123-192.
* Mark, N., 1995, "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review 85(1): 201-218.
* Rogoff, K., "Dornbusch’s Overshooting Model After Twenty-Five Years," IMF Staff Papers 49, Special Issue, 2002, pp. 1-35. ).
- Eichenbaum, M., and C. Evans, 1995, “Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates,” Quarterly Journal of Economics, 110 (4), November, 975-1009.
- Meese, R., and K. Rogoff, "The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?" in Jacob Frenkel (ed.), Exchange Rates and International Macroeconomics (NBER and University of Chicago Press, 1983), 67-105.
- Mark, Nelson, and Donggyu Sul, 2001, “Nominal Exchange Rates and Monetary Fundamentals: Evidence from a Small post-Bretton Woods Panel,” Journal of International Economics 53(1): 29-52.
- Faust, Jon, John Rogers and Jonathan Wright, 2001, "Exchange Rate Forecasting: The Errors We've Really Made," mimeo (Federal Reserve Board, September).
5. New Open Economy Macroeconomics
* OR, Ch 10
- Mark, Ch 9
* Lane, P. (2001) "The New Open Economy Macroeconomics: A Survey," Journal of International Economics 54(2), 235-266.
* Corsetti, G., and P. Pesenti (2001) “Welfare and Macroeconomic Interdependence,” Quarterly Journal of Economics 116(2), 421-445.
* Obstfeld, M., and K. Rogoff (1995) “Exchange Rate Dynamics Redux,” Journal of Political Economy 103, 624-60.
* Obstfeld, M., and K. Rogoff (2000) "New Directions in Stochastic Open Economy Models," Journal of International Economics 48, 117-153. Also NBER WP 7313.
* Obstfeld, M., and K. Rogoff (2001) “Risk and Exchange Rates,” in Elhanan Helpman and Effraim Sadka (eds.), Contemporary Economic Policy: Essays in Honor of Assaf Razin. Cambridge: Cambridge University Press 2002. Also, NBER Working Paper 6694.
* Obstfeld, M., and K. Rogoff (2002) “Global Implications of Self-Oriented National Monetary Rules,” Quarterly Journal of Economics 117, 503-535.
* Betts, Caroline and Michael B. Devereux (1996) “The Exchange Rate in a Model of Pricing-to-Market,” European Economic Review, 40 (3-5) April, 1007-1021.
* Betts, Caroline and Michael B. Devereux (2000) “Exchange Rate Dynamics in a Model of Pricing-to-Market,” Journal of International Economics 50, 215-44.
* Bacchetta, Philippe and Eric van Wincoop (2000) “Does Exchange-Rate Stability Increase Trade and Welfare?” American Economic Review 90, 1093-1109.
*Devereux, M., and C. Engel (2003) “Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility,” Review of Economic Studies 70, 765-783.
- Oudiz, Giles and Jeffery Sachs (1984) “Macroeconomics Policy Coordination Among the Industrial Countries,“ Brookings Papers on Economic Activity 1, 1-64.
- Benigno, Giancarlo and Pierpaolo Benigno (2003) “Price stability in Open Economies,”Review of Economic Studies, 70, 743-764.
- Benigno, Pierpaolo (2002) “A Simple Approach to International Monetary Policy Coordination,” Journal of International Economics 57, 177-196.
- Clarida, R., J. Gali and M. Gertler, 2001 , “Optimal monetary policy in open versus closed economies,” American Economic Review 91, 248-252.
- Clarida, Richard, Jordi Gali, and Mark Gertler, "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review Papers and Proceedings 91 (2), May 2001, pp. 248-252.
- V.V. Chari, Patrick Kehoe, and Ellen McGrattan, “Can Sticky Price Models Generate Volatile and Persistent Exchange Rates?” Review of Economic Studies 69(3), August 2002, 533-563.
- Obstfeld, Maurice, “Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics,” 2002, NBER WP #9118
* OR, Ch 8.4-8.6, 9.5
* Mark, Ch 11.
* Krugman, Paul, "A Model of Balance of Payment Crisis," Journal of Money, Credit and Banking, Vol. 11 (1979), pp. 311-325.
* Stephen Morris and Hyun Song Shin, "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review 88 (June 1998), 587-97. (See also the correction to Morris and Shin's theorem 2 in Frank Heinemann, "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review 90 (March 2000), 316-18.)
* Obstfeld, Maurice, "The Logic of Currency Crises," in Barry Eichengreen, Jeffry Frieden, and Jurgen von Hagen, eds., Monetary and Fiscal Policy in an Integrated Europe (New York: Springer), pp. 63-90.
* Roberto Chang and Andres Velasco, “A Model of Financial Crises in Emerging Markets,” Quarterly Journal of Economics 116(2) 2001, 489-517.
- Phillippe Aghion, Philippe Bacchetta, and Abhjit Banerjee, "A Simple Model of Monetary Policy and Currency Crises" European Economic Review 44(4-6), 2000, 728-738.
- Graciela Kaminsky and Carmen Reinhardt, "The Twin Crises: The Causes of Banking and Balance of Payments Problems," American Economic Review 89, June 1999, 473-500
7. Sovereign Risk and Imperfections in International Capital Markets
* OR, Ch. 6.
* Eaton, Jonathan and Raquel Fernandez (1995), “Sovereign Debt,” Handbook of International Economics Chapter 39
- Eaton, Jonathan and Mark Gersovitz (1981), “Debt with potential repudiation: Theory and estimation,” Review of Economic Studies 48, pp. 289-309
- Bulow, Jeremy and Kenneth Rogoff, "Sovereign Debt: Is to Forgive to Forget?" American Economic Review 79 (March 1989), 43-50.
- Cole, Hal and Patrick Kehoe, "Reviving Reputation Models of International Debt," Federal Reserve Bank of Minneapolis Quarterly Review (Winter 1997).
- J. Bulow and K. Rogoff, "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy 97 (February 1989), 155-78.
- Olivier Jeanne, Foreign currency debt and the global financial architecture, European Economic Review (44)4-6 (2000) pp. 719-727
- Kletzer, Kenneth and Brian Wright (2000), “Sovereign debt as intertemporal barter,” American Economic Review 90, pp. 621-639
- Philip Lane and Gian Maria Milesi-Ferretti, "The External Wealth of Nations: Measure of Foreign Assets and Liabilities for Industrial and Developing Countries," International Monetary Fund Working Paper WP/99/115, August 1999.
- Lane, Philip, "Empirical Perspectives on Long-Term Debt," mimeo, Trinity College, Dublin.